2125: Unlocking Opportunity: Investing in the Changing Landscape of Commercial Real Estate with Paul Moore

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So I.

Closed out last month on the real estate side. Sold three houses, got two more under contract. It's been a long time coming. But all that stuff that Jason and the rest of the team and I have been working on since Jacksonville, all coming through. So all good stuff.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Greetings, empowered investors, and welcome to episode 2125.

So.

So I've talked for many, many years about the national debt and how that is going to create lots and lots of inflationary pressure in years to come. And of course how we as income property investors benefit so greatly from inflation because of course our assets are indexed to inflation. And that's sort of the amateur view rents and the asset itself, the property inde text to inflation very, very nicely. But even better than that is that our debt is debased or reduced by inflation. Of course my trademark term inflation induced debt destruction and that is phenomenal. But just look at how severe this inflationary pressure is getting. I saw this clip in one of my newsletters and just had to share it with you today. And it says the US national debt is settling into a staggering new pattern, increasing by $1 trillion every 100 days. Wow.

Wow.

That is absolutely staggering. So we stand at about $34 trillion at the time of this recording and in 100 days we will see a $1 trillion increase in that national debt in 200 trillion dollar increase, etc. Etc. Etc. And the only way to really manage this debt properly is to inflate it away. Well, I shouldn't say properly because that's not the proper way to do it. The old fashioned proper way to do it is to simply stop spending like a drunken sailor. Hey, I'm gonna put on my sailor hat. Here to commemorate our upcoming cruise.

Yes, I hope you're joining us for.

Our Empowered Investor cruise where we will talk about this and many, many other issues. But it reminds me of what former presidential candidate Pat Buchanan, he was on the show, maybe you heard that old episode and he said, your debts will be floated away on a sea of inflation. And with my captain's hat and our cruise coming up, that's sort of a perfect thing to, to mention. But a 1 trillion dollar increase in the national debt every 100 days, you better get yourself side of that trade by having a lot of assets that are indexed to inflation and their debt on those assets is debased by that inflation. A really, really phenomenal opportunity. No other asset class has the special unique characteristics of income property. Okay, let's take a look at an income property. So we looked at this class A property in a class A market, Sarasota, Florida. And here we look at the property with the lowest down payment and the best leverage with creative financing. Because you can take this deal subject to the existing loan, which is only 4.375%. So that's pretty good. But the seller is offering a seller carryback on this property at 10%. So that's a little expensive. But the seller carryback portion of the property value in the stack, in the capital stack isn't that high. It's a seller carryback loan where you get into this property for only 15% down. You have the best available leverage opportunity. But most people, because they don't know how to really do the math of income property, would not like this deal. This would require a very aware real estate investor to understand the deferred down payment, the creative financing benefits. And most won't like this deal. So we're going to look at the same property three different ways. Three different ways, same property. All right, so the property has a rental income. It's currently rented for $3,200 a month. All right, now we impute a vacancy rate, even though it's got a one year lease on it, of 8%. In other words, it's vacant one month per year. With this deal, the property has a cap rate of 4.7%. But a cash on cash return that most people would consider awful at negative 8%, but an overall return on investment of positive 34%. That's because of the incredible benefit of leverage. You have a lot of leverage on this deal. Now that gives you a deferred down payment because remember, you're only putting 15% down. In a normal scenario, you would put an additional 10% down and you do.

25% down on this property.

We're going to look at that in just a moment and see how that performer looks. Okay? So here you have a deferred down payment or a negative cash flow of 617 per month. Most people would think this deal is not for me. A smart investor would love the leverage offered by this deal. Okay? Because you get into this property with only $90,000. Now remember, if this were on a C class lower end property that wasn't in a prime market like Sarasota, Florida.

I mean, Sarasota is definitely a class A market.

In fact, I keep telling my own mother that she should move there because it is such a charming city. It has arts, it has playhouses, it has opera, it has wonderful restaurants. I mean, this is not your typical low end rental market, okay? This is not Memphis, where you're going to have much better cash flow in.

A market like Memphis.

This is class A property. This property is only what, three years.

Old, two and a half years old, something like that.

And it's a class A market. So the numbers will never be as good in this type of market because we always just project a modest 6% appreciation. But these markets and these types of properties tend to have much better appreciation than that. So you know, over, over time, you average it over years. But let's just go with what we're projecting here. Just understand those factors. Okay, let's look at the next example. So this example, example number one is the lowest down payment and the best leverage. What is example number two? And hopefully you're watching this on video because you can see all the numbers on the screen. For audio only listeners, I'm trying to just explain it to you. Okay, here is the traditional deal, 25% down. But remember, you still have creative financing here because you have a seller carryback and a subject to deal where you can capture the existing loan at only 4.375%. Not the much higher current interest rates. What does this deal look like? All right here you're putting 25% down. So that's $143,000. And the loan to value ratio on the subject to the first loan that you're taking as is at 4.375%, that's a 63% loan value. And you're getting a smaller second from the seller at 10%. So that's high. But it's a small amount of the capital stack. It's only $63,000. And here you have basically an Overall return on investment projected at 25% annually. But you do have deferred down payment, and that is 1% negative cash on cash return. You're paying $176 per month on this property, but your leverage is better. So you got a 25% overall cash on cash return. Remember, the cap rate or capitalization rate is the same in every example. Why? Because the cap rate does not take into account the financing. And what we're doing here is we're doing the same property financed three different ways. Okay? So cap rate 4.7% no matter what. Let's look at the third example. Now this example is really offering three different options. You could either buy outright with cash to existing loan, you still take the first loan, the existing loan subject to.

At only 4.375% financing, and you put.

Cash down of $250,000. Or you take the second loan and you project into the future that seller carryback that we had on the first two deals. And you pay that off in two years. And you assume no appreciation on this property in two years. And you do assume a modest increase in rent. The rent over two years went from $3200 to 3450. Okay, all right. So the rent went up modestly, but the value did not go up. So we're not showing any return on investment on increase in value. Okay, so here, most investors would think this one is the best deal because it has positive cash flow of $749 a month. Positive cash flow. Phenomenal. Positive cash flow of 749amonth. Because this existing loan is so cheap, it's only 4.375% interest. Great deal. And your loan to value ratio is only 54%. So you get a lot of equity in this property. But interestingly now your cap rate went up a little bit because your rent went up a little bit over the course of that two year period. So here your cash on cash return is projected at 4%, but your total return on investment went down to 18%, which is still very good. I mean, try getting 18% very reliably and consistently in anything else. Right? So most people would consider this the best deal, the best way to buy it. It certainly is what most people would consider the most quote unquote conservative way. But actually it's counterintuitive. This is not the most conservative way. This way is actually more risky. But you'd have to have followed my.

Work for a while to understand.

And I don't have time to go into all of those Details today. It's counterintuitive. I get it. One of the most important things that you need to do to become a good real estate investor is you need to really learn how to do the math of real estate investing. And this is pretty easy. And it's free. Just go and get a free account@propertytracker.com it's totally free. And what I want you to do is start running these different projections like I did for you just now, with different assumptions. Assume different rental amounts, assume different amounts of appreciation, assume different financing options, which is what I did here in these three examples I just showed you. Okay. And run these projections differently. And after you do this, you know, I've done it Hunt.

Well, not hundreds of times.

I've done this thousands of times because I've been using the software for 20 years. It's really the best evaluator software out there. And what you get is you start to really get an intuitive understanding of the math and of these different scenarios. And that's what I want for you. I want you to really, really have like a feel, just an intuitive understanding of the math of income, property. And the best way to do that is just go get a free account@propertytracker.com go do that now. Propertytracker.com free account cost you nothing. Start running your own projections, your own performance. You can run it on this property. You can go to Jason hartman.com you can look at other properties. All of these pro formas are up@jason hartman.com as static performance. But if you want to make them dynamic where you can change the assumptions, you need that free account@propertytracker.com so go check that out. All right. Speaking of software and running the math, some of you are asking, should I bring my laptop on the cruise? We've got our upcoming cruise.

More details@jasonapartman.com about that.

Yes, of course you should bring your laptop. We're going to have such a great opportunity here to sit down at a table, at a meal, open up screens. These modern ships, the beautiful new celebrity apex. The wi fi is super fast and you're really just totally connected nowadays. It's. It's really great. I mean, I love it. You know, some people talk about digital detox and unplugging. I like being connected personally, because the Internet is like a second brain, right?

And why would I want to only.

Have my one brain when I can have two brains, right? Whenever I want to know something, I can just so easily access it. And remember at our event, the drink Package is included, the WI fi package is included and the gratuities are included. It's all included on your cruise on the beautiful celebrity apex. So I would definitely recommend bringing your laptop because you're going to want to run assumptions and you know, the investment counselors are going to be there. They can help you run assumptions on your computer and, and all this great stuff. So I would recommend bring your laptop if you don't want to. Hey, don't. But you just can't do things as well on a phone or an iPad. I just like having me. So I bring it almost everywhere. All right, so today we are going to talk about commercial real estate with my friend Paul Moore. And I think you'll find this to be a very interesting discussion.

So here's Paul.

It is my pleasure to welcome a returning guest back to the show.

And that's my good friend Paul Moore. He is the founder of Wellings Capital and just an all around great guy and an incredible source of knowledge and wisdom about the real estate market, the economy, and more specifically, the commercial real estate market.

Now, if you're thinking I'm a residential.

Investor, Jason, that's what you specialize in. Well, hang on a second. Commercial real estate is putting a lot of pressure on the banking system right now, and we're going to talk about that. There's some important stuff you need to know there, so let's dive in. Be sure to stick around to the end. Paul, welcome back.

How are you?

Hey, doing great. Such an honor to be back here, Jason.

It's good to have you Always remind our listeners.

Where are you located?

We're in the booming metropolis of Lynchburg, Virginia.

Good stuff. Well, Paul, I don't know where to start. You know, there's always, whenever we talk, we could just go on for hours and hours. Last time I saw you in person, we spent, I don't know, two and a half hours at Starbucks talking. And that was a great conversation. But, you know, the commercial real estate.

Market is pretty, pretty mixed right now. You run a fund that invests in.

Some of the better parts of the commercial real estate market, you know, namely.

The office market and a little bit.

Of the multifamily are under some real stress right now. And people are reading the headlines about that, hearing about it a lot. Tell us what's going on.

Yeah, so one thing I love to tell people is that, you know, when you say commercial real estate, you're really talking about 12 or 13, 15 different asset types. And the headlines have been, and I'm not trying to defend or criticize the headlines, but I mean, I saw a headline that said the biggest crash ever is about to happen in commercial real estate.

And I read the article, sometimes what's interesting, they just say real estate.

I know, I know, yeah. And so I read that article and it cracked me up because every single thing in the article, bar none, was about the office market. It didn't even mention anything but office, and it was drawing on sources that were only the office market. So it was a great headline and there were several others like it. But, you know, when you talk about commercial real estate, you're talking about self storage, mobile home parks, RV parks, strip centers, office hospitality hotels, cell towers, you know, you're talking about all kinds of multifamily billboards. We're talking about all kinds of different stuff. And so while there may be a crash in one, there may not be in another. And while there may be a huge downturn in tuc, there might be a surge in Marietta, Georgia. And so it's just so different. And let's face it, even if sometimes when you get a good deal, the financing on that deal takes it under. Right. And so we've seen a lot of that.

Right.

A bad deal can be improved by great financing.

Yes, that's right. Yeah. I mean, just like a mediocre deal can be upgraded by a great operator. Well, a great deal, really well performing, let's say multifamily, can be destroyed by floating rate debt that has just ballooned out of control and the, you know, the folks might lose it back to the bank and that could happen.

And just to elaborate on what you said, you know, you, you talked about the segments, the categories of commercial real estate, of course, and then you talked about the geography, the location of them, but also the price segments. Right, right. You know, is it an institutional level investment that's a different set of buyers and sellers versus a private investment that's a little bit less expensive in the commercial field, that's a different set of buyers and sellers. And so these are very different market, but we have you here to help us unpack it. So start where you like.

Yeah, yeah. I mean, let's just take self storage as an example. So when I went to Nashville last time, it's been a while, but I looked around and there were self storage facilities everywhere. So I'd say if I was just glancing or even looking at the map, I'd say I probably don't want to invest in self storage here. But there was a whole section south of Town, I believe it was called Bellevue or Belleville, that had no self storage. And so, you know, again, even within one asset type in one city, there can be a very different supply and demand metric. And so specifically, I think it would be great if we talk a little bit about multifamily. I mean, multifamily became the darling, the rock star, if you will, of commercial real estate. You know, commercial, by the way, commercial multifamily is anything over five units, large scale commercial course over what, 70 to 80 units when you can afford a property manager and a maintenance person to typically. I wrote a book called the Perfect Investment. I know humble title. That was in 2016. And by 2018 I was on lots of podcasts, including yours, saying timeout, it's not the perfect investment. It's actually not per. Nothing's perfect if you have to pay too much to get it. And if you have to finance with floating rate debt. And if you have to assume that the rents in Tucson will continue to go up 18% a year, and if you have to assume that you're going to be able to drive down costs even though they're inflating everywhere else. And so there's a lot of mistakes that were being made and people were overpaying. I mean, I was bidding against them, Jason. They were overpaying by 20 or 30%. And now, as you know, a lot of people were playing musical chairs and people I bid against were able to sell those deals for 10, 20, 30%, 50%, 100% profit on the equity in some cases. But the music stopped and some of those people are now without a chair. You know what I mean?

Yeah.

Tell us more about the commercial real estate market. We're, you know, we're talking multifamily. What else do you want people to know about the multifamily? And then let's maybe jump over to another segment.

Well, amazingly, I think that multifamily is largely still overpriced, especially relative to the current cap rate. Somebody could even argue that it might be more overpriced right now than it was at the height of the boom. And what that, what was that? Early 22, let's say I just read the other day that the average cap rate in Phoenix, or maybe it was Arizona in General, has risen 59%, meaning the value of the property, if I got my math straight, should be down by 59%. I doubt that that's happened.

Or the income went way up, which I also doubt that.

Yeah, but okay, right, yeah. So if the cap Rate went from. I mean, let's just. And I'm doing the math live here. So this is, this could be a problem.

Sure.

But if we go from a 3% cap rate and I'm making that up to a 5% cap rate, that's 2 3rd 2 divided by 3, that's a 67% drop in cap or expansion of cap rate. That's what I meant to say. So therefore, if the value formula of commercial real estate value equals net operating income divided by cap rate, if the denominator is 67% higher. I'm not, I'm doing the math live here, but I think it should be mean that the value is 67% lower. So 59, in other words, sounds about right. It really does. Well, I don't think that's happened, Jason. I mean, I spent the day with a guy the other day who said that he had sold him two very large multifamily in Phoenix or Scottsdale the last couple years. And those brokers are coming back to him now saying, hey, they're in trouble. They want to sell it back to you for just the value of the debt. In other words, they know the equity's already wiped.

Right.

And he said, no, it's not worth that. But.

So it's not even worth the debt.

Value, not even worth the 75ish that he.

So the name we use for that is underwater. It's underwater, yeah.

Right.

And do you have an estimation or, you know, any stats to share with us about, you know, like how many multifamily properties are underwater? I mean, you know, the statistics for that kind of stuff are harder than they are with residential. But any.

No, I don't, I don't. I just heard that the peak of the, the short term or the floating rate loans coming due is around December. So we're only about two months away. We'll see if that's true.

Okay, so that'll be sort of the, the hump of the camel. Right. And that's the peak, but there will still be a lot of them after December. And it, it takes a while to kind of wash out. Even if the peak of the loan's due in December, like that means there's a default that occurs in December or January. And then there's the workout process and everybody's negotiating and the lender's threatening and the borrower's threatening and they're, you know, maybe they can meet and work things out or. Has Rescue Capital entered the market much yet?

Yeah, Rescue Capital is entering the market and that's something we should probably talk.

About and maybe define rescue capital first.

Yeah, yeah. So we're investing in preferred equity right now, and I want to be really clear, we're not doing rescue capital. Some people think those are interchangeable terms. Rescue capital could be. For example, this is a model of prep equity. So right now, the reason, Tom, we're talking about rescue capital, but I'm going to back up a little bit, go to a higher level and just say, what's what? What's prep equity? And this might help answer the question. So with prep equity, right now you've got, you know, deals that are coming in that used to be financed at 75% LTV. Now they're only at 50 or 60. So that's the debt down here at the bottom. Equity people aren't raising equity as fast and as voluminously than they used to. And so they're coming in at only 25%. So that's leaving a gap. So GAAP financing could be either mezzanine debt or it could be preferred equity in this middle tranche. Okay.

For those listening only, Paul is showing a diagram here of three different types of equity. Top 25% common equity. Middle 15%, which is preferred equity, and the bottom 60%, which is the senior debt.

Yeah, right. So prep equity would be in the middle. And to answer your question, what's rescue capital? Well, sometime.

Syndicators will say, hey, I don't think my 25% common equity people. I'm not sure that's the best example right now because this is about a purchase. But at any rate, I'm not sure my common equity people want to have a capital call. So what are we going to do? Well, we're going to bring in some rescue capital in the form of pref equity that gets in front of the common equity and it gets behind the debt. And that rescue capital, you know, is going to have, let's say, a very high price tag, like, let's say 9% current cash flow and then plus 5 or 6% upside when the deal's refinanced or sold. So it's definitely. Well, I shouldn't say definitely because I'm not supposed to speak in absolutes, so says my compliance team. But it's almost certainly going to dilute the common equity pretty seriously. And if the value of the property goes down, the common equity people are going to take the first hit and a bigger hit because that pref equity got slid in the middle in front of them. Does that make sense?

Yeah, yeah. Okay, so if it's Rescue Capital, these are the people that are sort of preying on the, the misfortune, you'd, you know, you could say of these investors who bought this property, but they're also helping them. So, you know, it depends how you.

Want to look at it, of course.

Right, but what are the rates on it or what are the terms of those deals that make it Rescue Capital?

Yeah, I mean, they might be pretty high, like maybe 10% current cash flow and then another 7 or 8 or 9% compounded return at the time of sale or refinance. So maybe a 15 to 18% total coupon as an example.

And so does the general partner or the general partners. Do they just say to all the limited partners, look, you're taking a haircut on your investment here. If they've got 50 people that put in 100 grand each on this deal, right, and they're a syndicator, they say, hey, your investment is now only worth 50,000 instead of 100,000, and we're going to try and, you know, turn this ship around slowly or what?

I don't know if they would say that to them, Jason. They might say, well, if this hits our original projections, you guys will still make almost as much money as you would have before.

So the original projections got them in the mess in the first place.

Well, yeah. And like one syndicator said no one could have ever predicted interest rates would go up. And I'm like, no, that's not true.

You could predict they could would go up, but I don't know if you'd think they'd go up that aggressively. Fair enough to give them. Give them a little bit of a break there, but yeah, yeah, right.

So anyway, this is Pref Equity. We're investing in private equity, like I mentioned, but the rescue capital looks much the same now. Another form of rescue capital is just what everybody would know, and that would be just having a capital call where you'd call your current LP investors and say, hey, we need you to give us some more money if you want to save this deal.

Yeah, okay.

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Okay, cool. So that's the multifamily market. Want to tell us about the office market? Also tie it in with multifamily. I'm especially concerned about how this is going to affect the banks. We've had a few bank failures, not nearly as bad as the doomers said that it would be. But you know, there may be more. What should we be worried about there?

Yeah. So we know of a multifamily syndicator in doesn't matter where they are, but their bank came to them and said, hey, your deal is just fine, but we're not going to refinance it. And they're like, what? We're doing fine. Everything's going great. They said, yeah, we're taking such a hit on the office side that our, you know, our board is telling us to not refinance other commercial real estate deals so we can, you know, pull in, you know, capital to, to, you know, just stay liquid. And so basically really bad.

That's a matter. That's really a contagion issue then.

Exactly.

In other words, the bank said, look, your deal's good enough. We would do it normally, but we can't because we're having so much pain. Right in our office market portfolio.

Yeah, that's right.

Interesting.

That's exactly right. And I think the problem with office, you know, people, Buffett and Howard Marks and all these brilliant guys, Sam Zell, they'll buy stuff when it's on sale. I follow those guys and I love their thinking. But office might be a little different right now. I mean, think about it. We have a first in world history for sure. And that first is that a significant percentage of people can work remotely. We've also got this planned pandemic that caused people to say, hey, I'm not going to keep working 80 hours a week in Manhattan. I think I'd rather spend more time with my family. I'm going to slow down. I'm going to buy an rv, I'm going to hit the road by the way we should talk about RV parks.

But we, we can. But what's interesting about the RV idea is that they can also work mobile better.

Right.

Because you know, I, I gotta tell you, having traveled extensively and having been to 92 countries now, you know, I gotta say I'm pretty impressed nowadays with Internet access. Yeah, Just even four or five years ago when I would travel around pre.

Covid, it was terrible.

I mean, I'd go to coffee shops and restaurants trying to find a connection and it was like, like really bad. I even had a business idea as to how to solve that.

But now, you know, it's, it's pretty.

Acceptable in most places, right? You know?

Yeah, yeah, absolutely. In fact, RVs are now being outfitted with. Because it's Skylink from Elon Musk. Yeah, yeah, Starlink, that's right. So that will allow them to have much more access. But a lot of the RV parks, the ones we're investing in especially, have very good Internet. You know, that's part of the gig. But anyway, back to the office. I honestly wonder if office, I mean, I know people say this all the time about all kinds of things that are in the toilet. Like 2009 they were saying this, but I think there's a good argument that office might never come back to where it was.

Yeah, I mean, look at.

Unless the overall population increases dramatically, then the office segment of the population would also correspond to that, you know, but it would have to be an adult working, professional type population. That's one way I could see it happening. Or just an alternate use, which these alternate uses really aren't working very well. They're very expensive. And what's interesting is that the older office buildings work much better for apartment conversion than the newer buildings. And one of the main reasons is that the older buildings aren't very efficient and they have windows that open instead.

Of being encased in glass.

And they have much smaller floor plates so lend themselves much better to design where, you know, in a residential you're not going to have a 25,000 foot floor plate and only windows on the perimeter.

Right.

So they're much smaller floor plates and everybody can be close to a window. You know, if you put four units on a floor, for example, that works. But in the newer buildings, those are the ones that are actually really suffering. The older ones do work for conversion pretty well, huh?

Yeah. And I know a friend of mine, A.J. osborne, you might know him, he's converted an office in Boise, I think, to a self storage facility. And it's rare that Those work, though, without a lot of reinforcement of the floor. So, you know.

Because self storage is heavier than an officer.

Yeah.

Interesting. How many floors is that?

I don't know. I think I heard it was five or six. It was owned by a newspaper, so that's one of the reasons it was so well reinforced.

It had strong floors for printing presses probably.

Exactly. And he bought it. I actually don't know how many floors it was, but he bought it from the bank at less than the value of the land, so pretty good deal.

So he got the structure for free and the land value for a discount.

That's a pretty great deal.

Yeah. So, yeah, AJ's pretty good. I mean, he's done a lot of these type of conversions that have just been really rock. Just been wonderful.

So, Paul, what does this mean to the banks though, if the office market just never comes back, which I agree with you, that's a real concern, the banks and the insurance companies, because life insurance companies love offices for investment too. Pension funds, endowments, they're going to all take a hit. I mean, how bad is that going to be?

Yeah, I mean, I wonder if it's already about as bad as it'll be. I mean, I. I can't imagine. I mean, I don't know, but I don't sense that it's going to get much, much worse. It actually seemed worse a year and a half ago. It almost seems like people are coming back to the office right now. I just talked to a Manhattan hedge fund co founder a few hours ago and he said we're finding that these teams in our four different offices, they need to be together. And so we're not working from home anymore. And I think there's a lot of that. So I kind of wonder if it's.

That's what the employ, but it's not what the employees want mostly.

Oh, no. No kidding.

Yeah.

Yeah. I mean, we work out of home. Most of us work out of our home at my company, but we like to be in the office a few days a week. You know what I mean?

Okay. So we just don't know how that'll turn out. But, you know, even if the vacancy rate has already sort of stabilized in the office market and say the new normal is that you should expect a 30% vacancy in your building. Right, Right. You know, that's the new normal. Instead of an 8 or 10, you know, 8% vacancy is in the old days.

Right.

Then the question is, has the financial ramification of that worked its way through the system? And I would Argue that it hasn't because that takes a while. Renegotiating with lenders and loan workouts and loan mods and some foreclosures and, you know.

Yeah, yeah, yeah, I agree. I, I've heard the lenders have been much more patient. I think I've. I don't know if you've heard that than 2008 and 9. And as a result, that's prolonging the agony, it would seem. And I think you're absolute right.

Yeah, yeah. It's taking longer to have real price discovery here. But I mean, some of these discounts on these trophy buildings that we've all read about, I mean, they're insane. These office buildings that were, you know, $300 million are now 50 million.

Like exactly.

It's unbelievable. I mean, it's like one sixth of the price.

Isn't that crazy?

Yeah, it's absolutely crazy. So it's going to be pretty weird. What other asset classes do you want to talk about?

Maybe some positive ones.

Yeah, I mean, let's talk about RV parks since we touched on that.

Now the distinction is you're talking about RV parks, not mobile home parks. I own a mobile home park, as you know. But these are RV parks where people come in for one night or two nights. You know, they're much more transient. They're more of a business than a real estate deal. Tell us about those and why you like them.

Yeah, we love mobile home parks as well. But yeah, the RV ownership has gone up by about 60 or 70% in two decades. But like I mentioned earlier, you've got a once in a lifetime or once in world history shift just since the, you know, since the beginning of COVID And that is a massive number of people. I mean, in the last decade, a huge increase in number of people in that could work from home. But then Covid just, you know, put that on steroids, as we all know. And a lot of people are working from the road. I have, I know a CEO of a startup. He's actually his startups in your part of the world. And, and he is full time living in a very nicely modified RV now and traveling the country. So you've not only got the stay at home or the work remote revolution, you've also got the sharing economy has hit the RV world. So you've got rvshare.com outdoorsy.com people like me who don't want to own an RV will rent an RV. And somebody's like Whitney Elkins Hutton, if you've had her on the show, she said that she bought an RV a year and a half ago, she rented it out for the first six months, and she recouped half of what she paid for the RV in net profit in just the first six months. And so these RVs that are now, you know, that we're sitting idle 49 and a half weeks average per year are now on the road or maybe going to RV parks, maybe, for example, 10, 20, 30 weeks a year. Well, that's putting incredible pressure on the RV parks.

Right, okay, so there's a few things there that we have to think of, the dependencies and the things that could go wrong. Right, so, so the RV sharing economy is pretty much like the Airbnb economy. Right, Right. And we have to compare that to Turo, which is the car sharing, and, and Airbnb. I think that we're in vrbo.

Okay.

So, you know, obviously Airbnb has taken a bust. It's, it's down pretty significantly because it's discretionary money. And when things get tight, people stop the discretionary spending.

Right.

But the other part of the RV issue is the fuel cost. And I remember I used to own a 38 foot motorhome and I really enjoyed that quite a bit. I never lived in it, but I had it in the storage lot, paid about 200 bucks a month. I had two different girlfriends through my ownership of that, and I used it. But as soon as I didn't have a girlfriend, I never used the thing. Like, I just, you know, never. It just sat there. And so I finally sold it. And gas prices had gone up quite a bit at that time, so I was really happy to sell it because I thought it would be very much hit by the gas prices. The hard thing to analyze, though, is maybe people just use them much closer to home instead of taking long trips.

Trips.

Well, that there's more truth in that. Most of the, most of the trips, average, I've heard an hour and a half or two from home, so.

Oh, that's it.

Very, that's what I've heard. I mean, I, I, I don't, I don't know that that's an average or just the, like the median. But at any rate, you know what, I was surprised, Jason. My Toyota Sequoia gets 12 and a half in the city. And when I came to visit you in it, you might recall I was getting 17 miles per gallon. But Class A motorhomes get seven to let me get this number, 13 miles per gallon. Class B, 18 to 25 miles per gallon. And Class C 14 to 18 miles per gallon. So honestly, I mean, these stats are similar to my Toyota Sequoia. And so it's not quite as bad as I thought, you know, and some.

Of those mileage stats though are probably on diesel. Like that class A stat is probably a diesel, so.

Right.

You know. Yeah. And the mileage is always better on diesel. But the thing that I think will really revolutionize the RV business is when they become self driving. That's a complete game changer because you could literally go to sleep and wake up in a different place. That'd be pretty fun.

Wouldn't that be fun?

Yeah, yeah, yeah. But I think parks would still be needed and used even. Even if they are self driving, because people still have to sort of stop somewhere.

Yeah. I mean, the kind of parks we're investing in have water parks, water slides, their destinations. Yeah. You know, they have movie drive in, movie putt, putt, golf, fishing, lake, swimming lake, whit, everything. You.

Yeah.

Cool.

So. So how are you finding those deals and evaluating them, structuring them? Anything you want to share there?

Yeah, so it's really hard to get debt on RV parks right now. Sort of like self storage might have been in the 90s. I wasn't around, you know, I wasn't doing self storage in the 90s, but I've heard that RV parks are where storage was in the early to mid-90s. So a lot of those deals are getting done for cash and then once they're completely stabilized, they might be getting a loan from maybe a local or regional bank on these to, you know, try to increase the return. A lot of these deals are getting done and upgraded for cash from what I've seen.

Interesting. And so do you like, you know, certain types of parks or size range, deal size, whatever.

Yeah. So there's four types of parks that we have identified. Number one is an overnight park. And those are convenient, but they have no, little to no amenities. They're just on the way somewhere along an interstate.

Right.

A second type would be extended stay. That's the extreme opposite. This would be like around a lake and they might have, you know, these, these RVs are there to stay. They've got a deck built around them. If they have room, they might have a shed, you know, a special, you know, like a little entry door, etc. That's, you know, built on. The third type is pretty obscure. That's workforce housing. These are people who are working on either a pipeline or an oil field or whatever, like up in North Dakota or Texas. These workforce RV parks are pretty popular. And then the fourth type is a destination RV park. And this is where all the value adds are. I mentioned wibbits and I thought I'd get a reaction there. But in case your audience doesn't know what a wibbet is, this is a wibbet. This is a park that I stayed at as part of our due diligence. And these are two to three hundred thousand dollar floating obstacle courses that they rent to kids or adults for 17 an hour. That comes out to like a thousand dollars an hour in the high season. So it's a pretty cool value add.

The, the Whippet, huh?

Yeah, yeah, the Whippets.

Interesting.

Yeah. So there's a lot of value add.

Yeah, yeah, very interesting.

All right.

Any other deals you want to talk about or market segments?

Yeah, I mean I really like mobile home parks since we brought that up and mobile. There's a tremendous shortage of affordable housing in America. And it's funny, these politicians, you know, they're out there crying against capitalism and you know, for affordable housing, but those same politicians will not approve move a mobile home park in, you know, their neighborhood. You know, that's called NIMBYism. Not in my backyardism. And so mobile home parks are still the only asset type I know of that have a decreasing supply or a stable supply and an increasing demand every year. And there's still a whole bunch of mom and pops out there who are charging a hundred or two hundred dollars per month in lot rent. They've like they've been doing for 40 years where the competitive rate is 5, $600 a month.

Month.

And so it's, you know, still got a lot of upside in those. I'm not saying somebody should go buy it and increase the price from 200 to 600amonth, but I am saying that there is some upside and that there is a real demand. And a lot of the mom and pops can't fill these empty slots because it might cost them 50,000 per lot to put a mobile home on it and then take the risk of selling that mobile home to a tenant. But a big operator can do that. They've got the financing in place and they've got the, you know, the list of tenants that they formalized by doing actual this thing called marketing.

Right.

And so yeah, there's, there's a lot of tremendous upside in mobile home parks.

Yeah, I agree with you. And as I've long said, America, whether it be a mobile home park or not, to solve the housing affordability problem, we have got to get rid of the stigma against manufactured housing.

Exactly.

You know, and that doesn't mean it's a mobile home or in a mobile home park, just manufactured. It's much more efficient to manufacture big pieces of a house in a factory and bring it to the lot than to build it on site.

Absolutely.

I don't think anyone thinks it's a good idea to manufacture cars on site. You know, when I, When I buy a new car, they're not coming to my driveway to assemble the thing.

Okay.

Yeah, you know, it's.

Yeah, it's crazy.

Yeah. Well, Elon might make that happen someday. You never know.

Well, who knows? But there might be some better way to do it in the future. Nobody knows.

Okay, Paul, well, give out your website.

Tell people where they can find you, and just any.

Any closing remarks you have.

Have. Yeah, well, I would really want to encourage people to consider watching the movie Sound of Freedom, watching the older movie nefarious from 2011 or 12, from Exodus Cry to that exposes human trafficking. And so I really encourage people to consider joining me on Giving Tuesday to give to aim. That's aim. That's aim. Free.org we're raising a lot of awareness and money for that group that has 100% charity navigator score. So very impressive group. If people want to get hold of me and hear more about any of these asset classes or anything else, they can reach me at Wellings. That's W E L L I n g s wellingscapital.com resources and you can get all kinds of free special reports and other fun stuff.

Good stuff. Yeah, that's a. That's a great cause, Paul, and I'm glad to see you're so involved with that, so passionate about it. And thank you very much for joining us today.

Appreciate it.

Hey, thank you so much. It's great on the to be here, Jason.

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