$1 Trillion in Real Estate Is Breaking (Here’s What Happens Next)
In this April 2026 podcast episode, hosts Ellis and Ben Frazier interview Dugan Kelly, co‑founder of the law firm Kelly Clark, to dissect the current crisis in the U.S. multifamily commercial‑real‑estate market. The discussion centers on the massive bridge‑loan maturity wall created by the 2020‑22 boom, where roughly $960 billion of short‑term, high‑leverage, floating‑rate bridge debt is now due. Most of these loans are in technical default, and regulators issued a 2023 “extend‑and‑pretend” memo that encouraged lenders to modify loans rather than foreclose, aiming to avoid a repeat of the 2008 crisis. Kelly explains that the problem has shifted from a cash shortage to a valuation gap: lenders hold non‑performing loans (NPLs) that are worth less than the debt, and they are under pressure from regulators to clean their balance sheets. The guests outline how this creates a unique acquisition opportunity for sophisticated investors: buying distressed notes or assets pre‑foreclosure directly from lenders, re‑banking or restructuring the debt at a lower basis, and using interest‑only or reduced‑rate financing to capture a 300‑basis‑point swing. These deals often require single‑digit equity, far less than traditional 20‑40% equity requirements, and rely on building relationships with lenders rather than broker‑driven listings. Kelly stresses the need for radical transparency with limited partners (LPs), arguing that humility and honest communication about valuation shortfalls are essential for long‑term credibility. The conversation also contrasts today’s market with the 2008 crisis, noting that while foreclosures are occurring, they are far less frequent and lenders are not “loan‑to‑own” shops. Finally, the hosts discuss practical advice for emerging sponsors: attend lender‑focused conferences (CREFC, NBA), cultivate relationships with structured‑finance teams, and focus on the “basis” (price‑to‑debt) rather than chasing low‑cap‑rate assets that appear cheap but carry hidden risks. Overall, the episode paints a picture of a distressed yet opportunistic market where the key to success is understanding the maturity wall, navigating regulatory guidance, leveraging valuation gaps, and building lender relationships to acquire assets at favorable terms.
Chapters
If you believe that rates are going to go down, why wouldn't you be buying right now?
If you purchased in 2020 through 2022, you're already underwater, you're under default. What did you say?
You're in distress. You should not be ashamed of this. You're in default. Pull your head out of the sand and start to think about it aggressively.
Welcome back, Future Billionaires. Today we answer a very important question: is multifamily at the bottom, or is this an investment trap? Every investor is asking it and nobody can answer it because the bottom is only obvious in hindsight. And so today Ben Frazier and I sit down with someone who sees the market before the data does. Dugan Kelly is a co-founder of Kelly Clark, an SEC and real estate attorney who structures roughly 200 deals a year and has closed over $2 billion in transactions, many of that being in the space of multifamily. And so if sponsors are hurting, Dugan knows it. If the lenders are tightening, Dugan knows. Let's jump in. Welcome in, Dugan.
Hey, buddy. Come on. Thanks.
Not only to the podcast, but to Kansas City, baby.
Love it. Love it. Fine salted meats, little bit of barbecue sauce, maybe a tornado or two. I'm in.
Hey, that's what you get in April in Kansas City and our maiden voyage in the new studio here. So it's going to be fun.
It's a beautiful studio, guys. Well done. Very well done.
Yeah, they can't see that side of it, but over here looks great. Yeah.
Well, dude, I think it's going to be— we've had a couple days together to talk about a lot of things and very, very unique perspective. I, I was in the intro, I joked that you're kind of like the Atlanta of, um, the Atlanta Airport of syndication firms. There's more traffic that comes through the Kelly Law Firm in this space than anywhere else. I mean, uh, just real quick, you know, Talk about, you know, give us a brief context of how many transactions your firm does on an annual basis.
Very, very blessed. Very blessed. Uh, it's all this gray hair, but I've been doing this for 26 years now. Our firm on average will structure somewhere between $2 to $4 billion plus, depending on the market, just in the multifamily vertical alone. So we, we, we help people go from acceptance of their LOI all the way to the closing table. And then they, we help them kind of structure their securities documents so they can actually raise the capital to buy the thing that they want. So we feel blessed because of, based on that sample size, we're able to see exactly what's going on in the market. And so it doesn't matter if you're on the East Coast or you're a West Coaster or you're Midwest guy or gal, We're able to kind of see market trends as well as kind of like, most importantly, your biggest investors. What do the lenders think, right?
So you're seeing investor lender. How many transactions is that per year?
150, probably 150 plus, uh, 150 to 200.
That's a lot.
A lot. And that's just on the, like, the, those deals. And then we just, and then we do all the cart securities offerings, so that's even more. And so we see a lot.
So this is an interesting conversation about multifamily. I want to ask both of you, I mean, if, if you're listening to this podcast, you know, and you already kind of know all the stuff that's happened with multifamily over the last couple of years, then fast forward to the next section. But I think there's a lot of folks that don't live in this world of CRE and do deals for a living, and maybe you're just investors, uh, who have not realized all that's happened over the last 3 years with multifamily and interest rates. And so. Can both of you just give us a quick summary on where we stand today? I mean, we, we mentioned this massive maturity wall that's, that we're at right now. I mean, just talk about the scope and size of this right now so folks can get a little bit of context on where multifamily sits today and why it happened.
Yeah, well, I mean, maturity wall is, is, uh, been talked about a lot, and I really want to hear, hear your perspectives on it because you see it from the belly of the beast. But you 2021, '22, uh, was the highest transaction, um, volume years for multifamily and really CRE that we've seen in many, many decades. And so because all these deals were being sold and purchased with mostly bridge debt that was getting very aggressive in the market, um, those lenders were structuring these deals, very high leverage points, 80, 85%, uh, generally floating rate interest rates and 3-year maturities, sometimes with some extensions. Obviously, interest rates. We saw a rapid rise of interest rates, the fastest increase of interest rates we've seen in U.S. history. And with those floating rates, with these bridge loans, put a massive amount of pressure on the bottom line cash flow. In addition to all that, we saw a massive amount of new supply come to the market, putting a lot of downward pressure on rents.
New supply meaning newly built multifamily apartment buildings. Buildings coming online, competing with what was currently being purchased.
It was a great time to be an owner then, you know, I guess seeing double-digit rent growth, and it only felt like everything go up to the right. And that, that's usually when, you know, indicators— but, um, and then just the other challenges have been operational challenges with insurance and seeing a lot of different challenges in the labor force. And so all these, all these factors are compressing margin, putting a ton of pressure in the operators that are purchasing these. And then, you couple that with the syndicator boom, right? Where, you know, you probably saw this more than anybody, where anyone—
you said the other day, like, Matthew, 1 in 4 people in Dallas are multifamily coaches, right?
Absolutely. Of course.
Gurus.
Gurus.
And then, 1 in 2 are syndicators.
Gurus. Everybody's a guru.
And these gurus are making so much money. Making so much money. And it was just so easy at that point. So I was like, hey, just copy my model and you can go do it and make millions of dollars without any background experience. Well, that, that got toppled pretty quick. And so, you know, I'm really curious because we see all the charts. I love, love a good chart. And all the brokers send these things out. We see it from a data standpoint, but you are in the belly of the beast with a lot of these relationships from being at the position you're in, in the industry. And what are you seeing? Like, what, what are the actual challenges that you're seeing right now?
I mean, operators, man, you, you touched on so many things that are, that are very, very accurate, right? This, this, this nasty little word that most of us talk about, it's called absorption, right? So the fact that we had all of this new construction come online that was stalled out during COVID in a lot of these markets, and now we can't see mark rent stabilization because the guys that own the Class A that's now online, they're giving concessions. And so people that were normally in B class are now living in A class. And what does that do to the workforce housing sector from the Class C? All of those things. Plus, thanks Jerome. Thanks. Thanks. We are the victims, the CRE syndicator operators and CRE. This massive rapid rate increase that had never happened in US history. Plus couple that with costs of insurance. And the hedge market and floating rates, I can confidently tell you that almost every floating rate bridge loan that closed between like 2020 and 2022 is in default right now. It's in default. Yeah.
So you, so there's, you said almost a trillion of maturing CRN debt this year, right?
This year, just this year, 2026, $960 billion by last count that is coming to maturity, that most of that is not—
is, is already— is in technical default, right?
It's already in— it's either in monetary or non-monetary.
And what you're saying is what I think you and me— over my eyes this week— is that number, which I thought was so wild to even think about, doesn't even include the, the non-maturing stuff, correct? That is also in default, correct?
Technical default, correct.
So this is much bigger than a trillion dollars. This is massive.
Well, I mean, so you work with all these clients, right, that took on the bridge debt, and now you're helping them work through the back— the backside of it. So you're still in these conversations and you're seeing what's happening with these lenders. And talk about the maturity wall for a minute, because this is what I think is a big disconnect for a lot of people. And initially for me, I was also a little confused because, okay, if something's originated in 2020, 2021, 2022, we should start seeing those initial maturities hitting in you know, '23, '24, '25. And we saw some of those, but the word on the street for most of the lenders, especially the bridge lenders, has been extend and pretend, right? Let's just kick the can down. Let's just deal with this. Go!
Yes, thank you.
But yes, is that, is that, is that turning?
Is it turning?
Yeah.
Okay, so many people, even seasoned real estate investors, don't know that in June of 2023, the Fed sent out a joint memo not just the Fed, the FDIC, the Treasury, all of the regulators, right? Everyone from a red pen got together and pushed out joint guidance to all of these lenders and said, hey, if you have an otherwise creditworthy borrower, modify the loan, extend it out.
In '23.
In '23. Okay. So that entered in this phase of what we call extend and pretend. And, and what to a certain extent the regulators were saying is we're not gonna penalize you for what we call NPL, non-performing loans, right?
Yep.
On your balance sheet, or if it's in your roster, your stable of loans, and they're not performing, they're in maybe technical default. We're not gonna force you to go foreclose on your borrower because the Fed was saying, we do not want 2008.
Right.
We do not want to go back to 2008 where lenders were foreclosing and had thousands of loans on their REO schedule. And then that clogged the market all at the same time. All at the same time. So like in 2008, by 2015, we were still working our way through it, right? We were still working our way through it almost like a decade after 2008. So the Fed's like, let's not do that again. No, that was a bad telenovela. Let's not do that again. Let's actually do something different. And so this extend and pretend came into place, but then as the economy started to get better and we started to see the Fed's fight against inflation start to even out certain things and rates could start to come down slightly, we start to see some movement in the Treasury, right? We started to see SOFR. I think I looked at SOFR Today it's 3.61 or something like that. So you started to see some of these KPIs from the standpoint of how banks loan to borrowers in the CRE industry. And the Fed's like, okay, no longer, no extend and pretend.
Yep.
And that is what is creating pressure on the maturity wall because you have these short-term bridge loans. And let's face it, guys, right? Syndicators were taking out bridge loans when they had assets that were stabilized that could have done agency loans, long-term fixed permanent debt plays. But bridge lenders incentivize sponsors, operators, syndicators— I'm using those terms interchangeably— to take the short-term bridge loan because I'm going to give you what? CapEx, more proceeds, right? So you took cash out, more proceeds. Higher leverage, shorter time to repayment, thinking that the music was never gonna stop. And now we have a situation where we're still in a high-rate environment, relatively speaking, historically. The capital markets are still what I would say frothy, right? There's still some challenges that present itself. And while we're all praying that the next Fed chair starts to put pressure on lowering interest rates and that filters into the Treasury and that filters into what bridge products or other loan products that we see from lenders come out. We're just not there yet. So that means that, yes, to Ellis's point, I spend a lot of my time in New York talking to various lenders, trying to figure out how can we solve your pain point from the lender's perspective and also from the borrower sponsor's perspective so that we don't have this massive amount of assets that get foreclosed on. We have a valuation problem. We have a significant valuation, unlike 2008 where we had a cash problem, right? Where's the money? Where, where, where was the money?
There's no one to buy.
Nobody had anything, no money to move around in 2008. We don't have that problem now, but we have a valuation problem. And in order to do that, that requires a dialogue between the borrower and sponsor teams and the lender in order to reset something. Something has to happen. Yeah.
Yeah. I mean, it's not like it's just going to over time fix itself. To your point, like it is a basis issue.
It's a basis issue. Absolutely.
Well, you said at the very beginning, so let's just say it here. You say it again. If you purchased in 2020 through 2022, you said that these— you're already underwater, you're under default.
You're in distress. You should not be ashamed of this. That's the thing. I tell clients this all the time. I tell anyone that will listen to me, like the— and your clients being syndicators, sponsors, sponsors, operators, even family offices, institutional people that bought during this time frame that have this particular loan product.
Yeah.
You're in default.
Yeah.
Pretending like you're an ostrich with your head buried in the sand and ignoring the problem. That's not gonna make it go away. Right. Pull your head out of the sand and start to think about it aggressively. How can we fix this? How can we modify this? How can we do this? Because to Ben's point, if you have a maturity wall, your loan is already in default. One of three things is gonna happen, right? The lender does nothing because the valuation problem is so massive. And they're like, I'm not going to foreclose. So whatever spanking I get from the regulators for keeping that as an NPL on my balance sheet, I don't care.
Non-performing loan.
Right. Non-performing loan. I don't care. I don't care. Like, they've got their head buried in the sand. That's one scenario. Unlikely, but it can happen. Two, you've got a lender that's going to essentially force you to sell. That means you have to engineer your own exit, either through a cash-in refinance because we've got a valuation problem or a forced sale at note or below note to a new borrower or a new buyer. That scenario is gonna take place. Or third, and the one we don't want is the foreclosure.
Yeah.
And for, for sponsors, operators, and syndicators that are ignoring this problem, hoping that maybe the administration can lower interest rates as fast as they as fast as they wrote.
Not gonna happen.
That's not happening. Yeah. That's not happening, folks. That's not gonna happen. No, you could take that to the bank, right? But that is not gonna happen. So you have to, you, you, if you own an asset and you closed during this timeframe, don't be embarrassed or ashamed about this.
Well, I also think it's important from an LP perspective, right? Because the sponsor's one level, but the LPs are at even further disconnect from what's going on. And part of the challenge, we talked about this a lot yesterday, is there's a very mixed response amongst sponsors that are not maybe being fully transparent with where the portfolio is at. And it's very difficult to make money when there's a 25% to 35% reset of values from what you bought it at. A couple years ago. And, you know, in some ways, I think you're a proponent of take the loss, take the loss, be transparent.
Yeah.
And move on.
Yeah.
And what I want to get to here in a second as a podcast is what's the opportunity kind of coming up. But we're at right now, it's not doing any service to LPs, to sponsors' track records to extend these things and hold out hope when there is no real hope and no lifeline because The extent of pretend was, from my perspective, hope that the market would recover fast enough to beat out some of the stress. But at this point, sponsors are running out of money to put cash in. Lenders are now getting ready to do it. Hey, Trump's bombing the Middle East and interest rates are not responding in the right direction. And I don't think they're going to for any short period of time. So there's no— immediate relief, right? And so what, what, what should, what should be the outcome here? What should happen? And then how do we get to the next part of the upcycle here?
There should be some— there, there's obviously the market holds people accountable, right? You can, you can have the best of intentions, but the objective market factors that we talked about from interest rates, cost of insurance, the, the pricing on premiums of rate caps, the cost of construction, new, new units coming online, absorption in your local market or your submarket. All of those are objective market factors. So, from an LP perspective, you're like, what the heck is going on? Am I gonna get my money back or not? Nobody's talking. If you're a sponsor-operator and syndicator and you're not talking to your LPs about these objective market factors, or more directly, how it has impacted your forecasted returns at acquisition or when they invested in your deal.
Yeah.
They still think they're getting a 2.5x on their equity.
Stop it. Stop doing that. Stop. I would say radical transparency is needed, right? Or, or, or the, the strength. And I really do believe this. Ben and I chatted about this. I really do believe that humility is a positive thing. The, the ability to talk to your LPs, to communicate with them about the state of the market and more particularly the state of the asset that they invested into and potentially the worst-case scenario that could come about and be honest about it, that shows a significant amount of humility that not everybody has.
Yeah.
And in part, I think they think that it's weakness to show that amount of humility. And I personally don't think that's weakness. I think that's strength if you have the courage of your convictions. I'm not saying these are easy conversations to have with your LPs. They're not. Anytime that you take money from somebody else, you are a steward of that money. And if by happenstance, objective market factors, inattention, what have you, you lose some of that money and you have to have those hard conversations.
Dude, can I just be clear for investors? I mean, the reality is there's really not a lot of hope left for a common equity position on a deal, a bridge loan type deal bought in '21, '22. I mean, we're at this point, the asset may be worth the debt.
If you're lucky right now in some of these markets, if you're lucky, the asset is still worth the debt. It's not covering the equity. So I agree, to Ben's point, you should almost be better off to write it off get some form of maybe tax relief. God help you. Yet you're not forced to have depreciation recapture on some of these entities. That is even more adding more salt into the wound. Yeah, it's, it's, it's, it would be like getting kicked in the gut again on your way out the door. Right. But I would just say that have the courage to have those hard conversations with your LPs, even if it results in the fact that your LP says, I'm never investing with you.
For sure. Yeah.
Understood.
That might happen. And I think too, from LP's perspective, there's some level of also, crap, well, I missed this, or I'm not a good investor, or maybe I should just go back to the public markets. I think there's also an element of acceptance that, hey, the market does no favors to anybody. There was a lot of fluff, but I think be realistic about where you're at. But The cool thing is, from my perspective, and I want to hear yours, we get into this, it feels like we're hitting the bottom.
Yeah.
And we might— it might be a little bit bumpy still for the next few years, but coming in back into the market, yeah, in this time frame, I think we're going to look back 5, 10 years from now and going to be shocked at what the result was.
Well, yeah, explain that, Dugan, because I heard we talked about this week You said this is not like 2008, right? In 2008, everything was out in front, right? Right. Where it's like— and it happened pretty quick.
Yeah.
Explain the difference of what's happening today. And while maybe we are at the bottom, but it's not— I mean, we're not— it's like we're seeing all these— it's not like you can just go into Dallas right now and scoop up a bunch of deals.
No.
Right. And so absolutely. What the heck is happening if we are at the bottom? Where's all this coming out? I mean, you say it's— so explain that.
Let me just give one little data point because this is interesting because we are a buyer right now. We're trying to deploy equity. We're looking at a deal. I would say it's a tier 2 market in Dallas. Not a great— I mean, it's a good market. A newer asset, but the going-in cap rate was going to be 5%.
Okay.
And to hit the rate of return we wanted to hit, which was not that aggressive, say it was like 13%, 14%. Level of return. We had to assume 5% rent growth annually for the next 5 years.
Okay?
There was no way we're going to get comfortable with that. So we said, we're gonna pass on it. But they said, oh, that's the price that basically would give us to go put an offer in there. Say that that's too low. We have other offers above that. So the market, to your point, the capital markets are still very aggressive They are, and especially a Dallas-type market. Yeah, to where you think, oh, there's all this distress, there's all these deals like no one's gonna be buying, you just pick up things for pennies on the dollar. That's, that's not this market where in 2008, 2009, that actually was the case. But yes, no one had any cash, so it was a very different— right. So, so talk about where the opportunities are in this situation where you are finding some pretty unique opportunities, but it's behind closed doors.
Yeah, the smart, the smart money. So remember, guys, Like this, this, this is a valuation issue. It's not a cash issue. The institutional players, the big boys and gals, they're in this little place called Manhattan, New York City, right? I heard the epicenter of the financial wherewithal of the world. The reality is they have plenty of cash and they're trying, they're trying to time the trough. They're trying to time the bottom. They think it's, this is a shadow of like 2008. But if you are sitting on your couch right now with that bag of Doritos, and you're thinking to yourself, I can raise some money and buy an asset, but I want to, I want to play at the bottom of the trough. You're competing against the guys that have hundreds of millions of dollars to deploy. It's no competition. The game is over before it even started. And so I'm saying to anybody that will listen, this is a bot. This, I'm very bullish. This is gobble gobble time. So think about this. Here's one question. Do you believe that rates are going up or do you think that rates are going down? If you believe that rates are gonna go down, why wouldn't you be buying right now? Even if you couldn't improve NOI at the property, even if there wasn't some super snazzy way to increase or bump rents, but yet you knew going into it, your occupancy and your debt service and your cash flow were kind of in the same location. With rates going down, you could just simply play rate arbitrage and make a lot of money. So the interesting opportunity that I think presents itself is with a maturity wall of close to a billion dollars and setting aside all of the other problems and distress out there.
Trillion.
Yeah, this is a lender-centric market. I'm not going to CoStar and I'm not calling my buddies at the brokerage shops to figure out what's available on market buys. That's not the game that's being played behind the scenes. What the game that's being played behind the scenes are buying directly from lenders, pre-foreclosure, right? Pre-foreclosure buys, either the sale of notes or the buying of actual assets before they get to foreclosure. That's the opportunity for people that are not in like, you know, Park Central in New York City, right? If you've got that type of cash, then forget about it. You're going to win the beauty contest. I'm going to be uglier than you all day, every day. But if you're somebody that's saying, I want to wait. Why? When, you know, the irony is, Ben, you probably, Ben and Ellis, you probably saw this, right? Investors couldn't, they couldn't shove cash into your pockets fast enough in 2020, 2021, 2022. And cap rates were like at 3s, 4s, 2s. Where am I going if I'm going with my entry cap rate at that? And now, there's a sense of exhaustion by the retail investor for many of these sponsors, operators, syndicators, and the entry cap rate is a 5, a 6, a 7. In some markets, it's 8 or 9, and it's still hard to raise capital. Why? Why should it? There's a messaging educational gap. Yeah, but that's crazy.
Do you remember most of these guys are not in— I mean, and maybe you can talk about that, like, what are— what your conversations are happening. Because to your point, it's like, to Ben's example, that deal in Dallas, that's most of what people just have access to is their CBRE guy.
Yeah.
The seat at the table with the lenders is not really for— like, it's not like everyone has access to that.
No, but they, but they, but they could take steps to meaningfully build those relationships. So the conferences that most, uh, mom-and-pops or or guys or gals that are just getting into the space that they think about where they're gonna go is any of these conferences where all you're gonna meet is basically other operators. No, don't go to those conferences. I'm not saying that 'cause I love lots of my friends that own those conferences. I'm saying you can go to those conferences too, but that's not where you're gonna— That's not where you're gonna find deals from an acquirer. Go to CREFC, go to NBA, Go to other conferences where lenders are, develop relationships with lenders, start to talk to them about their particular pain points that exist in the marketplace. Develop those relationships. People are still thinking, I need to develop a relationship with my CBRE guy. And I'm saying, spend the amount of time that you're, that you're going to spend developing a relationship with the CBRE guy, go develop a relationship with structured finance, special assets people, head of originations over at, over at one of the lenders. Start talking about what's actually going on in the marketplace. You're not going to pick up the Wall Street Journal and find these things listed there. You have to get out of your little cubbyhole and go talk to people, right?
It's a very different strategy for origination than it was a couple of years ago. And the deals that are coming on market, it's, there's fewer deals. They're all newer vintages. They're all the clean assets that survived. And they're being bought at a premium because it's the easy button for the big capital sources to, yeah, I'll just, you know, I believe what Dugan's saying. I'm going to play arbitrage on future interest rates going down. You know, I'm less concerned about my entry point now because it's better than it was a couple of years ago. I'm just going to go in and get the clean new assets and not take all the risks that I had before. This cycle, it's much more private conversations behind closed doors, helping solve the exact pain points of these lenders. And talk about some of the conversations and maybe willingness of lenders to work with sponsors or even, you know, on an existing sponsor that needs to recapitalize or kind of a new sponsor group coming in to solve the issues. Because part of the challenge too, like you're saying, is this extended pretend, you know, it's hope for the sponsors, but it's also the lenders are hoping these problems get solved. They're not. Now, now they have, they have these high-risk-rated loans in their balance sheets, and they're getting pressure from regulators and other groups to get these off the balance sheet. And so they're more willing to take, take a discount to their payoff, right? They're more willing to do a new restructure of the loan and make something work that they weren't willing to maybe before.
Listen, it's not formulaic. Like, I can't guarantee you that if you develop a relationship with a lender and they have assets on their books that are facing this maturity wall or they're already in default, that they're automatically going to give you some sort of like magical, like, wand, right, of of an interest rate or a maturity date or loan terms or anything like that. But it's part of the process of one, establishing credibility with the lenders. Like if you, if, if you're just getting started, don't have realistic expectations of what, of what that conversation's gonna look like if you're starting it now, as opposed to have cultivated those relationships over years, maybe even decades to talk to them. But lenders are pragmatists. They, it's not like they wake up and have ill will against the borrower that is in default. They don't. In, in my experience, lenders are good, hardworking, honest, most of them, people that are trying to fulfill the roles and obligations that they have for their own entity. Remember, they have shareholders. Stakeholders, investors of their own. In many cases, these are publicly traded companies that have obligations both from a regulatory and compliance perspective, but also to the broader market. And so when you're, when you're having conversations with them, it's always a good thing if you can, you might never be able to empathize with them, but have some sympathy of the pain points that they are feeling providing some talking points and/or solutions to talk about how you might be able to solve their problem. And in solving their problems, you're also accomplishing what you want, which is acquisitions, right? Acquisitions that can actually extend out this period so that I can ride out the volatility in the capital markets and ultimately make money, right? We want to make money. We want to deliver profits to our own investors. If if you're a syndicator, operator, or sponsor. And so that unique opportunity that exists in this cycle is massive. It's more massive than probably anybody's even talking about. Nobody's talking about this.
100%.
Nobody's talking about it. No. And it's massive. It's over a trillion dollars, guys. Over a trillion dollars just in this year. Your loan. That's the opportunity.
So give me a specific example. Give us some—
how do you make money then with it? Like, yeah, what's— how do you structure a deal to, you know, if the, if the deal is only worth the debt and you, you know, like, walk us through that. That's exactly what I want here.
So, so we're currently— we've, we have structured probably in the last 6 months or so $500 million, maybe more, of deals where we've been able to help existing sponsors, operators avoid foreclosure, trade the property at note, restructure the existing loan to extend out or rewrite a new loan that extends out for 2, 3 years. So you get that IO piece of the loan that you want, interest only, right? You want to be able to do that, create a new business plan, not the old business plan, and some of these pain points from, uh, from the lender's perspective. Now you're taking an asset or a loan that's in— that's NPL, non-performing loan. You're taking it from this side of the balance sheet to this side of the balance sheet. And your cost of capital, meaning the actual cost to acquire this asset, is now radically different than if you were going to your local— pick on CBRE again— your local CBRE guy, right? And, and, and, and on, on on-market deal where now you've got to go get a term sheet from an existing lender. A lot of the existing lenders, uh, are willing to discuss re-banking the same asset, which means that your cost to acquire that asset is radically different. It's much less than, uh, than if you were going to buy that asset like an on-market opportunity. That's where the opportunity sits. That's what is happening. So you can make money. So imagine if you buy an asset and the cost of acquisition is at note or slightly below note, depending on what your negotiations are with the lender, right? In the debt.
Correct. And the existing lender rebanks that, which means they're going to give you a new loan, give you a new loan at the new, new value, new value, 20, 25% lower with a different interest rate.
Right now, we're not going to be at uncapped 9.5, 10% on some of these loans. Imagine if you're loan on a 9.5%, 10% right now. Imagine if it was like 6%, 5.9%. I'm not guaranteeing that, but imagine if that was the case. You now had a 300 basis point swing in your interest rate. You actually— your basis was reset. And now if nothing else happened and you were able to sell that exact asset for what the last person bought that asset, 4, you're going to make a massive amount of money. Not just you, but your investors are going to make a massive amount of money. That's, that's how people are going to be making money in this.
And when you say drastically different from an equity standpoint, I mean, typically you would put down 25, you'd be bringing in 25, 30, 40% equity to the table on a new acquisition, right? We're talking single digits.
Yeah, single digits, sometimes even less than that, depending on the conversations that are taking place with the lender, the lender's faith in your business plan to carry it out. What amount are you setting aside for working capital and for reserves and those types of things? But it's not a traditional, hey, I got this from the broker. Now I'm going to go have another broker source me a debt from a lender. And now I got the term sheet and now I'm going to You have to show up at the closing table with 20% down payment, right? With this cobbled together from a bunch of investors.
Oh, it's not 20 right now. It's 30 to 40% down payment now.
Yeah. That's not what I'm talking about. That's not the game that's being played right here because you're solving an immediate problem that the lender has. I don't want to foreclose on this. If I'm the lender and I have to foreclose on this asset, and many of these lenders have internal guidelines that say, that give them specific timeframes that they have to act. If you can, if you can find that sweet spot and get in there and solve that lender's problem and convince the lender that one, your credibility, your track record, and your business plan is actually gonna work, and now you're gonna take it from an NPL to a performing loan, your cost to acquire that loan is gonna be radically less right, than if you were sourcing new debt.
Yeah, you're not paying all the fees of the new lender, you're not paying a listing fee to the agent.
It's on and on and on.
So crazy to me because you think about like, it feels like there's two different CRE markets right now, right? There's, there's all the stuff that's going on market that everyone's chasing.
It's like The Matrix.
It's, it's the newer assets, it's the shiny objects.
You came to give us the red pill, didn't you?
It's It's the red pill, baby.
It's the red pill. Because everyone's risk-averse right now because everyone's got burned. So everyone wants the easy button, but they're still going to pay a premium. And maybe you still make money because the market recovers and it's a good time. But there's this whole other part of the market that, one, like you said, no one's talking about. Two, it's where all the problems occurred in the last cycle. So everyone's a little bit, oh, I don't want to mess with that. I don't want to mess with an older vintage. I don't want to mess with you know, lower occupancy and things. But the reality is basis solves all problems, or almost all problems.
We'll say almost all problems. And rate and time and basis. Yes.
And that's the real opportunity that is a zag where everyone else is zigging, right? Because it's, it's— you have to go into the mess.
Yeah.
But if you can get it for the right basis, you can negotiate with the lenders and you can stabilize through the next few years of the market that we would all say is at the bottom, bottoming out, with very little equity in. To me, it's like this flashing, like obvious opportunity that is being missed by a lot of people. And it's, to your point, it's not small. It's a very big opportunity.
I want to just put this in quick context for our listeners because I think some folks who— why would the lender do this and why not just take it back? And I just want to be clear, it's because this is not their business of owning assets. No. Is that really the best way to say that? They want to be in the business of lending, not owning.
Of course.
And so this is why this exists, is because they don't want to cross over into operation land.
I think a lot of people think of lenders as stereotypical ogres that live under the bridge, right, with their ax that come out at night to terrorize the villagers. And that they're predatory in nature and they're looking to steal or equity strip. Yes, that has happened historically. Listen, as a, as a litigator, I've seen this. I've been involved in lawsuits, uh, involving equity stripping, but in general, that's not what we're seeing. Lenders, to Ellis's point, are not in the business of owning and operating. And this market cycle is forcing some of those lenders to start asset management teams to actually, you know, unfortunately have to get prepared to take back some assets. There will be foreclosures. It's inevitable. It's happening right now. There are foreclosures that are happening every single day. There are foreclosures, but not at the same pace as 2008. And to Ellis's point, These lenders are not functioning as loan-to-own shops in general. They're not looking to that. That's not their business. They're lenders. They want to loan on the assets. They don't want to own and operate those same assets.
It's so interesting. I mean, as we're talking about it, it seems obvious, but it's, you know, not a lot of people are seeing it this way.
I mean, it's how Aspen started and made all the money early on, right? Was out of GFC.
Yeah. In 2011 and started buying up distressed debt, you know, pennies on the dollar. And that's, you know, it's a different asset class, right? That was single-family, you know, mortgages. But that's where the distress was there. And you fast forward to now, there's not a lot of stress in single-family, but there's a lot of distress in multifamily and in other CRE. And so it's the same, it's the same tune, just a little bit of a different you know, genre of song.
Totally. It's a great episode, guys.
I don't have anything else.
Um, come on, let's go buy some stuff.
Let's go buy—
anybody that's listening, let's go buy some stuff. Let's go buy some stuff. Be bullish. Hey, we optimistic.
We'll buy some stuff.
Amen.
It's gonna be—
stay prayed up.
That's right, man.
That's right.
It's great to have you in.
Thank you, buddy. Thanks for having me.
This was fun. This is Great.
Thanks for breaking in the studio.
All right, be back.
Cheers. Want to go deeper? Join our free community or grab a copy of our book, all at investlikeabillionaire.org. Let's keep the conversation going.
