The Billion-Dollar Formula No One’s Teaching - Mark Shapiro

People felt that I could solve their problem in their life when they already know how to solve their own problems. They just need someone to push them.

Piece of advice that you would give to your younger self.

One piece of advice. Go much bigger. Push harder. I wish I went bigger and I have no idea where I'd be if I'd gone bigger.

Welcome back to the Hannah Hammond Show. I'm sitting here with the Mark Shapiro in Miami, Florida, and it's so amazing to actually finally meet you in person. I know you've been on my friends shows and lots of. I mean, you're just so well known on social media and in the real estate space. And I'm just super excited to hear your story today and learn everything from the beginning to how you got to where you are doing billions of dollars in real estate transactions. So welcome to the show.

Thank you. Thank you so much. Tell me about your show.

So my show is a journey of self actualization and I think as much like I love entrepreneurship, I love real estate. Real estate helped me come from nothing and coming from a family that had no money and just a kid with a dream, and then it allowed me to build a life of freedom and, I don't know, infinite potential. I feel like in real estate. And so I'm super passionate about meeting other people and who have done what I aspire to do and then being able to provide that education to others who aren't there yet, who want to learn and grow and, and see what's really possible out there. So that's, I mean, I want to do billions of dollars in real estate transactions and I'm an emerging fund manager myself in the debt space. So would love to talk to you about private credit and your experience with that as well in your own real estate deals. So, yeah, just want to help people elevate in business, but also in relationships, health, wellness, and all areas of life because I think it's, it's a, it's a pie. Right. And business without the other aspects is never going to reach its highest potential. So. Yeah.

What was your first real estate vocation? Were you on the sales side?

Yeah, I got my license at 18.

Tough.

And my first deal was a commercial deal.

Really? Tell me about it.

Yeah. Well, I'm supposed to be interviewing you.

I know, but you got a good story too, so thank you.

I held an open house in my neighborhood and it was the middle of summer and off season and one person showed up and he listed a $1.1 million commercial property with me and I sold it made $36,000. Bought my first investment property, renovated it. The rest is history.

Super smart. That's.

Thank you.

Yes.

But it all started with rich dad, poor dad, Robert Kiyosaki.

Robert Kiyosaki.

Yep.

You know, we were doing an event and he was going to, going to come and then he, you know, his health isn't that well. He's not that well. So he wanted to do the zoom, but it's not for us. We want people in person.

Yeah.

So we're doing that real estate event here. We just have found the venue now. We're picking the date. It'll be in the summertime.

Oh, awesome.

So, yeah, all real estate, only real estate.

What's it called?

We haven't come up with a catchy, but it is going to be like real estate con, something, you know, very simple and right to the point. It's got to be a one liner. So like Grant Cardone does wealthcon and JT Fox does mega success. And then I forgot what Andy Elliott's new deal with Goggins is. Yeah, but it's something. It's just one word. So that's, that's what we'll do.

Fun. Is this. Do you do a lot of live events or is this your first live event?

This will be our first live event as a company as Shapiro Capital. I. This is all very, very new. The social media space. We started doing it in late April of last year.

No way.

We started in late April and we did a video. Christian, who was the original person that convinced me to do this? He. I don't know. Is he supposed to be here? Tanner? No. Okay. So he's really a good videographer, but Tanner is a little better. But Chris is really good with still photos. So we filmed the video on a Friday. As you can see, I wear yarmulke, so I keep Shabbat. And I left about 45 minutes from where I was going, filmed a video, reaction video. He edited it and he put it up. Called me about 15 minutes into my driving back here and he said, the video is getting traction. And then I said, okay, that's great. What does that mean? And he said, it's going viral. And I said, okay, what does that mean? And he said, by the time you turn your phone on, it's going to have a million views.

Wow.

And the video was a gentleman that spoke about people who make $400,000 should be ashamed of themselves.

Grant Cardone.

I didn't say his name.

I did.

Trying. I'm trying. Not that I'M trying not to continually speak derogatory about him.

Gotcha. So that's a famous video that.

So that video did over nine something and just went crazy.

Wow.

And for me, you know, we have so many people that make our world work. Nurses, firefighters, teachers. And they don't make that kind of money, but they keep us safe. The police, you know, doctors that are coming right out of med school, they're not making that. So it bothered me, so I reacted to it.

Yeah, it's an interesting video. And I was cur. I did see a video that you had posted responding to that and I couldn't agree more. And then, you know, there's just a. I mean, what, what's your thoughts on the get hold Gary Brca Grant Cardone thing going on right now?

Well, Can I say or not about the cease and desist? I have to ask my attorney.

No, I think that this interview should be more focusing.

Yeah, yeah, we, we're trying to tone it down.

Gotcha.

But we did a lot of videos reacting to a lot of unpleasant things that he said and we have tried to be less obnoxious in this space. And because as you see, I don't swear. I only swear when I do the reaction videos. Well, I may sometimes swear, you know, to make a point, but when somebody is disrespectful to people that I think are need to be nurtured in our community, in our society, I get very passionate about it. And what started me doing this was what convinced me was the fake gurus out there. And the fake guru that I was offended by was a guy, he's on a show in New York City and his. They were flipping houses in New Jersey. It was called Flipping New Jersey. And I was watching and I said to myself, this isn't possible. These returns are just not possible. And then. And it's a big show, it's a morning show. It's like a morning drive show. I mean, super. This guy's a major guy, major radio host. And he partnered with this guy and none of it made any sense. Now, as a developer, you know, you buy a deal, that's when you make your money. And when you buy a distressed deal, you know what your lift's going to be. Real estate's data driven. It's all based on a metrics. So you're going to know what your return is, whether it's a 2X, a 3X, a 4X. Some people say, how do you get a 4X? Well, you buy it at a 4X. Okay. You know, and then you create the value, or you bring the value back to the asset, or you buy the dirt, and then you entitle it, and then you build it out, and that's where your biggest lift is. So that's what got me doing this. That's what got me passionate. And then as we got some traction, we kind of stepped back to give more value on YouTube. So we're doing long form, teaching more about real estate and giving people more. And then we. I think our first speaking engagement was. When was the first Speaking engagement in D.C. tanner? August. August. September. Yeah. And it was the first time I ever spoke in public. And There was about 500 people in the room. And amazingly enough, this young man who I did a reaction video, his name's Reed, we became friends, and he reached out to me, and my reaction video was that what he was saying was bs and he reached out to me, and he proved to me that I was wrong. So the first thing I did, he sat in the front seat, he flew out with his girlfriend, and I apologized to him. And the weirdest thing was that all these people in the room, they literally attacked me when I got off the stage, and they put me in a corner. It was a very uncomfortable situation. And then we moved, and they kept on, and people felt that I could solve their problem in their life when they already know how to solve their own problems. They just need someone to push them. So we started doing this, and we decided that we're really trying to create an educational space that changes normal people or people that have never owned a piece of real estate, that have no idea what they're doing. And it's become. I don't want to use the word. A cult following. But it's changed a lot of people's lives. Since June 20, when we opened up our school and selling our programs, we have over 500 people in our community. We've closed 64 deals. We literally have 16 deals under contract. And then yesterday, we announced what's called a revenue share program, where you don't need any experience, you don't have to put down anything. We fund the deal, we do the deal, and we share just the equity. You keep the cash flow, and we're out. When the deal is refinanced, We've taken back our equity, and then we take a 50% share of the profit.

Amazing.

Yes. Seven people, I think, signed up since then.

Oh, that'll be huge, I'm sure. And it's, you know, it's providing a solution to people. And I Know, a lot of my friends who are in the education and community, like Pace Morby and Jamil Damji and these people out in my neck of the woods, all their, I mean, a lot of their deal flow comes from their communities. And then it gives these newer people who are learning an amazing competitive advantage because they actually get a partner in the deal that knows what they're doing and who can fund the deal, help them manage it. And I mean, because the, it's terrifying as a new investor going after big deals or even your first deal, even if it's a small deal, it's terrifying to do that alone. So I love what you're doing there and I think that's a really good strategy.

Yeah.

So what's your origin story? Because I don't know too much about your background and kind of how you got into real estate. What was your background from. Did you immediately jump into real estate and what was that journey look like for you and where are you at today?

So I used to play for the Celtics. I was 6, 9 and had a terrible car accident, so they cut my leg. No.

So that's the most interesting story I've ever heard.

That's a great one, right?

Yeah.

But I am a Giannis fan, just so you guys know, but I'm a Vikings fan, so I hope you're not a cheesehead. Sorry about that. But I am a Brett fan. My both my grandparents, my father's father and my mother's father were real estate developers. My dad is from a small town in Connecticut called Winstead, Connecticut. And my mother's from a town about 15 minutes from here called Coral Gables. And my mom was engaged and my dad was in the army in the Korean War. He was a dentist, so he graduated University of Maryland Dental school. So he went to Fort Meade, which was in Maryland, and signed up during the Korean War. And he had a two week pass. So he came down to Miami to just have fun. And a mutual friend of my both my grandmothers asked my mother to show my dad around. And after two weeks my dad went back and my mother said, wow, I think I love this guy. So she broke off her engagement, called my father and she asked him what his intentions were. And he said, come up to the base, we'll get married. And my mother was very inspirational in my life, plus my father two really amazing people. My mother's name was Carolyn, my father's name was Paul. And my mom could do anything. There's nothing she couldn't do. And that's probably one of the reasons why I married Gabriella. Same person.

Wow.

Yeah. I don't remember my mother failing at anything, but I remember her working super hard through things. So she was a designer, Interior designer at first. And then when I was about nine, she decided to get her residential real estate license, and she worked for a guy named Jerry Heyman.

Pretty close.

Jerry Heyman, Yeah. And Jerry was the first guy that I met that let me drive in his Porsche. Had a Porsche convertible, and. Or it was the one with the top came off. And I remember sitting with my mother when I was a little kid when she would do floor time, and I would look through the big MLS books, and I was just looking at the pictures, and she would take me with her all over the place. And shortly after she had had her license for. Back then, it was three years, she decided to become a commercial agent and then a broker. So I always had real estate in the family. I didn't really know that my dad's dad was a developer, and I really didn't know that my mom's dad was in the apartment space here. But when my dad would go and do something, he'd take me, I'd cut the grass. And the day school was over, we would be on a plane and we'd fly here and spend the summer here. And then my grandfather had these little motels on Miami beach, and I would be the towel boy's assistant, and I would pick up the towels, and he'd give me, like, a nickel. During my freshman year of college, I decided to take a year off. So I took a year off between my freshman and sophomore year and worked for my uncles here in Florida and learned a little bit about real estate. Also talked my way into bartending, getting a job at a cowboy bar called Bogey's Barn, and even opened up a stand at the Hialeah Flea Market. So I took all that money, bought myself a car here, drove back to Connecticut, and went back to Central Connecticut State University. And going into my junior year, right before the end of the sophomore year, my mother gave me a book by my mentor, Robert G. Allen. And it was called Nothing down. And he had written it in 1980. And she gave me the book in 1982. And that summer, going into my junior year, I told my mother I wanted to buy a piece of property. And she said, you have enough money? I said, yeah, I do. She said, how much do you have? She qualified me. I said, I have, like $40,000 in my savings account. And. And she said, well, that's a stupid place for it to be. But do you want to put it all into a deal? I'm like, why not? And she said, I have the perfect deal for you, and I'll tell you how to do it. So we went and looked at a piece of property near a college called Trinity College. So the property backed up to the school's athletic field and their field house. So the students would walk in and out of the right from the backyards. And she said, we're gonna put it under contract. We put it under contract for $24,000, and then we did the renovation estimate, and it needed about $16,000 of renovation. So she kept everything within my budget. And I went exhausted to 10 banks, and they all turned me down. And they said, you don't have any income. I said, but I want to use the income from the property to qualify. And back then, lending was very different than it is today. I mean, it was all done on a handshake. And so I was about ready to cancel the deal, and I told my mom. I called her and I said, mom, I can't get financing. And she's like, I'm making meatloaf. I'm like, mom, I can't get financing. What should I do? She said, you want meatloaf tonight? So school's about 45 minutes from home. And I said, okay. And she said, bring that. Whatever you were giving the banks and the contract and the construction estimate. Bring it to dinner. So I'm like, okay. I'm not even thinking what she had in mind. I come over and she said, dad will be home. And dinner was always at 5:30, always. And we always sat down at the dinner table. Obviously, then you didn't have phone. We had a rotary phone. I don't know if you ever saw the video. They showed a girl what a rotary phone is. She didn't know what it was.

Yeah, I've seen video. Yeah, The. The earliest phone I can remember was the. The wall phone with the cord.

Yes.

Yeah.

Yeah. Those were the princess phones, right? Or they were the. Yeah, they had the little thing where you could hook it on, so. And a long cord so you can walk all over the place.

Yeah, yeah.

So I ate dinner, and my mom said to me, did you bring that stuff? I said, sure. So she said, ask your dad. My dad had no idea. And I said, dad, you know, I'm trying to buy this property over by Trinity College, which was a college in Hartford. And he said, yeah, mom told me about it. I said, I can't get a loan. And he said, okay, let me see what you have. He looked at it and he said, let me make a call tomorrow and then call me tomorrow night and I'll tell you what to do. So I called him the next day in the evening and he said, meet me on LaSalle Road at such and such a bank. So I met him at 9 o' clock the next morning. I skipped class and I met him at United bank and Trust. And we walked in, but before we walked in and he said to me, what do I get out of this deal? And this is my dad back then he was a standup dentist. That's how they did it. And he said, I want 60% of the deal. I said, dad, no way. Now I can't get a loan, but I'm still going to negotiate. That was my instinct. And I said, no way, come on, dad. And I said, I'll give you 40%. He goes, I'll take it. We walked in the bank, he walked back to the office of the president and, and his name was John Morris. And he asked John's assistant where the coffee is. My dad went and got a cup of coffee and I'm bewildered because he's supposed to be there. And John Morris came out, shook my hand and he said, come on inside. And then he proceeded to ask me what do you have? I said I have a contract. Here's. Back then we used to call it a setup. Today they call it an om or a dec. I don't know why it changed. And I had a one page set up on the deal and then I had my two page construction estimate for my contractor. And he looked at it and he said how much money do you have in your savings and where is it? And it was at bank called Society for Savings, which was a bank that when we were in elementary school they used to come with a passbook and you could put a nickel and every week they would give you back your passbook and you could put whatever you saved in it. And it was the same passbook that I had from then. So he looked at the deal and he said, looks like a good deal. We'll lend you the money.

Wow.

No anything, just we'll lend you the money. I said, okay, how much? He said all of it? I said, all of the price and the renovations? He said, yeah. He said, but you have to put your money in my bank. I said, okay. And he said, then you're going to pledge it. But two days before the closing you will call me, you will tell me what you need to Close. I'll need to see a copy of the respa, which is the HUD one, the closing statement. I said okay. And he said, I will give you a bank check so you can bring it to the your attorney's trust account and he can disperse from there. And then I said, what about the construction draws? He said, when you need money, just give me a lien waiver from your contractor and I will, I'll fund it. He said, let's do it in four draws, like okay. And I said why are you doing this? And he said, you don't know? I said, no, I don't know why you're doing it. He said. And I told him that I'd gone to 10 banks and I had to tell him each bank and they all gave me the same reason. And he said, well, number one, your family is a very good customer of the bank. And number two, we, we bought your grandfather's bank.

Oh.

I said aha. Which was called Riverside Trust Company. And the other day I was actually showing Gabriela old mortgages from it because I had some things sent that were my father's to our home here in Miami Beach. And I proceeded to do a bunch of deals with them. I bought those three units. It was a three family house with asbestos. And we did the demolition, we did the asbestos removal. We used garbage bags instead of jumpsuits and then we put them in garbage bags and we had them taken away by a regular carding company. The property. Within six months we sold it for $108,000 profit. My mother found me two sixes side by side brick that were underperforming that were a bank deal. She even showed me how through our accountant to do my first like kind exchange 1031. And by the time I graduated I had 8058 units. And the funny thing is I took a job as a commercial loan officer. I actually took a job in the securitization department. And I was forced to get my series 7 license. So I understanded the CMBS MB RMBS business and I hated it after a few months and I was able to get a job with that same bank in their commercial loan department. And they were one of the banks that turned me down. Suffield Savings. But once I got my job and I got my own pen back then you had a lending limit and as long as it fit in the box of the bank, you could write a commitment letter and close a deal. And then I realized the bank had a pretty hefty REO department. And I started picking off their deals. Once we found out it wasn't a, an issue with the board and once we hit 400 units, I quit. Why? Resigned because they were good to me and started a real estate company, not for sales, just for ownership and management. We did do some third party management, but not for long because we just kept on growing super fast.

So is that when you started a fund and started raising capital or you were syndicating deals or what was your structure?

So we were typically, we got really lucky with a deal in 85, 183 units. It was called Taft Apartments on West Middle Turnpike in a town called Manchester. And I didn't have enough money to close the deal and I went to the closing 40k short and I had no idea what to do. So the night before I called my attorney, Robert Cohen, who I still use today, and Bob said, just go to the closing and sit with the seller and tell him the truth. And we sat down and I told him I was short and I needed his help and I didn't present it that way. I said, I need your help. And he said, what's the issue? I said, I'm $40,000 short. I said I went everywhere I possibly can from family and friends and he said, okay, I'll hold the money for. And I asked him to hold it for 60 days. He said I'll hold it for six months. And he did. We paid him off pretty rapidly and unbelievable. Out of nowhere I get a letter from this guy named Peter Hicks, Hicks property in Milton, Massachusetts. And he wants to have me come up to his home because he wants to buy this brick one story walk up in a very. I'll call, I don't want to use the word workforce, but I'll call it high end, high level, blue collar town. And he wanted to do a conversion and he made me an insane offer. And the offer was contingent upon him teaching me the condo conversion business. I didn't want to come away with it with just the profits and that kind of catapulted us into buying a bunch. And when we started buying distress deals out of pure luck, we partnered with an advisor called Huntun Hastings and they were the manager for Ohio Retirement Teachers Pension fund. And they created a program with us. We bought 23 deals with them in the course of about 18 months. And a lot of our equity was institutional. We have syndicated deals. We just recently are using the social media platform to syndicate. And our next. This last one was a reg D, which if you know the, the suitability requirements for reg D, you've got to be an accredited investor. 200k, two years in a row, million net worth without your home equity, or if you're a Trust or an LLC, it's got to be 302 years consecutive. So this next one, we're going to do a reg A and get it approved by the SEC in finra, and that's the path. So what's happened is the education has overwhelmed us and the changing people's lives have become, for me, more of a passion than the ownership side. So, you know, without. You know, I would say this if she wasn't here, but without my wife being able to help. A lot of these people borrow money because she handles all the debt side of things, or most of it. You know, some of them come with financing, some of them come with their own equity, but most of them come with bad credit, no credit, zero experience. And some even come without a job. And we find a way to get it done. She finds a way to get it done with them. So. And it's become passionate.

Yeah. And that's a newer thing over the past year, right?

Just started. Yeah.

Okay. That's so cool. That's such a great story. And what. So she's handling the debt side. Are you guys. Do you don't have a debt fund, though? She just helps coordinate financing. I guess I was going to ask, what's your advice to somebody who's doesn't have the track record in real estate development or maybe even real estate transactions at all, but they're looking to go get financing? You know, what advice do you have to give them to go to the banks to use private credit? Where would you. What direction would you point the men?

So give me. Well, I'll give you one scenario. Our first student, her name is Lydia Walker. She's from Denton, Texas. And she signed up for our program. We used to charge $27 per month, full access to everything. Zoom calls twice a week. And Lydia and I spent two weeks on the phone getting to know each other. Excuse me. On the Zoom, because there was nobody else. It was just me and Lydia.

It's a nice value for her.

Yes. Excuse me. She came to our wedding, she flew in, and we became friends. We became friendly. And then over the last. Since June, because she was the first student on June 20th, we become friends. I've gotten to know her story. And she comes from like we all do, you know, everybody has a story, everybody has challenges. She bought her first deal. We tried to buy her first deal from a wholesaler. It was in Montgomery, Alabama. And he only had a two day window. So we couldn't get the deal done. And we went on to another deal in St. Louis, Missouri. And St. Louis has been, we think, a really undiscovered gem in certain markets, sub markets there. So she found a 3:1 and we did the deal for 34,000. She put in 35. She decided to buy tools, which I tell her you can't capitalize the tools, but she did windows. So she was all in at 85 recently. It just appraised at 150. She borrowed $106,000 that Gabriella facilitated from private money.

Hard money?

No, no, conventional loan.

Oh, conventional.

Conventional. Refi. Cash out refi. And at the same time, during this whole escapade, she got engaged, bought a house in Denton using our same concepts under FHA first time homebuyers program. And then she went back to St. Louis, put a turnkey fourplex under contract, and she used the cash out refi to buy the fourplex. The fourplex was so under rented using the Section 8 voucher program in St. Louis, it gives her a little over a $51,000 net operating income. Now during the next process, we're not sure where our refi numbers will come at because our comps won't comp at the value based on the St. Louis Missouri cap rate. But on a cap rate it's an $880,000 lift and she paid 360 for it.

Amazing.

So she wants to take that, do the same thing and then buy some others. And we've had a lot of success. We've also had another student buy a fourplex there, which Gabrielle did finance with the same lender. And that's an unchartered market because there's the sub market. And then within the sub market are the tertiary markets where there are pockets of zero crime and you have to be able to pick and choose and navigate them. So we're doing well there. We're doing well in Florence, Montgomery, Mobile, Lubbock, Jacksonville, Jacksonville, Their deals, there's actually deals here in Miami.

How do you underwrite deals and determine what is a good market to be in, especially if you're not like boots on the ground in those markets.

So we typically will help a student introduce them to a real estate agent. The real estate agent will be their eyes and ears. Sometimes the first agent is not willing to work under their scenario because they tell them, this is our program, this is what we're doing, this is how we do it. It's not for every agent. Most agents Are I'm going to show you three properties. If you don't buy one, I'm gone. That's not the agent we want. We want the agent that is been in the business six to 30 months that has had some success but is on the cusp and needs a repeat buyer because all of our students are repeat buyers. So Lydia's, she's done three. We have a young kid, Raymond Gonzalez, he's in over by University of Oklahoma where he is a college student. Enos I think it is. And he's done five deals, this young man. Now his dad is his bank, but he's done five deals and now he's in the process of doing the refi.

How do you guys like in this market? I know in my market in Scottsdale it's very hard to make numbers work right now and it has been for Scottsdale years. So how, what is your rule for underwriting deals? How are you determining if it's a good deal for somebody to buy and, and then are you doing, are you teaching or you personally are you doing buy and hold strategies or are you buying and selling?

So my biggest regret is selling. So you should really never sell anything. You should be able to use it to take the equity out and continue to generate cash flow and continue to generate appreciation. Because we have this, this great thing here in this country, it's called inflation. So every year your property is going to have a little more value. Yes. We're going to have expenses go up, so we have CPI so we know we can tie what it is. But you're always going to have some appreciation if you buy the deal. Right now what we noticed is, and you may or may not have noticed it, I read an article in the Wall Street Journal about two weeks ago and I started doing some investigation on the first time home buyers, their balance sheet, FHA's balance sheet. And there was an anomaly in their balance sheet from. When the Biden administration came into office. There was a spike in delinquencies, but the mortgage amounts instead of contracting mortgage value, mortgage value went up substantially. And their net capital that they have on their balance sheet, which is what they use to borrow from the Fed just like a bank, that was constricting. So it tells you two things. First time homebuyers are defaulting. Then you look at their 90 day delinquent which is over 400,000 homes but their 60 day delinquent is almost at 590,000. So what they were doing is they're taking the interest where the first time Homebuyers are not making the payment and they're putting it onto the back end. So what is that? Mortgage Crisis 2.0.

Yeah. I would love to hear your opinion on the state of the economy. And when you think that.

So this. And. And guess where the biggest concentration are. Because if you drill down into the balance sheet, you can see where the concentration is. It's in Fort Worth, Orlando and Vegas. And it's not older, gentrified product. It's all the new product, because it's all that's come on in the last.

60 months because people are overextended and they don't have equity in the houses because if they paid well.

D.H. horton. Okay. Okay. All the major home builders. Lennar Toll. Every single major home builder built those homes and funded them under the FHA program and even gave them when they couldn't afford the 3 1/2% down. They funded it by giving them a discount on closing cost.

Yes. They have no skin in the game.

None.

But what about. I don't know the percentage because I'm in the private credit space. I don't keep too much on the FHA stuff. But what about the lending market at large? Do you think, like, we're on the brink of another economic collapse, or do you think that there's going to be a, you know, kind of collapse or recession in that FHA space? Or what is your outlook on the overall economy at large, both in the residential and the commercial market and the timeline.

So you roughly have about $3 trillion in toxic assets on right now. Yeah.

Three trillion. Out of what amount?

In what's out there that's current.

Right. So 3 trillion. What percentage of assets are underwater?

About a little under 30%.

30% of residential.

Yes, of all residential. Residential, multi for sale, product development. Mm.

So what do you think's gonna happen?

I think we're gonna see a nice correction. And I think the banks. Well, you're familiar with Dodd Frank.

Mm.

Okay. So when Chris Dodd and Barry Frank created Dodd Frank after the great financial crisis, the banks prior to that used to have to take their assets and mark them to market.

Yeah.

So that forced them to reserve against the net capital. Therefore, if their net capital is reserved, you can only lend against your net capital. So it constricts the bank's ability to lend, therefore, it constricts their ability to earn income. Banks live on a spread. They're bookies. Okay. So when this happens, you get that anomalistic movement. But when the crisis happened and these guys came up with this idea of, well, guess what, we're no longer going to make you mark to market and we're going to allow you to run your bank as if you're not having any issues. So you can't see a bank's net capital, but you can see their default rate grow. So when Silicon Valley bank failed and First Citizens bought them, they bought all their crap. But the way they bought it is they couldn't pay the loans off. So they have to recast the loans. So they're selling their deals at roughly about 40 cents on the dollar. And you walk into a deal like our deal is like an 11 cap out the door, day one. And you can't buy those. So it's happening now. We're very big, we're very bullish on Houston, Harris County. Cause we've had, we had our hub office there for years. We had about 10,000 units in the state of Texas. And we did very, very well because Texas is kind of like Arizona, a giddy upstate. It's like, let's get it done. Okay? And if you can think it, you could do it. You know, very creative things here. It's. You got too many New Yorkers here. And there is so much capital on the sidelines. Patient money just waiting. And then the private funds like yours are much more sophisticated than a bank's buy box. So you're not going to fit a square peg in a round hole on one of your deals. You're going to fit your square peg in your square hole. Your LTV or LTC is going to be no greater than 70%. Okay. Your, your spread based on if you're giving a return or if you're using a line is at least going to be 300 to 400bps over SOFR. So I'm assuming you borrow on SOFR. So there's a change that's going to come. Now, I think it will be dealt with in a much more orderly fashion than the last one.

Yeah, a lot of banks are renegotiating. We were talking about that as renegotiating notes or kicking the can down the road or. Because, and that's the thing that I struggle with is everybody still is terrified of 2008. And of course, history can always repeat itself. It does and it will. Right. But it's like, how do you really.

Have.

Calculated action and mitigated risk versus analysis paralysis? And we don't do anything because anything could happen and the market could collapse. Right. So I guess, for instance, you, you guys are still doing deals. You are doing huge deals and you're also coaching students on how to do deals and actively doing them. So like, how do you help for your own portfolio and your students? How do you get them over that fear? And like, what are, what is that criteria for underwriting? If you're anticipating that the market could come down quite a bit because you can only get it so far below current market value. And especially if you're doing big development projects or heavy lifts, that could take years.

So in the 1 to 4 program, which is our major program, we typically do not go after a deal has been underwrite. We do not go after put it under loi or under contract unless out the door that day. It's a 14 cap because it's going to get compressed during the course of the deal. Construction estimate is going to be lower. I mean, it's going to be higher. It's going to take a little bit longer to stabilize it because they're new investors, which is why we came up with this. We'll do it with you. Besides the social media side of our business, every person that is in our coaching space did my program and did it successfully and then I offered them a job. So we've built that out from an organizational standpoint. So people get a very intensified program and somebody is on top of them and forcing them to get uncomfortable and forcing them to be accountable for their actions on the other side. Where we created this was our original program. It was called Protege multifamily, Protege partnership. A true partnership where you pay for access to me and then we go and find a deal and we do the deal together. Now they're required to have the equity to do the deal in multifamily. We have about 40 people and we're doing extremely well in New Jersey. Of all the crazy places where Tanner's family's from.

Yeah.

And one of the students, I won't say his last name is, first name is Jonathan and he's doing very, very well. His first deal is he's building 40 units.

Building.

Building brand new 40 units.

Are you guys doing more development or value add or conversions?

Right now we're doing more value add.

Okay.

We're doing more value add.

And how, how. What's your advice for people who are looking for deals in a market that's really hard to find deals?

There's. There's two ways to find a deal. One, have an inside relationship or two, partner with somebody who has an inside relationship because you're never going to see the deals. I see. And we see A lot of deals. So we see a lot of deals through the family office and then we see a lot of deals through our relationships. And after a number of years in the business over four decades, you get the ability and you get the reputation that's able to close. And when you're able to close on a deal, it says a lot. So we bought a deal in Malibu. Okay, I don't like blue states. I especially don't like California that much. But we bought a deal off the Pacific coast highway in Malibu, 68 apartments. It was the last asset that a fund in Hong Kong had, Pacific Eagle. And their US base is great Eagle. And they were selling the deal for $75 million. And we looked at the deal and they picked somebody else of San Francisco. I'm like, okay, we made a bid on it. They picked somebody out of San Francisco. They underwrote it as an apartment deal. It's not an apartment deal. It's a condo conversion because it was gut renovated in 2019. It's got magnificent finishes. So the appliances are gagging out. Cymatic are the kitchens. I mean, it's just nice, nice, really nice product. And it, there are views of, of the ocean of the Pacific. It's on the Pacific Coast Highway. It's a half a mile from Nobu. So it's right in that Malibu market. And it was a bear of a deal to get closed. And they were a great seller. And when their deal, the first contract didn't go through, they came back to us, but they went and took it out to bid. And then we found out a week before the bids were out, and we said, we'd like to bid. And they said, well, you could submit your bid. We actually won the bid at about 5 million less than the people that had put it on the original contract. And we were doing our due diligence. We had a famous tenant, Charlie Sheen, and we paid for this piece what you couldn't buy the dirt for because you can't find 10 acres in Malibu that's already improved. So we ended up paying with our full in cost is 725 a foot. That's with our package. And it's more like an FF&E package and not a major rehab because it's already been renovated. And our price without our interest reserve, without our $9 million FF&E package was 522 a foot. So I said, you can't even buy the dirt for that. And after the catastrophic events in Malibu were 68 units that people are clamoring for. In the market. So our original seller, price point was 1175. We're just touching 1400 a foot.

Jeez. So how'd you find that one?

That came from a broker.

Really? And it was just a pocket listing.

Or was it actually. Actually it was. It wasn't even a pocket listing. It was brought to a broker and eventually our partner that's here in Aventura, his name is Mark Portis. And Mark Portis was married to Jerry Kaufman's daughter. Jerry Kaufman built half of Aventura, Hidden Bay, Mystic Point, and Jerry was one of my mentors. When I did my first big condo conversion in Hallandale, Jerry's company, isg, did the sales for me. And I've had some amazing people in my life that have taught me. I've had some amazing partners and friends. I've had a couple bad partners. That's the worst thing to get in bed with a bad partner.

Me too.

And you never know until. Until deal goes sideways. You don't know if a partner is good until everything goes wrong. And in real estate, when everything goes wrong, you can literally still figure it out. You just have to remain calm. First person who calls your lender, tell them, I've got some issues, I'd love to come and have coffee with you, and I have some solutions, but you're going to have to work with me. And they're grateful for that. Most people, they hide, they put their head under their pillow, or they stick their head in the ground, in the sand, and they give up before they've even come up with a solution. And solution driven business. Solve one thing, find a way, you move forward. Solve another thing, you move forward, solve enough issues, you get to go home and make, make the right deal.

Yeah.

So.

So I, I, I, I could talk to you forever, of course, but I know we have to wrap up here in a couple minutes, but a couple last questions. What I know we went over the economic state of the market and things like that. So what is your current economic outlook and what do you predict will happen in the residential and commercial real estate space over the next 12, 24, 36 months?

I think we're going to see a nice correction. I think we need to have, if you have your powder, I think you need to be ready. I think if you're lending freely, I think you need to be very cautious about each deal you're lending on Your borrower's history. Does you know their experience? Not their history. Their experience should be number one. But I don't know much about your Fund. So tell me about your fund.

So it's a brand new debt fund, but the goal is to be more of a commercial lender and do bigger deals, developments and things like that. But right now it's the one stop funding shop for real estate investors. So whether it's a fix and flip, cash out, bridge loan development, any type of loan that you could possibly ask for private money. So we work, the model is we'll be both a brokerage and a direct lender. So we can just be the one stop solution for all investors so they don't need to go find all these different lenders that all have their different boxes of underwriting criteria. So that's where we're at right Now. It's an 8020 split for investors. But right now I'm really focused on building out the consistent lead flow of qualified, experienced borrowers that are really our dream clients. And then I can go focus on raising the capital to feed those loans and basically fund those loans. But yeah, you know, as an emerging fund manager, especially in the private credit space and in the real estate space, it's always that, you know, what, what are those risks in the market and how do we make great safe underwriting decisions while still being competitive and not, not being able to close any loans? Right.

So what's your pricing?

Typically it ranges on the product, but as far as the fund itself and what we would lend on and actually balance sheet, because there's a couple different methods, we can originate the loan to somebody else's guidelines and sell the note off and then recycle the capital, just take a small margin and then maximize returns. Or we could fund the loan and keep it on our balance sheet. Anything that we're keeping on our balance sheet would generally be that 6 to 12 month, 12% interest.

So you season it and then sell it. You get a bigger, bigger spread.

Yeah, yeah, we could do that too. So the nice thing is there's lots of institutional capital in the space now that are coming in because now bridge debt can be rated and sold, which is a new thing that's happening in the private credit space. So good and bad, right? Good is there's more competition. I mean bad there's more competition. But good, there's more capital and there's more ability to move paper and move money.

Is your, are you staying four units or under or you're going on the commercial side above?

Commercial side and above. Yeah, so we'll do single family. But it's. So I'm a commercial broker and I love Commercial. And that's where I want to be. I want to have a higher loan volume, I think. I believe in commercial, it's lower ltv. I know the industry and the residential space is very saturated and it's just like a race to the bottom. I feel like, just like the house flipping space, it's still a great model and you can still do it really well, but it's much more saturated, I feel like, than that mid sized commercial deal, you know, and same on the commercial debt side, there's lenders, the institutional lenders that they'll do deals over 20, 30, 40, 50 million, but they won't. There's not really a bunch of lenders in that 1 to 20 million space. In the commercial, they're either residential 1 to 4 or over 20 million. So I would like to kind of be in that niche.

Did you go to Multi Family in Vegas at Aria?

At what?

In January? Were you there?

I was.

Gotta go.

Which one?

National Multi Housing Council.

No, I didn't.

Must be a member. You need to join.

Okay.

So every year it's typically at Aria. This year there was 11,000 developers, lenders, brokers there, title companies, owners. Wow. And we hosted a dinner for Lumen because I'm very friendly with the guys at Lumen and if you know the bridge space, I think they might be the largest bridge lender in this space and they're aggressively looking for business. And then we had a very serendipitous gentleman come. He's on the board of directors of Home Depot. And were you aware that Home Depot actually is a lender?

No.

They will lend you all the construction material, the appliances, the fixtures, the fittings, everything for your project.

Wow.

You just need the site.

I didn't know that.

And you need to pay for the labor. Yeah, it was pretty eye opening.

That is wild.

Yeah.

Yeah, yeah. Well, cool. I will be going to that conference in January.

Yeah, no, I brought. I brought Gabriella, actually. I think Tanner was there too.

Cool.

I think we brought maybe it's six people on our team.

How long have you been going to that?

Forever. Yeah, forever, so.

Well, cool. I. We. We have to wrap up here. We'll definitely have to have you on the show again because we have a lot more to get into. But I guess I always like to wrap up with. What's one piece of advice that you would give to your younger self?

One piece of advice? Go much bigger. Push harder. I wish I went bigger and.

I.

Have no idea where I'd be if I'd gone bigger.

I think you're pretty big.

I would have gone bigger, so.

Thank you. I love that. There's always new levels to the game.

Yep.

Yep. Well, thanks for coming on the show, Mark.

I didn't even know you were in the commercial landing space.

Well, now you know.

My wife didn't tell me anything.

Well, I.

They never tell me. They never tell me anything about my day. So the day started. Where we go, bro. I don't read my schedule. Okay.

Yeah. Commercial lending, huh?

Thanks. Thanks.

All right. Can you take our. Grab our photo real quick?