47 Market Update for Real Estate Investors

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47 Market Update for Real Estate Investors

Bill Fairman (00:04):

Okay. Here we are live. Thank you so much for joining us. We’re going to call this live segment going forward, real estate investor market update. And what we’re trying to do, it’s a kind of a trying time right now. We want to add some clarity. We want to take the fear out of what’s going on. Almost all of our guests, well, I’m assuming all of our guests have already been through these market changes. I know I’ve been beat up a lot, so, and I’m old. So it’s not only do I bruise easy because of my age. Adds little bit of wisdom and we’ve seen these cycles before. We believe this is going to be a temporary. My name is Bill Fairman. I’m with Carolina Capital Management. This is my co-host Jonathan Davis. I am currently getting a feedback in my ear. So if I’m hesitating… What I’d like to do is introduce our guests. If all of our guests will put themselves on mute for a moment. That will help me out.

Bill Fairman (01:15):

Not only am I old, but I’m easily confused. So we have with us today, Mike Zlotnik. Of Tempo Funding. He’s in the, Brooklyn area of New York. He does a lot of, he does lending as well as commercial properties in a fund. And he, he’s also a mathematician by trade, so he always, he always sounds a lot smarter than the rest of us. Now we also, we also have, Jacob Vanderslice, he’s with Van West partners. They also are in the commercial space. I think most of that is in the self storage, not if I’m saying that correct.

Bill Fairman (02:05):

Okay. He says yes. We have Glenn Stromberg of Stromberg Investment group. He is in what we like to call the Wheel Estate Space. So he specializes in mobile homes, on land and all of those are for turnkey rental purposes. We have Chris Miles of Money Ripples. He is the Anti-financial Advisor and, we’re going to talk about a lot of stuff from his perspective. And we have Fuquan Bilal, which is not, he’s not on yet, but I’m assuming he will be here shortly he is with NNG Capital. So before we get started, guys, I’d like to talk about the bill that was passed last night by the Senate.

Bill Fairman (02:56):

There’s a couple of little things I want to highlight in there. If you’re a small business owner and you’re worried about keeping cash flow going, this is going to help, but if you need it tomorrow, it’s not going to help.

Jonathan Davis (03:10):

Yeah if you need it tomorrow it’s not. But if you can, you can hold tight for two or three weeks. I think you, it will definitely be very helpful to a lot of small business owners.

Bill Fairman (03:17):

By the way, before I get into this any further, I want Jonathan’s wife to realize we are more than six feet apart. It’s just when you’re on camera, it makes you look a lot closer. It adds weight, but it also makes the room look smaller.

Bill Fairman (03:35):

He’s not really this close to me. So a couple of little highlights from, from the bill is your local bank. If you have a bank relationship with your local banker, that’s where you need to go to get this stimulus loan. And it’s going to be for payroll, payroll taxes, health insurance benefits that you’re paying your employees, rent or mortgage utilities, insurance payments. Yeah. I’m not sure how long for, but it’s going to be a fully guaranteed loan from the government. So it’s going to be a lot easier for the banks to underwrite these because Hey, they’re going to use their standard, underwriting practices, however, they’re not going to really hesitate not to give a loan knowing that as long as you’re a qualified borrower because the government is going to back it up. And if you, you know, don’t, and, and by the way, there’s a little bit of, it’s also payroll and there’s a little bit of concerned on whether it’s for retention or a rehiring.

Bill Fairman (04:51):

And it did say rehire and retain. Or for retain and rehire. A lot of people are concerned there, because we can’t wait for government. A lot of us had to move, you know right away because, Hey, you had no revenue coming in. You had people that are not, not working. What are you going to do? You can’t wait for government to make up their mind. And by the way, it’s going to be 10 days before they even get guidelines on this and they still have, it still has to be passed by the house. So, it’s going to be a little while for you to get there. But what you need to do is make sure you call your local banker right away. Make sure you get in line, let them know that you want to do this and go ahead and get your normal stuff that you would get for a loan, your tax returns, your balance sheets, all that stuff, right?

Jonathan Davis (05:42):

Yeah. Go ahead and get started. Yes. No matter what the guidelines end up being, it’s always prudent to get going.

Bill Fairman (05:48):

Yeah. And if you’re trying to get these SBA loans that are for disaster stuff, we, some of us heard some horror stories last night from a dentist that was involved in a flood and it was a nightmare trying to get that same kind of disaster, SBA stuff they ended up coming out of pocket with, with most of it. So, okay. Call your banker. Get this all set up. Yeah. I’m going to start off with a question to Oh yeah. Before I get there. Hey Fuquan, just smile. So, I want to tell everyone that’s watching. You can chat and ask questions to the panelists. We’ll see them and if time allows, we’ll ask them while we’re on the air. If not, then we’ll, we’ll try to answer them offline. So, Jacob, I’m going to start with you. What part of the commercial real estate space do you see having the biggest issues short term, long term and why? All right. Maybe I need to unmute you. Okay. There it is. Got it. It’s okay.

Jacob Vanderslice (07:26):

Yeah. Thanks for having us on. My name’s Jake Vanderslice. I’m a principal at the Van West Partners. We’re a private equity real estate investment company based out of Denver. We focused on a variety of asset classes, mainly mainly self storage. We’ve got some retail, we do residential as well. The fallout that we’ve seen so far that’s been most precipitous and most alarming is within retail and hospitality. I mean, you’ve got, you’ve got most of America right now, especially in our geography, where retail businesses completely shutting down. Tenants can’t pay their rent. Landlords have a problem servicing their debt. Um, we’ve heard of a lot of discussions on payment deferrals with various landlords and their bankers. So retail is definitely been a big one that we’re saying. Another one that we’re saying too is hospitality. I think, before the virus really spooled up, they could see, or commercial or hotel occupancy rather in Denver was roughly at about 5% before they close all the hotels. Typically in March, they’re tracking around 71% occupancy, so there’s a precipitous drop there. So those are really the two big asset classes that we’re concerned with. Retail and hospitality. Third, which hasn’t really manifested itself yet. We think it’s going to be workforce housing, especially, you know, C plus B minus multifamily. A lot of the tenant base and those in those product types are hand to mouth. Retail workers, they get 20 bucks an hour, they’re bumped up with roommates and those guys losing their jobs. So we can see a problem happening there too, but those are the three main areas that we’re, we’re concerned with.

Bill Fairman (09:06):

Excellent. So, Mike, let me pose the same question to you.

Mike Zlotnik (09:14):

Sure. Mike Zlotnik, Fund Manager mutually defined me as BigMikeFund.com. That’s the name of the podcast and that’s the website. I’m a fund manager. We have a broad, diverse portfolio of assets. And the areas of concern for sure as Jake mentioned, hospitality that is, in a deep, deep hole and it’ll continue to be there. And we’re already seeing, all kinds of data, confirming that retail, I literally just had a coal, with the shopping center operator who does have number of shopping plazas, not the malls. And they’re waiting for the data on April 1st, most of those malls are, well, not malls, I’m sorry, shopping centers. Our growth are anchored. So, grocery stores are staying in business and they’re likely going to continue to pay. People need to eat even though there’s a shift to delivery versus going to a store.

Mike Zlotnik (10:15):

But shopping plazas with some of the essential businesses probably will survive. They’re certainly gonna take some level of a beating. So that sector, again, not complete. Shopping oriented plazas are okay. Big malls are in horrible shape for sure. The one sector that seems to be picking up, and again, this is a contrast, someone’s going down, something else going up is a self storage. The data we were seeing is that the self storage is picking up right now as economy is gonna hit it. It’s gonna like the hit the recession, the self storage general does pretty well. The, some office might get hit, obviously closed. So the office that leases to brick and mortar is in difficult times. The office space that leases to the businesses that can operate remotely, can continue to pay rents, maybe somewhat reduced rents.

Mike Zlotnik (11:16):

But if it’s a white collar, when the crisis passes, those offices will continue to operate. We expect some level of demand falling for the office space over the next, you know, few years. But in the short run, really, the key question to ask is, what type of tenants they have in the, whether the, it’s blue collar, white collar employment. The white collar seems to will do fine or at least not as bad. The other sector that Jake mentioned might take some level of a correction is affordable housing. Although it’s really a function of how affordable. If most folks in those apartment complexes are section eight and they’re getting government help, unemployment, they’re probably going to continue to pay rent. There’s nowhere to downgrade. So, but the blue collar, sort of, somewhat above that there is a, it’s going to be a trench of blue collar multi-family. Those will take some level of a beating if this is a prolonged recession and prolonged crisis. But the very low end probably will be okay because of the government support. So…

Bill Fairman (12:39):

Thanks Mike. You know, there’s going to be a shift obviously in the market. You, if you’ve shifted your restaurant business to really take out or delivery, you don’t have to be in a retail place. You can have that business in a, more of those, you know, warehouse type spaces because you’re not really gonna have that many people coming if you’re delivering. So, my next question to you two, and let’s start off with Jacob. Where do you see the properties that are going to be worth more, or the biggest positive changes?

Jacob Vanderslice (13:19):

Yeah. Well it’s easy to say because we’re, we’re in the business already. But definitely self-storage is as Mike had mentioned. Within our portfolio we track net rental activity on a daily basis and net rentals is the difference between the number of move ins and move outs. So for example, January 1st to 26th, we had about 18 or 20 net rentals. It was roughly the same for this, for the time period in February. And for the month of March now through March 26, we’ve seen 65 net rentals across our managed portfolio. So part of that seasonality, but I think part of it too is maybe people are cleaning out their homes, kind of getting ready to be strapped into their houses for awhile. People are moving, my kids are coming back from college because they can’t be at college anymore. Filling up storage units.

Jacob Vanderslice (14:08):

So we like storage as an asset class and we think it’s going gonna perform well during this downturn. And I, and I do think is afraid of workforce housing as we are. We think that’s a very defensible asset class as well. There’s always gonna be a need for workforce housing, especially as affordability becomes more of a challenge. Wage growth is not meeting home price appreciation. We kind of see a nationwide shift to being more of a country of renters than a country of homeowners. And beyond that, you know, I’m not sure where the flight to stability is right now. In general across all the asset classes, I think investors should be focusing more on income and cash flow, than they are a capital appreciation. I think that net woth is not going to meet as much in the coming months or the coming year as cash flow does. And a cash flow solves all problems. So we’re trying to focus on deals that only produce existing income streams as they are versus taking major risks on deals that are empty with no revenue.

Bill Fairman (15:12):

Right. Well, you also forgot the possibility of those extra people hoarding their toilet paper and hand sanitizers. They need the self storage for that.

Jacob Vanderslice (15:22):

That’s right. Exactly.

Bill Fairman (15:25):

What about you Mike?

Mike Zlotnik (15:26):

So I concur with Jake. We are very cash flow focused today. The, you’ve heard me speak about the quadrants methodology. So we like investment grade quadrants focused on cash flow or very defensive things with downside protection. I do think that going forward, it’s going to be a lot of surgical precision looking for deals that have those characteristics. I like what we do invested quite a bit in hard money loans and defensive, commercial debt, low investment to value ratio. So those type of deals, with good downside protection and an experience in strategy execution could provide significant opportunities. Again, distress, commercial debt is counter cyclical. Just an example, again, I’m in New York city here. Some of these, there will be failures in the landlords will be defaulting on more and more of these loans and that’s an opportunity to scope them at a great price in the, they can take advantage again not being a vulture but trying to salvage these types of situations where the great SS could go at a discount and instead of buying them, you buy the paper, the first lien mortgage that, that is a senior position on the capital stack and foreclosed on them or work out the deal where you, you get repaid with the good, with a good return.

Mike Zlotnik (16:56):

Those are very defensive type of investments cause you’re in a senior position. Obviously self storage itself. The new projects, the new origination has to, has to be very strategic in that whole business is a five mile, three, five in one mile radius business. We do like those, we have a number of those assets in the portfolio today. All the new stuff we’re doing in this sector is essentially very cash flow focused. There will be other opportunities. So the world is landing tomorrow. There will be great deal on many multifamily assets on some shopping centers and so on. There’s going to be a retrade. It’s already happening today. So re-trade simply means that what sold for 10 million a month ago, will trade now for seven and a half. Now what’s happening in the short run mortgage, the CMBS markets, Commercial Mortgage Backed Securities markets are frozen.

Mike Zlotnik (17:57):

So then all lenders who want to fund those deals, but when these markets restabilize and lenders will come out, in fund again, the values for trade values will come down quite a bit, but the cash flows have to stabilize and reset. In other words, there’s a lot of uncertainty. Who’s going to pay a rent on April 1st? Who’s going to pay around May 1st? Who’s going to pay rent June 1st? Once that shakes in and there’s going to be significant level of re-trade, then the opportunities will come up. So literally 20, 25, 30% discounts are very possible once the numbers shake through. So the opportunities are going to be coming up significant opportunities in the commercial space. You just need to understand what they look like. So you that you can invest with great confidence that you’re getting a good deal.

Jonathan Davis (18:46):

Yeah. Yeah. I completely agree with Mike there on the paper, on the commercial paper and if you want to know more about that visit, you know, my website or if you have questions about it, I spent several years doing that myself. So, there’s many people on here that you can, you can talk to about that. Does anyone have any, any questions or comments? Anyone on the, Chris, Glenn, Jacob, Fuquan, anything that you want to say?

Bill Fairman (19:18):

Well, we do have a question from Sohil, who asked in the chat box and basically his question is, you know, what are the banks doing since the land lords can’t evict, you know, tenants for nonpayment for a particular period of time? So, my feeling on that is it depends on who the bank is. You know, your bigger banks, your, you know, your chase, your, Wells and bank of America, they’re gonna give a little forgiveness for, you know, a few months too because, you know, they’ve already made a deal with the state of California for the owner occupant type mortgages. I don’t see that they’re going to change that for the commercial loans, but you know, some of your smaller banks, you’re just going to have to call them. That’s basically how it works. You’re getting, most of them aren’t going to volunteer to take deferrals. You’re going to have to prove to them that you’re, you’re going to have issues.

Jonathan Davis (20:26):

Yeah. Your core business or whatever it is, has been affected by this virus. Yeah.

Bill Fairman (20:30):

Yeah. The bigger page, they have a big PR stuff going on there. They’re not going volunteer. You’re going to have to ask. Glenn, did you have something to say?

Glenn Stromberg (20:39):

Yeah, I do. This is something that not only for banks, but for us too. You know, we’ve got 350 properties under management, so there is a 60 day you cannot foreclose. So, but it, it does not alleviate people from the rent payments. So we are expecting some bumps in the road. Obviously. Fortunately about 50% of our tenants are, are section eight, so that’ll take care of itself. There’s other, there’s other government programs coming out for assistance. Of course the stimulus package is going to help on that too. So, so like what we did was we sent out a letter just saying, we understand what’s happening out here, but please understand, you know, there’s, there will be some grace here, but you know, the money is still going to eventually be due and you know, we’re going to be understanding here the next 60 days. But, you know, you’re still responsible for the rent. Understand we’re showing them the programs to go into check into and to, to help them to get the help that they need.

Jacob Vanderslice (21:34):

Yeah. One example to offer there too. On our retail portfolio for example, we proactively approached all of our tenants and said, we’re going to defer two months of your base rent to kind of get them through this. I mean, our success is their success and if they can reopen when this is over, we’re all going to be better off for it. And on the bank side in terms of what banks are doing with these payment deferral issues, one of our banks automatically offered a six months of interest only payments instead of amortizing. And that’ll save us quite a bit of money. And I was talking to one of our bankers right now and as you can infer from what I’ve been working on the last week, which bill mentioned earlier, it’s been talking with bankers often and regularly. As a regional bank in Kentucky, you were buying a few self storage facilities about their next month and they had mentioned that they forecast over 75% of their commercial loan portfolio to go into payment deferral. And they’re still down to land. They’re still doing deals and they’re still moving forward. But this is a systemic issue and it’s been kind of refreshing to see kind of contrary to the last downturn that everybody is being touched by these lenders, landlords and tenants and everyone’s working together to get through it.

Mike Zlotnik (22:47):

I have one quick comment on this. So it’s exactly the case. With, we were all in this together, so I did place a call. My wife is optometrist here in Brooklyn, New York. We’re closed. And I did call our equivalent lender, Wells Fargo bank in 15 minutes conversation. I knew they defer all immediately. They already have a policy in place for all distressed areas. All you have to do is call. Request deferral, they’ll deferral. That’s the basic step you can do for now. So it’s, it’s sort of a mitigation for two or three months at this point. If this is a prolonged problem with people out of work for more than 90 days, that will be probably step number two. You can call back, get another few months. They understand, I think there’s a moratorium on foreclosures, moratorium on evictions. So just proactive conversations. Take care of it. If you have tenants and they have an issue just be prepared that, you have to do something to help them out. And that’s the way to do it. To get, do it together. Do it as a United country, we’ll get through this, but the banks are certainly very, very responsive today. All you do is call explain that you are in a disaster zone. You’re closed and they’ll do an immediate deferral menu.

Fuquan Bilal (24:05):

Yeah, yeah, definitely agree. You know, I think being proactive as the other panelists mentioned, being proactive and reaching out to your tenants, whether we have a large rental portfolio, in or, you know, reaching out to your lenders and explain the situation. And when we’re, you know, fortunate enough to have, you know, a very high percentage, I would say around 85% of our rentals with subsidized programs from New York and section eight and things like that. You know, those programs for those landlords who have that in place, they won’t be as, you know, they won’t feel the impact. Like most of the people who are just, you know, we’ll have cash tenants. We’ve actually received a few calls that many on the note side where we had some performing notes where people are asking, you know, what type of, what type of programs that we have in place in order to help out with the current situation.

Fuquan Bilal (24:58):

So we, you know, I’ve been in contact with our loan service areas and like everyone else, we’re willing to, you know, give a helping hand to the current situation. Everyone will be impacted from this. Um, this would definitely make everyone stronger and you know, for whatever’s next to come. But, there will be down a line possible opportunities for people who position themselves over the last couple of years. You know, we’ve been in very aggressive market, has been as a sellers market, you know, forever. So this was, you know, inevitable. But it’s, it’s something we tend to take day by day and make sure that we’re executing on the plans. The benefit that, you know, I see in all this is definitely more family time and more time to really evaluate your strategy and you know, the people that seen your circle and who you’re doing business with. I actually, I actually have had a question on a private lenders, you know, how are they being impacted, the hard money lenders and stuff like that. I haven’t heard too much. I’m hearing about the big things, what they’re doing, you know, to the homeowners, but what are you guys hearing on a private lending and hard money lenders who may have projects up and running that’s, you know, been stopped through the townships not coming out going inspections and stuff like that. Are you guys, well of course the first day rule around yet, but what do you guys seeing on that end?

Bill Fairman (26:21):

Well, you know, that’s a good question and that kind of, I’m going to talk about that here in just a second. I know Jim and Mark both had questions and I’m going to answer Mark’s first and then I’m going to kind of give you a take on what we’re doing. You know, on the private lending side. Mark had any rec, do we have any recommendations for alternatives to Peer Street? They, they basically didn’t close his loan 20 minutes before he was supposed to close.

Jonathan Davis (26:51):

To clarify that, that’s a long term loan. that was a long term loan.

Bill Fairman (26:55):

That’s what I was gonna mention. We have almost every lender out there that has institutional capital behind them or put a complete pause on any longterm rental loans because they aren’t sure about valuations going forward.

Jonathan Davis (27:14):

And the secondary market was frozen when they made that decision.

Bill Fairman (27:17):

Yeah. And they, they sell those things off too, and they’re, they’re in a position right now where there’s too much unknown that’s going to be temporary until they figure out how, how valuations are going to go and then they’ll, they’ll start lending again.

Bill Fairman (27:32):

And that gets back to us and our portfolio. So we’re a private lender. We’re working through a few deals that were already in the pipeline. We’re gonna, we’re not stopping those in the middle of closing. We’re going to finish those out, but we’re putting a pause on everything else coming in. We’re, we want to see how the valuations are going as well. Yeah. I haven’t, fortunately, we’re in an area in the Southeast where things haven’t been completely closed down. Construction is still allowed to go on. The largest County in our area is Mecklenburg County. That’s the County that Charlotte is in. They have a mandatory, you know, hunker down at home order. But construction was an industry that they felt was vital and you’re allowed to go to work. However, the County government is, you know, kinda shut down and they’re not going out and doing inspections. So you can only do so much construction work before you have to move to the next phase and you have to have it inspected before you can move to the next phase. So I don’t, I don’t know how that’s gonna play in.

Jonathan Davis (28:43):

Yeah. And I saw Mark, your comment about totally with short term and in five years fund. The issue is still the valuations. It’s the, it’s the LTVs it’s the unknown right now for them. So you know, if you’re looking for a 70, 80% loan to value right now on current valuations, I think most people are kind of out of that right now. And everyone’s kind of sticking to 50 to 60 and lower for sure. And that’s if they’re even lending at that, at that LTP, so,

Bill Fairman (29:15):

And it’s everybody, everyone in that industry is on pause right now until they can get a better handle on the valuations. Yeah,

Mike Zlotnik (29:25):

Yeah. Bill, I’ll just second that exactly the conversation. Secondary markets are completely frozen and major players in the industry turned off especially we’ll shoot back. The portfolio lenders are doing exactly that, tightening up on the writing. So you may still get a file here and there. We are still doing a few final loans with the old relationships top clients. I actually have conversation with a couple of top guys. We do 20, 30 fix and flips per month. And some are operating just fine if they haven’t been shut down or the real estate is considered to be essential in their state and some are closed. So the ones that are closed, asking for a discount, deferral of interest and we’ll work with them and those who are operating and are able to get deals, they’re getting deals actually at a better price.

Mike Zlotnik (30:17):

They’re re-trading, their offer’s coming back, lowering them in the, they are trying to do the work, but the focus is on the most affordable range. That’s the only range we’re looking at turnkey range, sort of as affordable as it gets in the cities that don’t fluctuate much in value. And I believe that this is going to be some level of continuous construction though in some cities in some will be completely turnoff. Like we had a conversation with the gentleman from Philly, they’re off. The quad cities are on and then in the pockets here and there. But all major players are, they did disconnected for the next couple of months, most likely until things stabilize. Just, I hate to say this, but if you will have a loan request, just be patient. There’s not much you can do. You could send a lot of emails, a lot of requests, 90% of players are going to be, turned off at this point of time.

Bill Fairman (31:14):

You know, it’s funny, I saw that the governor of Idaho put a shelter in place order too, and they’re one of the least populous staves out there. So I know they have pockets of population, but even the ones that don’t have a lot of population are starting to do this. Do you want to ask the next question?

Jonathan Davis (31:37):

Yeah. And we’ll, and we need to get to Jim’s question at some point, but yeah.

Bill Fairman (31:41):

Well, I’m going to actually have to answer that. I’m going to take Jim’s question and ask everybody at the end.

Jonathan Davis (31:45):

Okay. Got it. All right, Glenn, Glenn, my question is for you. I believe that most of your tenants seem to be in a somewhat rural areas in your Wheel Estate. Do you think that that’s an advantage or a disadvantage? And kind of walk me through that.

Glenn Stromberg (32:05):

You know, that’s hard to say for sure. But I would say to some degree, it’s an advantage. They’re away from a popular center. You know, I’m here in downtown Fort worth, walked in my office this morning, and there is nobody here. I mean, there’s nobody here. Places shut down. I think rural areas are a little bit more free to travel and so forth. But, but you know, only time’s gonna tell we’re in unchartered territory here. It’s really a tough, you know, I, I’ve been, I heard, I heard a guy say this, but you know, after 9/11, the 2008 crash, right? Everyone was able to dust themselves off and go back to work the next day. You know, today we can’t go to work. Right. That’s the problem. So, I think that, you know, the jury’s out on that, but I, I would say yes, I believe that that’s going to be, you know, somewhat of an advantage. But, I’ll probably know a whole lot better in 60 days.

Bill Fairman (32:54):

Yeah. Thank you. All right. And my next question is for Fuquan. You invest in a variety of real estate, backed assets. Are you leaning to any particular asset type or are you, you know, steering away from any others and kind of walk, walk us through that. What are you, what are you gravitating towards?

Fuquan Bilal (33:22):

So I find the assets I find investing are a real property local here in New Jersey. I’ve been investing in the last 20 years and also notes nationwide. So again, we all, we don’t have a crystal ball, but we believe, you know, in the future policy, sometime around two, three, the mom and pop landlords, you know, will be flooded and try and get liquidity. We actually have a marketing campaign in place now to try to do more violent terms for people who need fast liquidity, who can’t refinance. So that’s the tragedy that we’re applying now and we are not buying any more high end fix and flips. So maybe, probably about two months ago, I kind of switched over to lower in, you know, buy and sell properties. $350,000 resell price or less. Also, you know, but the rental is because we are, we have relationships with women and children programs, section eight where we rent subsidy units.

Fuquan Bilal (34:24):

So we’re still increasing our rentals so we can find, you know, someone who is looking for liquidity. We’ll, you know, we’re exercising that option to kind of help them out and also take control of the property and you know, do whatever upgrades need to be done and get someone who in the subsidized program into the unit so we can kinda count on a cash flow as far as the notes. And it’s been a sellers market as I mentioned. Both for real estate and notes. So we just made a trade in Q1 and we’re kind of still going through the onboarding process of that. We’re actually probably on a lessons, you know, single buyers, single people who have assets, want liquidity, who’s willing to, you know, get favorable pricing. We’ll definitely execute on that. But that’s really the strategy. We’re still doing notes and we start over real estate, more rentals.

Fuquan Bilal (35:21):

Then it flips because again, we don’t know where the market with a pricing is going to be 15, 20%. You’re hearing all types of stuff, but no one has a crystal ball. I’m like everyone else, we’re just making sure that we have liquidity and that you know, when the opportunity that we can, you know, definitely benefit from that. Again, first and foremost, you know, the landlords that are looking for liquidity and have stuff in our geographically area, we’re going to execute on that. And if we find out between these it notes, it’s still the same strategy but just, you know, no more high end stuff. I actually have one high end property now in the market, put up, put in a market and Valentine’s day and you know, who knows where the pricing has been a reset to that. But there’s enough equity in that first to be okay. But our strategy is pretty much still the same diversified hybrid real estate investing model. The people who just did fix and flip. So wholesales or just notes or I had one type of investment strategy, you know, whether it’s going to buffer what hedge against, you know, what we’re going through right now. Those are the people who’s going to feel the impact. So our strategy’s pretty much the same, a mixed portfolio of real property and mortgage notes.

Bill Fairman (36:37):

Okay, excellent. You know, one of the benefits of this happening is that it’s happening to everyone. So, everyone is going to be a little more apps to work with with each other because if it’s happening to everyone, so…

Jonathan Davis (36:55):

And you have to, I mean you have to keep in mind, you know, and go back, I guess to Mark’s question a little bit, lenders are looking at all these deals right now as is as if, if this is the last amount of money I have to do this deal, would I do this deal and every, and so that’s how everyone is looking at everything right now. And just keep that in mind. I mean, you know, like Mike said, have some patience because the secondary markets are frozen and people are having to evaluate these deals on asset by asset case by case basis. And it’s, you know, everyone wants to keep some powder dry cause we don’t know what’s going to happen.

Bill Fairman (37:34):

And if you’re just joining us, you can ask a question over there in the, in the chat box and time permitting, we’ll, we’ll ask the panelists before we can get outta here and if we can’t get to it by then we’ll try to answer you offline. So, I was going to ask who, Chris, you’ve been over there smiling the whole time? I haven’t asked you anything. I’m sorry. So, Chris is our anti-financial advisor and I’m curious what, what is the majority of your clients? I know they’ve been calling you with questions and comments. What is the majority of the subjects of those questions that you’ve been asked recently?

Chris Miles (38:22):

Yeah, well, most of my active clients, most of them I’ve been, thank you, right? Because we’ve been very cash flow focused, you know, providing passive income, things like that. And I had one client was in California that said, Chris, man, I am so glad I’m not in the market right now cause I just pulled out last fall, saved me a quarter million dollars of losses. Right. But I’ll tell you the other side, the people that didn’t hire me, even some from last fall, the same ones are saying, I just lost a couple of hundred thousand and I hope it comes back. One of them was about to retire next year and now it’s saying, well, maybe I should work another five years. Right. It’s, it’s a fun time right now depending on what perspective you have. It’s definitely new in so many different ways, but I think the fundamentals are still the same. You know? Biggest advice I’ve been given my clients, even leading up to this was get lean, get liquid and get out. Right? You know, obviously get lean in the sense of like we’ve already heard before, right? Like make sure that we’re trimming the fat, that we’re kind of limiting, eliminating unnecessary expenses, like really doing, putting our focus on how do we be as profitable as possible.

Chris Miles (39:27):

Even if this is your own personal cash flow, you know, how do we make sure you have enough cash, the buffer and that leads into the get liquid. How do we make sure we have savings and money available? I’ve had people go and I even told my clients a couple of weeks ago, I did a group call. I said, guys, everybody hit the bank, get your gear, make sure you have a key lock in place. Get up to at least 80 or 90% and then cash it out. And then as an extra measure of protection, move it to another bank, right? Just in case, because we never know what banks can do because if I learned anything from the last recession, the last recession, what happened there is that banks cut limits like crazy. Once things got tight and we’re already seeing the commercial space, it will happen in the residential space here pretty soon is that if we don’t get that money out, it’s going to be trapped in there.

Chris Miles (40:12):

And there’s some people who’ve been gambling and been banking with their Hillocks, you know, cashing out, investing and then using all the cash flow to put it back on their Hillocks well if they cut back those limits, all that money you owe, that cash flow you had earned is going to be trapped inside your home equity and now you’re going to be illiquid and that’s going to put you in a world of hurt. So that’s what I mean by that is like, you know, get lean, you’ll get liquid and then get out. You know, I can’t legally tell anybody to sell off their stocks or mutual funds or whatnot, but man, like there’s, I remember when it was down 5% I was saying, are you sure you want to be in this? And people are like, wow, I don’t know. I don’t want to lose 5% you know, now the market, even with a little recovery is still down about 25% you know?

Chris Miles (40:51):

And so at what point, you know, psychologically people don’t pull their money out, right? They just stay in there, ride it, no matter how long it takes. Now the question is, can I get my money out? And like what you guys just said, be patient. You know, look for opportunity. Personally, I’m still buying properties. I know I even just been emailing Glen, looking at some of his properties to buy for cash flow right now while keeping otherly money liquid and available for later about a 50 50 split. So that’s kind of what I’m seeing and that’s, that’s kinda what’s happening. Again, my clients are feeling pretty good because they have cashflow coming in. But for those that don’t the time to act is now.

Bill Fairman (41:26):

Well, one of the benefits of the insurance program that you’re always touting. The cap value life policy is that you could take a, here’s a great strategy. You go ahead and get that hillock Orlana credit. You go ahead and get the cash, you don’t have to worry about putting it in another bank. You can actually cash value life insurance policy, which will probably pay you more than when it’s costing you on the interest rate you’re paying on the hillock.Right?

Chris Miles (41:58):

Right, exactly. It’s like you guys mentioned dry powder. I mean if you don’t know how long they’d be moving, that’s what’s that. And that part of it is tax free too. That’s right. It’s tax free. It’s kind of like a supercharged savings account slash Roth IRA in a sense. Right. Where it’s tax-free, get better returns than that. Definitely better returns in savings right now. Now that the rates have tanked completely. So yeah, I mean there’s, there’s definitely great options to be able to store cash, keep it safe. And another thing too, in most States you can keep your money safe from creditors and lawsuits. So as we get on the other side of this, are people going to start getting Sue happy? Are people going to try to get money from any place they can? You know, because there is no doubt we are moving into a very deep recession as a result of this, if not a depression, just depending on how this all plays out. So, protecting your money, stay in liquid, make sure it’s there, but still earning money on it too is I think absolutely essential right now.

Bill Fairman (42:50):

Yeah. And if you’re worried about it not being liquid in the insurance policy, you can easily borrow against that while the balance is still earning and you can use that money to find those deals that have cash flow when those opportunities come up. So, it’s easy to get liquid in those accounts as well. And you still have that asset protection, right?

Chris Miles (43:17):

That’s right. Yeah. It’s, yeah, it’s all about the, how you design it, make it a minimal cost, maximum gains. You know, it’s, it’s definitely a big thing of it. But yeah, it’s a, it’s a great time right now to be able to protect what you have and then grow it to I, I really, I’m very excited for the opportunities because of the last couple of recessions I’ve weathered. This is the best financial position I’ve been in. So I’m like, I got my gloves ready. I’m like, I’m ready for this, you know, let’s bring it on. You know, we’re all going to be affected this some way. But you know, I’ve been preparing for the last decade for this next recession cause I got hit so hard in the last one. So this one I have, it’s all new, but I still have a lot more confidence than I’ve had other times when we’ve been freaking out.

Bill Fairman (43:56):

Excellent. Yeah. Well I have a, again, if you’re just joining us, you can ask questions in the chat box and we’ll make sure we try to do our best to get to them. Before we end the show. I’m going to go with, Jim’s question and he’s asking what we’re doing in our personal portfolio in our own investments. You know, what are we doing? Are we looking? Are we waiting? Have we made any changes? And I can, I can tell you what we’re doing. In our fund, I already mentioned that we’re putting loans on right now, the ones that we’re working through, I can tell you we’re getting advanced interest payments that are part of the deal. So we’re putting, three to six months in advanced payments and an escrow account. Plus we’re lowering our LTVs.

Bill Fairman (44:51):

And they’re going to be properties and we’ve already done this that are going to be affordable housing. And we made that shift last year to go to strictly the affordable housing market with loans in our fund. Those are going to be the, the safest. They’re going to be the ones that can create cash flow if they’re not currently, but they’re also the easiest to move if you have to if you end up owning them because you know, the price points are low and, everybody wants them, you know, they’re valuable assets. So I’m going to go around the horn and ask that same question to everyone. I’m going to start with Mike. Mike, what are you doing with your portfolio currently? What’s your current strategy? And I’m going to say until you get better information.

Mike Zlotnik (45:41):

Sure. So we’re going through the entire portfolio. So one is a personal, the other one is a is obviously fund. But the exercise is identical is look for for a risky points. So what do we have in the portfolio we believe has a exposure to these market conditions and to what extent, and essentially a mathematic was simulate a stress condition. Assume things are going to go really bad and just project, you know, what’s our exposure, what are our risks in? The main question is what can we do about it? There’s nothing we can do about it. Well, it’s good to know that something is at risk. But, if we, nothing we can do, there’s nothing we can do. There are situations where we can obviously impact and make changes. And that’s what we’re looking for. We’re looking for what’s at risk and what we can do to improve.

Mike Zlotnik (46:32):

And then, the, we’re also looking obviously for the strengths in the portfolio. It’s basically a review process, go through everything, think through what you can do today. And obviously for scarring, where can we, reduce risk or reduce costs as well. So cutting, increasing liquidity where we have pretty high liquidity of this point. So we have a lot of dry ammo. We actually very happy that we have both 50% of our flagship fund is in cash. And that’s, that’s a lot of dry ammo and that, that’s been sort of preparation. We can’t have too much cash in the bank. It burns a hole in essence because we got to put it to work. But at the same time, 15% in this market feels pretty good. So that’s, that’s the key basic staff. The, we’re having conversations with a lot of our project sponsors and borrowers and understanding what’s happening with our business, how we can help, what adjustments we need to make. That might be great opportunities. Where they need a little bit more liquidity, we can come in, save the project which we’ll already know, get a good return on incremental capital and protect our existing investment. So that’s what we’re doing. We analyzing existing portfolio because new deals are sort of frozen. So it’s a time to look with what you got and how you can improve it.

Bill Fairman (48:00):

Excellent. Thank you. Jacob?

Jacob Vanderslice (48:03):

We’re just generally trying to be defensive and we’re trying to be more liquid. We’re looking at more cost cutting measures, not because we’re out of money, but just so we can buy ourselves a lot more runway through this downturn. I mentioned it earlier, but we’re focused a lot more on cash flow with new acquisitions. In terms of managing our existing portfolio, really our only problem areas are retail line of business. And we’re doing everything we can to, to mitigate that with renovate meant, cutting deals with lenders. But our storage business, as I mentioned, is not seeing any really negative effects from this yet. We’re trying to acquire new acquisitions with longterm debt, so we’re not up against a short term maturity date and we’re trying to buy deals that aren’t reliant on a low cap rate exit and a couple of years, again, just more focused on cash flow. Personally I’m not really doing anything different. We’ve got our rental portfolio of single family residences and some storage facilities outside of our various institutional and private equity partnerships that we’re holding onto. So not really doing anything directly different within our current asset base, other than just trying to manage risk and really focus on cash flow and downside mitigation.

Bill Fairman (49:17):

Excellent. Glenn, you’re up.

Glenn Stromberg (49:22):

Yeah, we’re good. You know, obviously what we’re doing, we’re in the affordable housing space right now. We’re already seeing, which is, you know, we saw this in 2008 and I’ve seen it before. Prices are coming down fast. That’s why the capital markets are freezing up. Fortunately we have a lot of private investors that understand that, get it. And so, yeah, prices are going down. We’re renegotiating some deals. And, so from, from a business point of view, yes, we’re tightening the ship, we’re tightening the ship, we’re, we’re cutting all of our expenses and so forth. But, but no, I think everybody said it on the, on this, you know, on this call that cash flow is the name of the game. And, you know, we think the cashflow is going to get better now because the prices are coming down.

Glenn Stromberg (50:05):

They’re coming down pretty hard. So I think there’s, there’s a real opportunity out there. I like what Chris said. I’m, I’m, you know, I, I’ve been, I actually built my company for this because I, you know, I knew it was coming and, and I, of course, I thought it was gonna be three years ago to be honest with you. So I’m, I’m waiting on that. But, but it was, you know, we just knew the charge. There was going to be some kind of a reset here and a yes, with, with, with affordable housing, I totally believe people are going to do two things. Number one, they’re going to eat. Number two, they’ve got a roof over their head. And when you have the most affordable roof, I feel like we’re longterm one. We’re insulated. Like I said, short term, there’s going to be some bumps on the road with ramps and so forth. So that’s our plan.

Bill Fairman (50:50):

So, so that was you, the guy on the corner in Fort worth downtown with the sign going in the end is near.

Glenn Stromberg (50:58):

Yeah. I always get accused of the glasses. I don’t have to fool you know, that that’s what I would do. None of us, none of us could have projected the Corona Virus. Right? Nobody could get that, but the charge was screaming for some kind of a reset or a pause or whatever. So that’s, and you know, and that’s kind of what I learned in 2008 to try to have kind of a strategy that works, whether it’s good times or bad times and rentals or affordable houses. I think working in any market. So that’s my, that’s my take.

Bill Fairman (51:34):

Well, all of us as a group, because we are in all the same masterminds. We’ve all been preparing for the last couple of years because we knew the market was kind of at the top anyway and it can’t, couldn’t do anything but go the other way for a little while. He just need to prepare. You don’t assume it’s going to happen, but you assume it’s going to happen. You just need to be in a position to weather it when it does. Fuquan, what about you? What are you working on?

Fuquan Bilal (52:01):

Yeah, well we did in the last two weeks. You’re coming back from the CGO event especially, and knowing what was eventually going to be the outcome that we’re in now. Things slowing down of all the talk that was out there. We’ve actually been, you know, any projects we didn’t start yet. We are in a process of, you know, putting those projects out for bid again to other contractors we may not be working anymore and give them an opportunity to get back into, you know, doing the job and given us an, obviously I need to get the open contracts. We didn’t start at reprice and we shifted most of the focus to finishing up the rentals instead of, you know, having a big cruise at the, you know, the flip properties. We moved out those crews all into the rentals cause we have, um, you know, pretty much a waiting list for the subsidized department.

Fuquan Bilal (52:49):

So we’re trying to just focus 100% on getting that done where everything’s in slow period and we don’t know what a flip market is going to be. As far as the notes, we really didn’t pay more attention to the 10 out of 12 payments. You know, the people who’s behind 60 days trying to offer, you know, something that’s more affordable and trying to see if they’ve been affected and really doing a lot of bar outreach and staying in contact with our attorneys organically finding out, you know, what’s happening in the local market, what courts are closed. Pretty much all of them now. But really just in my net, really in my personal portfolio, I’ve been looking, cause I don’t, I can’t buy a new set of the company. All of this. I’ve been looking for onesy twosy notice that people may want to sell full liquidity and build some hypothecation. I’ve been on the phone with my bankers trying to execute in the lines of credit that they’ve been trying to get me to do for the past four or five months. So just focus in on that really. And just keeping up and making sure that I’m all phone calls and I’m communicating over communicating with investors and, you know, keep my ear to the street and what’s happening.

Bill Fairman (53:58):

Excellent. Chris, what about you?

Chris Miles (54:02):

You know, I kind of already alluded to it before, but, you know, my personal portfolio, I mean, we’ve even pulled whatever little money we hadn’t even gambling and Bitcoin in the stock market. I mean, we’re pulling it out, we’re getting it out into our hands. Uh, liquidity has been the, the main thing, right? So like for example, personal savings, we made sure we had, you know, at least eight months worth of expenses, you know, that we could ride on for business and personal. Now naturally, cause I don’t want that earning point. Nothing percent in the bank. You know, we got a good chunk of that in my life. Insurance policies and things like that. So it’s stored up and it’s waiting. But actively like there’s still deals and look for, so specifically I’m looking at turnkey single family homes.

Chris Miles (54:41):

You know, I mentioned Glen stuff and you know, things like that. I’ve been looking at other funds for money down the road, you know as well with syndications, much like the funds that you guys have that you guys are offering as well. So it’s really a matter of like, Hey, I’ve got money sitting here. We got, you know, worst case scenario. If income stops completely, we’re good for months, we can weather this out and be fine. But we also got investment money over here as well. You know, another chunk that someone’s going to be actively investing currently, you know, getting some more cash. We’ll keep building that up while keeping more cash on the side of saying, all right, we see what’s coming. Hey, what if these big box stores and all these malls and things go out of business? Are they going to start turning into self storage?

Chris Miles (55:21):

Cool. Is that what the direction could start moving? It’s just watching and just waiting in a lot of ways. And you know, like I said, it’s a, it’s a fun time right now. The one thing I know I’m not investing in is we’re definitely not putting money in the stock market. It is not at the level. Whenever I hear people say, Hey, we should dollar cost average, we should put money in now cause that the low, I was like, that’s the dumbest time to put it in. When have we ever had a recession where it dropped in one month and then recovered and never takes a couple of years. So that’s the worst time to put money in, you know. But now real estate I think is still one of the overall still one of the safer places to be in right now.

Bill Fairman (55:59):

God is only making so much more land and it’s not inhabitable very quickly. You know, the volcanoes are what adds land and it’s going to take a while for those to be occupiable. So, whether it’s, you know, obviously residential is the most coveted and you know, people always need two things food and shelter and so you can, if you’re going to invest in the stock market, do it with grocery chains. Yeah, yeah, I’m kidding. Otherwise, you know, keep it in, in real estate. So listen, I want to thank you guys for joining us. I do want to mention with the bill that was passed last night, I’m sure there’s going to be some other changes made to it. So don’t take the details you see and hear about right now. It’s a heart. There’s gonna probably be a few adjustments. And if you’re in a position where you think these loans are all going to be forgivable and you can’t afford to pay them back, don’t get the loan because there’s no guarantee they’re going to be a forgivable either. Wait until the details come out and again, call your banker and get into position. If you can get lines of credit and get liquid, I suggest you do that.

Bill Fairman (57:22):

You, you don’t want to put it under the mattress. But at the same time, don’t keep it in the same bank they gave it to you. Yep. Great. Anyway, that said, we’re going to be doing this once a week for the foreseeable future to kind of give everybody an insight into what’s going on in our, in our world. Again, thank everybody for joining us.

Jonathan Davis (57:44):

And please leave the leave comments, because as much as we want to give you an insight into our world, we want an insight into yours and that’s how we all grow and get through this together. Insight both sides.

Bill Fairman (57:56):

Oh. And don’t forget to like, and share. Subscribe. Alright.

Glenn Stromberg (58:01):

Hey Bill and Jonathan, Great job guys. Great job.

Bill Fairman (58:03):

Thank you very much. Thank you. Thanks again for joining us guys. Thanks guys. See you next week.

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