Inside Real Estate Private Equity With Kevin Krone

Hey, what's up you guys? Welcome back to the New and Experienced Investor Podcast. Today we have an amazing show. We're talking about real estate private equity. What the heck is that even? Um, it's a show you definitely don't want to miss. I'm one of your hosts. I'm Alex Barnett. I'm the new guy.

And I'm Joe Homs and I'm the experienced guy.

You're darn right.

Welcome back.

Yeah. A couple weeks off.

Yeah.

Producer had a long birthday.

Wow. That's normal.

That's normal.

So yeah, I took a couple weeks off. Uh, we have an amazing guest with us today. He's a residential underwriter analyst. We're gonna get all into the weeds of real estate today, which I love doing. Um, but before we bring him in, let's talk about our meetup that we have coming up.

At the end of the month, June 30th, Hangar 24, 6 PM. A special, special guest speaker this month who's going to talk to us about wholesaling.

Yep.

How to do it. Yep. How to do it right.

How to do it right.

Yeah. And his name is Alex Barnett.

That's me. Yep. Yep. I'm going to be giving a from A to Z how to wholesale How to get leads, how to get buyers, how to get paid.

And, and I've had lots of calls and we have people coming from the Bay Area just to see you.

Whoa.

Okay. Nice.

Yes.

So no pressure.

I'm excited. I'm an entertainer at heart, so.

Okay.

I'll make it real good for you guys. But it's a, it's a great meetup, um, a great place to meet people and, you know, connect with, uh, other investors. from all walks. Um, as always, I like to remind you guys, this is a live show right now, so please share it far and wide and make sure to jump into the chat because you have access to our special guest, myself, Joe. So bring the questions, we'll get 'em answered here live. All right, let's stop messing around. Let's go ahead and bring him in. Today we have our guest, Kevin Crone. Kevin, thanks for joining us. How you doing today?

Hey, thanks for having me today. Really appreciate the opportunity to have a conversation about real estate, my favorite topic.

That's it.

And the one and only New and Experienced Investor Podcast.

Yeah. Awesome. Yeah, I'm excited. Why don't you go ahead, introduce yourself to the audience and kind of let us know how you got into real estate? What were you doing before?

Yeah, it was kind of a long time coming, I like to say. So I have an undergraduate degree in finance, which is a good baseline for, you know, just understanding that, you know, economics, the markets, finance. But I wasn't sure what direction I wanted to head. It wasn't until 2018, kind of that where I finally hit a kind of my lucky break, if you will, joined a startup actually in the cannabis industry, and contributed largely with the expansion strategy using a GIS tool, which we can get into, geographic information system, for them to decide where they would want to expand their retail footprint as a, as a retail store. You know, at the same time, I started volunteering with Habitat for Humanity, where I was physically building houses, you know, with my two hands from foundation to paint. And it was probably about 2022, I decided I wanted to make the jump from kind of a compliance side of things in cannabis to real estate private equity. And so I went to the University of Texas, where I had several internships, one of which was with the brokerage that represented Tesla when they bought the land for the Gigafactory. So kind of a cool experience. I wasn't on that deal, but the firm, it was a great experience. So I, you know, kind of like a lot of people use the MBA as a, you know, kind of a vehicle to pivot my career into real estate and was lucky enough to work with Related here now for almost a year in multifamily asset management.

Are you considered a finance bro?

I have not yet been able to pull off the bro aspect. It definitely comes up in the interviews. I'll let you know.

Nice.

Right before the technicals.

Exactly. Very cool. Interesting. So you were part of the green rush?

I guess, yeah. It was like a round 2, 2018. It was, you could have just a few million in revenue and get valued at $30 billion. you know, to build out facilities that you'll never end up using the capacity of just because the markets were so aggressively overstated, which was the only kind of that tailwind, like the only really sound reason you have for raising more money and kind of keeping the show going. Unfortunately, a lot of people work hard in cannabis, but Yeah. The margins just keep compressing.

Right, right. And they're building all out in the desert basically, right?

Yeah, I would say Coachella Valley is actually a hotspot for industrial properties that do cannabis cultivation in California. Most of the licenses actually are considered like small licenses, but people will stack dozens or hundreds of them together to create a larger facility. But yeah, a lot of times you'll, or at least in the initial green rush, you'll have the zoning approved for industrial locations for your retail store. So that's why anytime, I'm not assuming anyone here has consumed, but if anyone has consumed, you've probably found yourself in an industrial park wondering where you've been brought to. And there's like a little cannabis shop nestled in the corner.

Okay.

With, uh, with good customer service.

Gotcha, gotcha. Okay, so then you went, and then you went from there to the, to the MBA program. All right.

Lived in Austin.

Nice.

During the, I guess after COVID when prices were skyrocketing, right? '22 to '24. Call that the Joe Rogan era because of the, the Mothership Club or the Mothership Comedy Club he opened downtown. Yeah, I, it's hitting its Joe Rogan era right now because the rents are down 20%.

Okay.

I have nothing against Joe Rogan, but—

No, no, for sure. Well, it was like him and Elon were pushing it so hard and they're like, you gotta come out here. It's like basically like California, but you can have guns. And then—

That's very true.

And then everybody went out there and then—

Rents skyrocketed.

Rents skyrocketed. Yeah. Real estate skyrocketed, but kind of created a bubble. And I guess you're saying that it's pulling back now.

Yeah.

This past year they've delivered something like 40,000 units of multifamily inventory. The rents came down about about 20% in Austin from the peak in about '22, '23. So it's, uh, there's definitely been some headwind, but I heard that Google's gonna, I guess, do build out some of the TI in their new office they got on the shore. So, okay, I think there's like a slow recovery.

Right.

You know, Austin just has a lot of tailwinds within various industries, like, you know, in tech and whatnot, that And AI's been kind of a tailwind as well, right? San Francisco alike.

Oh yeah, San Francisco. I mean, talk about San Francisco real estate.

That's been, uh, quite the, quite the roller coaster.

Quite the roller coaster. I mean, I saw some video today about the, you know, the malls are like just completely empty.

Yeah, um, they're giving them back to the banks.

Yeah.

You know, here, take it. We don't want it.

Right.

Office buildings selling for, you know, a fraction of their kind of value at the peak. The rents are starting to firm up a bit. So occupancy going up, at least in the portfolio I manage, it's about 1,500 units in San Francisco. So you're looking at occupancy improving, increasing, as well as the rates per square foot are also kind of holding steady and increasing. So we're finally starting to see some tailwind, I think, with AI in the San Francisco market. But it definitely doesn't change the environment that you're working in. It just kind of pads the top line where you can afford to pay, you know, special assessments and—

Right.

Other regulatory fees just for operating there.

Yeah, absolutely. So when, when do you come back to California after Austin, and what brings you back?

That was in, uh, September of last year after school. I, uh, actually went to, uh, high school in Mission Viejo for about a year, and I also, uh, um, my wife went to UCLA, so we just wanted to Come on back home, and we're loving it here in Orange County.

Mm-hmm.

Yep. Great market.

Yeah.

Moving into home building.

What's not to love?

I don't know.

You know?

Yeah. I think we're seeing that a lot with people who made the exodus to Florida, made the exodus to yeah to Texas. Some are coming back.

Yeah. We had lunch with a lender today, and he said the same thing. He was in the Bay Area, San Francisco, and He grew up around here. He said, I had to come back. Why not?

It's pretty nice.

Yeah, I feel like, I feel like people look at it as like you're saving money when you're moving to Texas. And then, I don't know, I think you get like a living cost of living adjustment when you're moving to Texas. I think when COVID first happened, people weren't, were not getting the cost of living adjustment. So you could make additional money working remote. But I must say, I think the back-to-office mandate is the strongest it's ever been, like, as of today.

Right.

I'm in office 5 days a week. My wife, who swore she would never go back to office, is in office only 1 day a week. But that's more than nothing. And I think that goes really far to spur even your— I don't think we realized it, but we had a dry cleaner go out of business in one of our buildings because people were no longer— Cleaning their dress shirts to go to the office. They were working remote. So now you have all these ancillary businesses, lunchtime food operators, people that operate ancillary businesses to the back-to-office culture, and they're just— they've been struggling for years.

Well, I don't see why, because when I worked from home, I get into a 3-piece suit every morning.

Did you get a massage every morning too? I bet you they're hurting.

Double-breasted?

Yeah, you know it.

Wow, yeah, that's classy.

Hat and everything.

It's a classy—

That's right.

I'm sure it wasn't a leisure suit.

No.

He means 3-piece tracksuit.

Exactly, yeah, wifebeater tracksuit. No, it's interesting. Yeah, it, um, I mean, right here there's a coffee shop just opened in the little office center Which I think means people are coming back to the office.

Where?

Right here. Like right up the road.

Right around the corner.

It's in like the office buildings. There's a coffee shop right there.

Like these office buildings here?

Like these ones, but it's up the road.

Farther.

Across the stop sign and you're like second, uh, second left in those off— like the industrial buildings.

That's where their welfare building is.

Yeah. No.

Oh. Across the street.

Well, everyone serves coffee.

Yeah, it's not the welfare building. Opposite direction.

Yeah. Yes, you go out of this and then make a left.

Okay.

Like you're going to Baja.

And it's good.

Go through the—

yeah, it's like right behind Baja.

Yeah.

Anyway, anyway, give them a review. You know, I'm in the— I'm in the top 10% of Google reviewers for cafes.

There you go.

I need to—

are you?

I am. Oh, I actually am in like 5 different categories.

Oh my gosh. How many reviews have you done?

Uh, I think less than 150. I have a very high viewership rate on my, uh, on my reviews that I leave.

That's cool.

I usually talk about like parking.

Yeah.

All these hard-to-find points, you know, just how to have a good ex— you know, maybe what they should get off the menu.

Yeah. You're the guy that I rely on when I'm going to a new place.

I am. I'm leaving positive reviews, so I don't—

right.

I won't, you know, comment on— yeah, nitpicky. You know, people want to know how to enjoy a Inexperience.

Exactly.

Versus, uh, well, you want complaining.

Yeah, you want all that information before you go there. So you're like, oh, I park over here, and, or it's going to be hard parking, so let's leave a little bit early. That's great.

Do you find that people are bringing their pets more often now to places like that?

Well, California kind of— SoCal has like a culture to bring your pets.

Yeah.

So I feel like that We may be in a little bit of a bubble, but I feel like it's gone kind of out of the window in real estate just because people haven't had fun for the past few years. Like, in the office that I work in, people tell stories all the time about how we used to play ping pong and have a drink on Fridays. And—

I never did that.

One guy's dog came into the office. I have 2 of those now. And, uh, ran across the suite next door and all the dogs were banned. So, uh, so at some point, yes, but eventually everything gets banned.

I worked at a, uh, game startup and God, like it was, they were trying to like be like the Facebook headquarters, you know, where it's like we had like a snack room and then like you go work out over there.

Take a slide down to the—

Yeah. You never did anything. I'm just walking around just doing nothing, getting paid for it. And then they ran out of money, and then I showed up one day, they're like, we're not a company anymore.

Nice.

So I think Microsoft is going through that right now. I think they're doing like a big layoff.

Yeah, I saw that.

My friend who works for Microsoft actually said, they called me and they said I need to start working again. So now he like actually like, oh, has to do his work.

Exactly.

Wow.

Yeah, someone will call him at like 7 PM and they're like, we need something, and He'll do it. But I would say for the past like 6 months, nothing. He's been like texting everyone to go play basketball at like 3:00 PM.

Yeah.

And I'm asking him how he has time to do this.

Was he a former government employee?

Current or no, he's current, current Microsoft, but not former, uh, government.

Well, Elon kind of changed all that when he would, when he went into Twitter and he's like, 80% of these people are doing nothing.

Yeah.

Keep in mind that app crashes now more than— That app crashes.

Don't worry about that. Don't worry about that.

That app crashes so often.

It's like maybe we could bring 5% back.

Yeah. Like at least like a couple of the guys, maybe the janitor. I don't know what, maybe someone's desk got cluttered.

Yeah.

But it's like, I get the point of it because you want to keep everybody in the office. So you have like cafeteria and Like anything that you want is there, so you never leave, but then you just end up walking around doing nothing. It's interesting.

It's a shame.

I think if you have proper supervision, you know, people are there, they know that they're being watched.

Right.

They're gonna do something.

Yeah, but there's something to be said.

But if you walked around doing nothing, that's what they wanted you to do. Seriously.

Well, I could get all my work done in like an hour.

When you walk in the door here, it's like, hey, Alex, what's going on with our next project? Give me a briefing.

That's what I was gonna say.

Break it down for me. You're not running around.

No, that's what I'm saying. We have the coffee thing.

Getting snacks or anything like that. Do you ever drink that coffee?

No. Oh yeah, sometimes in the mornings.

Yeah.

It looked completely full. It looked like no one had.

No one's touched that here.

I don't think anyone's touched it.

That's because we're talking, you know, You're not millennials. What do I call you guys?

I am.

I'm an elder millennial.

We're millennials.

I'm a young millennial.

I'm an elder millennial.

You millennials running around, you know, you don't believe in that type of coffee. You have to go out. What do we do? We have lunch. And then you're on the app ordering coffee from the next door.

Yeah, True Brew.

To bring it— yeah, to bring it back. It's like, okay, whatever. I drink that. And honestly, I know it might sound a little bit gross, but honestly—

It's a good intro.

I didn't use bottled water for a long time. I just went over to the bathroom and filled it up. You know, it's like—

From the sink faucet?

Yeah, of course.

Okay, well, from the urinal, like along the side.

The flushes.

No, that depends on who's coming in. Okay, and then I'd offer them coffee. But no, you know, and then, you know, my kids said, oh gross, we can't drink that, you know. That's okay, so I'll just throw that in.

Yeah, it'll appease everybody. He's got clean pipes. Yeah, and infrastructure.

Probably got clean pipes.

Yeah, but we're in America.

No, yeah, we're good.

We're in California.

We're good.

Clean water.

But, um, yeah, all that just comes from like these valuations and they have endless money, you know. So they, they spend it on all this fluff. Must be nice. And then one day the doors shut cuz they're like, oh crap, we're not making any profits. So let's segue that into the real estate private equity where you guys are basically, can you explain that?

Yeah. What is private equity?

Private equity. The, the dictionary definition.

No, Webster's.

Webster's. Oh, though you got, you did it the way I was meaning to do it.

Okay.

You basically, it's kind of like you, if you think about it in the broader context, you have public money, which is people investing in stocks and your bonds. You've got this public money. I won't get into the whole debt portion, but when you're thinking about real estate private equity, you're literally thinking about people raising funds or doing JVs or using their own capital. This private capital, not from a— well, it could be from a third party, but it wouldn't be like a public security that's issued. It would be essentially this private security, different rules and scope of regulation where you're investing in real estate assets. People who might want to buy a property after it's been flipped, that would be a private real estate investment. That in the simplest form is real estate private equity. And now when you get to kind of an institutional scale, that's what a lot of people think when they hear private equity is, oh, it must be BlackRock or KKR or Apollo Global or what have you. And that is, they are allocating funds and raising funds for private equity, but really anyone who can raise money is engaging in real estate private equity activities. Doing evaluation, raising money, buying, selling.

So another definition is you can take your money that you want to invest and put it in directly in the bank, and they give you a set interest. Instead of doing that, maybe you give it to Alex's private equity firm, and he promises you way more interest than you can get at the bank. And that's the difference. And then also putting it in the bank, they have way more regulations Than private equity, correct? You don't have a lot of people looking over you.

Yeah, you really— and that's why it gets, you know, there's more risk. And that's why you would get what we would call a risk-adjusted return, where you, for that risk, you would hope to be compensated with more of a return, which is why the, quote, safe thing to do is to put your money with a bank, because there's no really decisions or stewardship. It's kind of out of your control. Now recently, I heard that they're going to potentially reduce the fractional reserve requirement for banks, which would add risk to the entire financial system. But we— I don't have intimate details on that, but I recommend people look into it.

Yeah, but if you're putting your money in a bank, and let's say you put it in a CD, you can get a CD for what, 4 or 5%?

Yeah, you probably get one for about 4.

How much is private equity going to pay you for that same money?

Hmm. Well, a lot of people are actually, it's funny, raising private equity actually to issue debt because it's been less risk for, you know, with high interest rates, you're getting like a pretty decent return. Maybe your hard money is like low double digits. I mean, that's twice a CD with the same covenant protections as debt, as an early creditor.

Yeah.

In terms of a, in terms of a— in case of a bankruptcy.

Yeah.

So in that case, the return can be very large, which is why a lot of people have started private credit funds over the past 3 years. I know a couple of people that have been looking into doing private credit just because now you're getting basically the same returns as equity was just a few years ago, or I should say similar. It's quite a different market than just a few years ago.

Yeah, we had another guest that said they just started— they opened up, you know, credit lines for people and they weren't doing as many deals. He was putting his pencil down is what he said, to kind of wait till the interest rates dropped, especially with multifamily and bigger assets like that.

I don't know if they're gonna drop.

Before Alex and Lauren came on the scene, I used to basically lend my money out to flippers and they were paying me 10% and 2 points. So it's like, for me, it was a no-brainer because I know the industry, you know, like the back of my hand. It was me vetting the flipper who was doing flips in LA, um, and, you know, obviously he showed me his projects and stuff and what he was doing, and he never, never not paid me, you know, bought the property, closed it, paid me, paid me off. I thought it was A really great deal.

It's pretty good.

Yeah.

That's not bad at all. Now you just said the interest rates, you don't see them coming down.

I heard—

He just said yesterday, Powell.

Yeah, 2. He said 2 this— by the end of this year.

Right.

Well, war is inflationary. Am I close enough to the mic?

Yeah, that was good.

So we're gonna see what happens, but the Fed has 2 mandates: employment and their— and inflation.

Right.

That's their— and they kind of are like doing the gauge of if we increase interest rates, are we going to have— is there going to be mass unemployment? Because the labor is your easiest lever to pull for optimizing a business or making it liquid. It's like—

Yeah, but employment's good right now.

And, um, tricked up just a, just a point, just a 0.1. You know, since I looked at, uh, now I can't remember what 2 readings they were. But it was like the last 2 PCI and employment readings both went up like 0.1, which is relatively stable. But yeah.

And inflation is not going up, you know.

That was 0.1. So I would say it's like relatively like flat-ish right now. Oh yeah. But if it's flat, either you're going to reduce rates, which they still haven't, or they think there's going to be a reason for it to go back up again. But no one really knows.

I know. He should be dropping them.

I know.

Trump's like—

If not, my year-end prediction is not going to come true.

Right.

I predicted in December, at our December meeting, that they would be down at 5%.

Well, it's funny because all the headlines are like, it would just be Trump. And he's like, I'm trying to get Jerome to do it. And I'm calling him every name in the book. He just hates me. I'm like— That's your negotiating power? He's like, I just roast him.

Kind of a small guy. And I'm like, why is that even part of the conversation?

He just has to roast him till he like drops the rates.

It's so annoying. But 26 is— he gets an opportunity to like—

oh yeah, he's gone. He's gone. Oh man, he's gone next year. He's gone.

The guy who goes in, or gal, yeah, could literally be like a Zerp stan, meaning like They want to have as low of interest rates as possible. And I think that's— I think Trump— I think there's a small chance Trump does that.

So we need to buy a bunch of stuff right now.

Then—

Interest rates go down, profitability skyrockets, sell for higher values, cash out at the top of the inflation crisis. I mean—

Yeah, exactly.

Work on that timing. Work on that timing.

In the late '70s, It was actually 2 waves of inflation. The first wave, or the, I think, late '70s, early '80s, was— it was like a 9% wave was the first kind of tranche. And then it kind of sort of leveled out at a lower level. And then it went up to the 21%. So, a lot of people think it was just like a big kind of just inflation crisis. There was actually 2 inflation crises. And we've actually nearly matched—

Right. And guess who was president when all that happened?

Jimmy.

Jimmy Carter.

Habitat for Humanity.

Our guy.

Yeah, yeah.

He had to sell his peanut farm to be president.

Yeah.

Wow. They made him?

They made— he did. I think they actually can't really make you, as we're seeing now. I think he did it because the public was criticizing him and his potential conflict of interest. As being a business owner.

Oh my God.

Yeah.

It's like, that's the whole point. Hook myself up, my family and my friends.

Isn't that the Biden way?

Yeah.

That's every— you, you're in power. That's just how it happens.

Yeah. True. They, they all do it.

Um, okay. So, but you've kind of moved in a different direction now where you're working with, um, Funds, and those funds are going towards homebuilders. And so now you're moving into more residential, not as much commercial.

Yep. Land investing for residential builders like Toll Brothers or Lennar, some of your major homebuilders. I'll be working with a firm called IHP here coming up. And they, like I said, do JV deals as well as just straight equity investments where maybe they're more of an LP rather than a GP. So kind of from 2 different fronts, if you will, allocating capital on behalf of institutional investors, as well as from their own, you know, private capital available to them, you know, still private equity after all, uh, investing in these deals to, uh, prepare the land to be, you know, fully entitled lots ready for home building. Uh, that's the majority of what they do.

Mm-hmm.

As well as just providing capital to home builders to Do a soup-to-nuts kind of preparation, both of master-planned communities as well as build-for-sale— build-for-sale and build-for-rent, sorry— product as well.

But it'll be full, like, just like you said, master-planned. It's not—

Yeah, hundreds. And it's weird. Did you know that? I don't really think about it, but if you have like a 1,000-home master-planned community, like Toll Brothers can just come in and buy like 100 of them. They can just— and they just piece it out to different builders that will complete the neighborhood. I always, for some reason, I always thought they were all completely different neighborhoods.

Right.

But they're not. Essentially, this company IHP maybe buys the entire selection of land and then pieces it out, some to Toll Brothers, some to Lennar, some to Pulte.

Right.

A lot less work on the home builder side. Never realized.

Is IHP Imitation Homes?

It is not. It's, uh, it's a different, different company. Uh, we would sell lots of land though to Invitation Homes, and maybe they would purchase them to build. Yeah, for sale or for rent.

So now when you are— you or your company— when you go out, you know, let's say you go out and you, you're looking at buying this piece of property, obviously you're going directly to the owner, correct? And are those Most of those owners, just, you know, regular mom-and-pop type owners? Is that what you're dealing with?

So I haven't gotten into the weeds just yet. That'll be coming up here shortly.

Okay.

But, uh, you know, they're targeting areas where they can put these land assemblages together, kind of like, I think, your— I don't want to say average, but kind of your average land investor putting parcels together. But these are really, uh, large parcels. So I could see the city owning the land, a lot of negotiations with the city, and/or maybe, you know, a telecommunications company, if they've, you know, formerly had towers in the area, or, you know, a church, which might have had land there previously. At least when I do my analysis of the land parcels, I usually see the city owns, you know, more land than you think, especially the large parcels.

So my follow-up question, if it's mom-and-pop, and you're saying city, which Which is like totally different. But if it's mom and pop, and I'm going and I'm buying Alex's property, he's going to be telling his neighbor what's going on. Do you find it difficult to buy a large swath of property once the first purchase is made?

It's, it's definitely less likely a deal is going to get done if you have to bring in multiple parties. I have seen up to Like 3 or 4 parcels be combined. But once you need agreement from everyone and it's more than I think 3 or 4 people, I think you're, I think you're just reducing the odds that your deal actually closes for one reason or another. It's, you know, just people.

Just people. Yep.

Poison the groundwater.

I heard a great, I had a great story I heard at a, at a conference I went to, a mining conference. And this guy needed to buy a huge tract of land in a neighborhood because they wanted to put a gold mine. They wanted to like build a full gold mine in this neighborhood. And you would think that, you know, you would do like a full campaign, marketing campaign with flyers and what have you to sway the vote of the crowd or what have you. They got 6-packs of beer.

Yeah.

And they knocked on each door individually.

Perfect.

Had cracked a beer open with all the neighbors in the neighborhood and got approval for the gold mine. And after they finished, you know, fully removing and excavating the material, they replaced it with like a public park area.

Yeah, there you go.

In that case, you have a public benefit.

That's good. Do you know how Disney acquired the property for the original Disneyland and the one in Florida?

I only heard that they basically did it in super secret covert entities to try to put it together so no one would get the scoop that they were doing such a large land assembly. A lot of people think that that'll be the last park, at least in major metro areas, where you could assemble that many acres of land.

Yeah, he used an instrument called the land trust. I don't know if you're familiar with that.

No, I'm not.

Yeah, it's like a A living trust for a family. But it deals with just land. We use that every once in a while. And that's basically for privacy reasons, just like you said. And he was buying stuff and naming parcel number 5. And then the next one, parcel number 7. Nobody knew who owned those properties because all that is private. And that's how he did it. Yeah.

Wow.

Pretty amazing.

What a visionary.

Yes.

Because like, you don't know that that will succeed right before it occurs. And yeah, what a gamble.

Yeah, he made it happen. I saw them building, uh, there was like an apartment building we drove— I don't know, somewhere in Arizona, an apartment building. They had like an amusement park attached to it. You ever seen anything like that?

I have never seen anything like that.

It was insane. We're like, what sort of amenities does this place have?

It was like one of those luxury apartment, maybe condos or something. And literally coming out of the side, it looked not the same as Vegas, more plain, but it was just this bright yellow coaster track coming out the side of the building.

I'm curious, is that other income?

Yeah.

I don't know.

We were like, what the heck is that?

What should Which jail, uh, you know, chart of account is that going into?

Exactly.

Somebody has to pay for it. Was it, was it an apartment complex?

That's what it looked like.

Yeah, it just looked like a regular— It was like condominiums.

I don't— I couldn't tell the difference, but yeah.

Wow.

It's interesting. But, um, yeah, what do you, um— so now that you're moving into residential, and what was— what I guess let me ask you, what was the reason you moved away from commercial into residential?

Uh, well, this, this opportunity is, uh, gonna give me a skill set across acquisitions and development versus just asset management.

Right.

So that's, that's a major benefit. And, uh, as well as being able to build homes. And like I said, with Habitat for Humanity, I've literally already built, I'll say, most of a home. Some stuff is left to contractors.

Okay.

But to be in this type of role would long-term set me up for building communities, which is what I want to do.

Wow.

Are you going to do that in California?

If they make it possible. It's a difficult place to build, but the folks that make it work, there's a little bit of a moat around the community in that some people are willing to go through kind of the headache and some people aren't.

I mean, when we drive out to Hemet, it's like I see communities popping. You go over Ortega, it's off the, uh, there's not really any highway.

Producer does not want you to mention that name.

I'm just saying, I see—

well, it's right by the coffee shop.

Yeah, exactly. Yeah, well, I'll just like— I feel like we'll go out there, we'll come back, go out there again, and there's a whole new community like just built.

Yeah, they are building them fast.

It's pretty insane.

Okay, forget it.

Yeah, no, well, the guy that did— whoever did the Ladera Ranch, apparently he's out in, uh, Atalanto, or, you know, the high desert now, Apple Valley, and he's building master communities.

I heard yesterday that, uh, the president wants to sell some federal land in California.

Mm.

Because, you know, the federal government owns a lot of land.

Yep, a lot of them do. Yeah, a lot of land.

And so that's what I heard yesterday. So maybe that's your next step is—

yeah, maybe they need to get that land and chop down the trees, chop down, ruin the environment. I'm trying to be a positive—

we're not the bad developer guy, we're the good one.

Are we not low on inventory?

Yeah.

We're at low.

Yeah.

Yeah. But you also wanna keep, you kind of wanna keep, it's sad, it's kind of sad, but you also kind of wanna keep the inventory where it is. Like you have a constant tailwind of supply-demand imbalance. It's kind of unfortunate, but there is no incentive to overbuild homes because then you have to haircut everything with lower pricing and less demand or the same amount of demand for more supply. Kind of sucks.

The average price here in Orange County is over $1 million. So, you know, how many young people are walking around with $1 million? They spent it in, you know, their education.

Oh, I know. And Ibiza.

Exactly.

And at True Brew Coffee Shop around the corner.

Oh, that's right. You guys drink too much coffee.

Yeah.

How much is it? Like $5 a cup or something? No.

$8. I know. Don't do the math.

Oh my God.

It's $5 for like Tea and you have to make your own ice.

Yeah, exactly. Yeah, it's going crazy.

Wow.

Yeah, don't do the math on that. Okay, interesting. So you took this job to build your skill set?

Yeah, wide skill set across development and acquisitions. It would be nice to build housing that is affordable. Like, uh, the company I work for, they've done some entry-level, uh, housing inventory just southeast of Austin in Buda. Um, great community that they built out there. And that's— I'm excited about kind of building a wide set of inventory. But again, we probably couldn't build fast enough to keep up with the demand.

No.

As well as with the costs. You kind of have a minimum that you can charge for a home.

Yeah.

You need to make your margin on the land and the labor and the materials. And land and materials, or labor and materials, is Going up. Skyrocketing.

Yeah.

Kind of an old story.

It's really going up.

I'm tired of that.

I know, I know, I know.

Everyone's like, oh, how are pricing? Oh, not going down.

Yeah, I know. It's just, it's just not. I mean, yeah, there's nothing you can do about it. You just have to make more money, I guess. It's the only answer.

Let's do it.

It's the only answer that comes to mind.

Kind of on that note, in the, in the Palisades, I think they've done like 67 permits or something, like a few, only a few dozen. I think have had permits. And I was reading an article in The Real Deal that they think the land prices have not even hit close to a bottom. Because, you know, people are essentially— you're on a timeline of holding costs, just like any land investor. And people are going to run out of their kind of runway to be able to do that holding cost. And once, once the pressure is on to sell, Right. which is going to be the case for a lot of people, Those land prices are continuing to, even today, like they're continuing to fall.

Right.

Which is really sad.

Yeah.

But that's the regulatory burden. You know, that's what I blame it on.

And the city puts rules and regulations and, you know, they're not letting the free market be the free market. And, you know, if that lot is worth $2 million, they're not gonna let you sell it for less than that. You know, they're thinking that, oh, this investor's gouging. That person, they're buying it for $1.5 million. No, that's what it's worth right now, you know, get over it. Yeah, don't talk about LA because we don't like LA.

A lot of people I talk to, uh, kind of treat it like the dentist. They're like, oh, we gotta, gotta go build in LA again. Yeah, like no one's looking forward to it.

No, not at all.

But I feel like some of those houses were worth $20 million, right? Like, yeah, let's say on average it's like $15 million. In my— in what I was told from someone that had done house flipping was like the thirds rule, where like land is a third, your improvements are a third, and like your sale price would— or like your margin, I guess, would be a third as well. Like what you, you would sell it for, you know, half more than that, which would be— Let's say, uh, on a $15 million house, like $5 million land $5 million house, sell it for $15 million, right? Like super rough numbers.

Yeah.

Like these homes, like these parcels are going for much less, like half of $5 million. They're going for just a couple million apiece.

Yeah.

But the house that's going to be put on it, I think, is going to be like a $10 to $20 million home.

Yeah. Yeah.

So a lot of people are missing out on that value of being able to hold or It's just an awkward situation where, you know, 5,000 homes hit the market at the same time.

How long before you think everything's put back together?

I don't even think you have like the vendors available and the supply to build it. I would think the final home gets built maybe in like 7 years.

I think you double that.

You think $14 million? I was gonna say $10 million, and I was like, $7 million kind of seems approachable.

I think it's probably $15 million, if that much. And see, that's always my question is, like, if you owned a property there, and let's say it was worth $10 million at the time, and the insurance companies, they're never going to make you whole. But let's say They give you $10 million. Why wouldn't you take that and go someplace else? Why sit around renting a place, dealing with all that construction and everything for 10 years or 15 years, even 7 years? It just doesn't make sense to me.

Yeah. And people are still getting their real estate tax bills. So you've got your lot of land valued, and your home was valued at $20 million by the assessor. And now They've not dropped your value at all.

Yeah, they will. They will. It just takes time.

Yeah, you can appeal, I believe.

Yeah, you can.

But, you know, the fact that they're— the city is like, yeah, they're trying to make a good response to the incident and they're sending out like property tax bills to people. Yeah, it's like kind of a bad—

it's not a good look.

I'm trying to stay positive.

Yeah, I mean, and you know, they had mortgages as well. They— that doesn't stop either. They have to pay their mortgage. You know, so there's a lot of pressure on those people. I would never want to be in that situation.

That eats at the runway that people have before they need to sell the land. And so they're taking a big discount. Yeah, maybe just to, uh, close out the mortgage, which would be unfortunate, or maybe give them holding costs until— or mortgage payments until they can just get reimbursed. By the insurance company.

I heard something similar. I talked to an investor out of St. Pete, you know, they got hit by those 2 hurricanes, same sort of thing. She's like, you're trying to do any sort of flips here, it's like getting the permits is taking like a year.

A year?

Because they're so backed up from all the hurricane damage, and then they won't even let you fix your house. It's like you have to scrape it and rebuild it.

Or you have to build it.

Yeah, yeah, or yeah, put it, put it up.

Yeah, I heard that too.

And then they can just basically stop—

You've been watching too much YouTube.

I actually talked to a person about it.

There's no such thing. Don't ban us.

Exactly.

We're on YouTube.

Yeah, no, we love YouTube. Very cool. Do we got anybody in the chat?

Yeah, we do.

Nice.

Okay.

Lay it on us.

We got Liz in the chat. She says hi.

Nice.

What's up, Liz?

And then we've got Jacob. He says, really appreciate this conversation. Always interested in PE and finding ways to improve my firm.

Nice.

Should we talk about improvements?

Yeah, why not? He asked.

Let's do it.

So, uh, I just presented to my, my now former company, uh, related on the uses of AI in real estate. Seems to be a really popular topic. We don't have to talk about it if, uh, you guys have already talked about it a lot or—

No, no, lay it on us.

Are good to go. But there's some interesting companies out there that are offering AI services, and I've done some demos with them, and my company's actually adopted a couple of those software solutions in their operations, one of which is like rent collections. as well as inbound tour scheduling and price quoting, like kind of like leasing assistant, assistant manager type responsibilities.

Nice.

The tool's called Elyse AI. They just had like a tech conference here just a couple months ago. And at least like the New York subsidiary, the New York related business was able to cut down their average rent collection time by something like 30% to 40%.

So the rent collection, is that like hiring Optimus to go knock on Alex's door and demand that he pay his rent?

Except it's like a Terminator, but it has like a smile.

Rent's due.

I like that. It's like, your rent is due.

The eyes glow red.

No, I don't have it. I'll be back.

Except they can call you. I never saw— I don't know if I ever saw the Terminator on a phone call. Maybe he was— maybe it was one Arnold Schwarzenegger Terminator 3. I think he made a phone call from a phone booth.

Oh, that's right.

The first early one, he was trying to find Sarah Connor. And he talked to her son's Kind of not adopted, but you know when you take care of kids, what is it called?

Foster.

Foster. Foster. Yeah. And then he went over there and yeah.

For YouTube reasons.

Eliminated them. Yeah. Yeah.

How are they? How is the AI in the rent collection? Like what is the? What's the deal?

Is it just harassing the people?

It's definitely harassing the people.

Yeah.

It's just a chatbot that never really. Hey, give me the funds today.

Wait a second. Yeah, I just got a text. Oh my gosh, I just talked to you on the phone 2 seconds ago, you know. Okay, I'll get it to you, you know. Do you want us to take it out of your bank account? We'll do that too.

I will bring my base— no, it— the feedback is people can't tell that it's an AI bot calling.

Oh, okay, okay, okay. So it's somebody—

it's— so it's called, hey, can we get that? Okay, can we get— literally, it's like, can we get our money? And it does that. And it's, it's, you know, reducing your collection period by a few days is You know, in the millions for these institutional investors is worth a lot.

Yeah.

Um, so that's like rent collection, kind of your leasing assistant function. The only thing that's in person would be the tour. But even, you know, nowadays you could have, uh, Irvine Company, they, they have a pretty good app situation where you can do a full tour of a property, more than one property actually, in a day, and it's fully guided on your phone. But, you know, there's a lot of, I'll say, gimmicks out there that people are unsure of what to put their money towards. A lot of different software solutions that maybe you show up one day and it's like the gaming company and they spent too much money on the slide.

We're done.

They're running around eating and playing games and stuff like that. Doesn't sound like that's the case.

Alex should also add to that story that he was Producing the music for the game.

Yeah, I called it. I was making bleeps and bloops because it was a slot machine game. So it's like all the. I just like made those.

So well, there was like what do you call it? Like a corral of people in the middle of the office, all like coding and nerding out. Alex was just in there like playing guitar and stuff.

I had my own office. Yeah, like all those.

You had your own office.

Studio gear.

Yeah.

You like doing more work than most. the engineers that day.

Now they put them in there to keep them quiet.

I had to like soundproof it and everything. But yeah, it was fun till it was no longer.

Did we answer the question?

Improvements. Yes.

Improvements. Yeah. You know, leasing assistant, that's a big one. Um, you know, the other one, it seems kind of trivial, but, uh, you know, Owl AI or Firefly, the, the note-taking and note and meeting summary AI. You know, could not recommend it enough.

Right.

Uh, from what I've seen, it's great for meeting minutes, HOA minutes.

Yeah.

Um, committee, investor committee minutes. Like, I highly recommend, like, an AI kind of agent. Um, that's kind of what these are now, are these like little software agents. Leasing is one, note-taking is one. I built one in ChatGPT just with a prompt. So now I can just put the word formula mode into my personal GPT and then the Excel formula, and it'll, it'll walk me through how to break down the formula with tests of how to debug my own Excel, uh, you know, code.

Yeah, no, it's, it's huge.

I mean, it's amazing. It is.

You're gonna be able to run like your own real estate company just with a very minimal amount of people.

Like, you're fired.

It's insane. By the way, you're fired.

You're fired. Yeah, no more, no more playing guitar.

I talked to somebody— yeah, really, um, the other day. He made a Driving for Dollars app, but it's AI. So they imported all of the Google Street View because Google has already driven like basically all the US. They got all that information and then they wrote some sort of code or algorithm that it looks for distressed properties. And then pulls that list and then cross-references it with, um, any sales within the last 5 years. So, you know, it's still available and then you can get that list, which is pretty nice. 'Cause it's not like a normal list. Yeah.

It's not a normal— Hours of work. That's hours and hours of work.

Well, and it was interesting 'cause the guy was like, he was the, the original idea came from this guy was gonna pay somebody to drive Drive for dollars because it's a really good list because with PropStream and all these other ones that you pull and they're like pre-foreclosure or probate, everybody's hitting those. But there could be someone that has a distressed property that's not getting hit up because they're not on any of those lists. They just have a beat-up house. And then he was talking to his buddy and his buddy's like, Google has already driven all the streets, so we just need to get that information and run it through the code, and then it's pretty interesting.

I want to let the public know that if you have any ridiculous gadget out there, this is the man who will buy it.

Oh, wow!

He buys anything and everything.

I did not expect this to go in that direction.

Yeah, anything and everything. Am I wrong, producer? I will at least hear about it.

He's got a little doubt.

He calls me, he says, Joe, what do you think about this? I go, what? Yeah, that's crazy.

And then he still buys it most of the time.

I got a list.

So if you have something to sell that's out of this world or ridiculous, call this man. He'll buy it from you.

Please don't call him.

I know, it's like, whatever is the telephone number again?

Shark Tank.

Exactly. Call in now and give a pitch like Shark Tank.

Um, a lot of people are pitching, like I said, all those AI softwares.

Yeah.

You really don't know which one is even really AI. No, no, it could literally just be like a bunch of people in a room.

Yeah.

Trying to collect rent.

Exactly.

It's so difficult to tell.

I know.

Literally, there's no way to tell.

There's no way to tell. It's, I think, well, what's cool is these AI agents that they're talking about where you can make your— Are you serious? Yeah, exactly. You make your own. Does certain tasks that you want it to do. I don't know if it's—

I post to my website.

AI necessarily, but—

I post to Instagram. I post to YouTube.

Yeah.

It's all done.

All the mundane things.

Come into 2025. The water's warm. Come on in.

That's really nice.

Yeah, come on in.

I'm there. I'm there. All right. Um, this is the part of the show where we've curated a few videos that we'd love to get your reactions on. Do you have a second?

I've got time. I'm generally like— I don't want to say expressionless.

No, you don't actually have to react.

I'm like a pretty even-keeled guy.

Commentary.

You need to react.

Yeah, we need the thumbnail.

It'll be like commentary.

Once I can hear myself, I'll start repeating.

It's mostly for the videos. There you go. Perfect.

Okay.

All right.

What do we got, producer?

First one, I think we touched on this a little bit. Um, 90% price cut on San Francisco buildings.

A San Francisco office building is selling for 90% less than it was sold for in 2016. Back in 2016, it sold for over $60 million, and now it just sold for $6.5 million. There is a lot of issues in the office sector. Commercial real estate in many places is crashing. Click below. I made a full video talking about this situation nationwide and what's being done with these buildings. A San Francisco— Okay, my first take, uh, with the headset on is that he's really, really convincing.

Yeah, exactly.

Okay, one, one thing someone told me was that when someone buys office building for a big discount, they're buying the equity portion. So it could change depending on the deal or the headline you read.

Mm-hmm.

But if they're, if they're buying a deal, sometimes they'll report the equity portion and maybe the equity portion dropped off, but maybe there's still like a bunch of debt and maybe that's not the actual like quote value. Because you're, you really can't buy the debt portion and someone's not just gonna, I think, buy the whole thing with 100% cash. So Depending on the cap table or the kind of the capital stack, they could be— the valuation of the building could be a little different than we think it is. That being said, San Francisco, depending on the street you go on, it might just be worth that much.

Right. And I picked—

sorry.

That's all right.

What do you do with something like that if you buy it? I mean, you're a big-time investor here. You know, you work for a company. What would you do with something like that?

So kind of crazy, the, the con— the conversion, the office to residential conversion. People are basically trying their hardest to try to make that financial model check out. So that's— I've heard it a couple times. It's not really common because the floor plate doesn't really make sense. No, but people are putting a lot of money into Trying to make these types of conversions pencil. Um, other than that, if it's, if it's in the— I believe it's the SoMa region, like very small neighborhood in San Francisco— maybe an AI company moves into it, right? Could have some legs. I wouldn't buy it.

Yeah, yeah, exactly. Well, I was going to say the reason I picked it is because I saw you— I was perusing on your LinkedIn and you had reposted something about the 23andMe building where it was the same sort of thing. They're going through bankruptcy right now.

They are?

Yeah, yeah, your data is out there, man.

I would like to add some of the states are actually suing 23andMe right now to block the sale because 23andMe was going to hand over all the genetic data with no consumer consent. They were just going to hand it to a PE firm like, right, toodaloo, there you go.

Yeah, and then that's— that gets dark. Then you're just gonna have a clone out there somewhere. But yeah, their building I think was, I don't know, $180 million that they bought it for, and then they're getting rid of it for like $80 million.

They got creditors to pay. Yeah, yeah, that's how it is.

I know. So if you're a company, or, you know, let— I mean, there's people losing hundreds of millions of dollars on these deals. Like, is there a guy that's in trouble for that? Or is there like, is somebody freaking out? It just gets swept.

Who would be in trouble?

I don't know. The guy at the top.

Who would be in trouble?

So what guy at the top?

I don't know.

So how it, how it kind of works is like, cuz you know, not all, you know, LA's a tough market. It's been tough for all the premium operators out there. And you do— and not all the buildings. I think a lot of the buildings that delivered over the past few years are not cash positive right now because you still don't have rent growth. LA market's still suffering, and you have labor and input costs that are of 2022 and '23 pricing, which is astronomical. So you basically will have a lender that doesn't want to take the building back. Because they can't or don't know how to operate the building. Because it's— I mean, some of these buildings are large. Um, so they— what they'll do is they'll try to do some sort of workout with you where they will acquiesce or be lenient on some covenants in the contract of certain provisions for defaults, or, uh, you know, paying back maybe interest only versus full interest and principal. If you don't have a good relationship with their lender, maybe they're defaulting you and then accelerating your principal paydown. So your lender relationship really matters. But at the end of the day, it's really just, do we have capital to meet the operating deficit? And if you don't, it either goes back to the lender or you sell it for— What was that? Yeah, 90% off.

Yeah.

And whose fault do you want it to be?

I don't know. It's— is that no one's on the hook for any of that money? Literally just all made up.

No one in our company is, you know, on the hook for a tough LA market and struggling to perform multifamily buildings. Um, and no one's on hook at the lender for issuing $200, $300 million of debt In the peak of the markets, literally no one. They're they're actually everyone's pointing fingers at each other.

Right.

It's like no you.

It's not my fault.

You manage it.

Yeah.

No you manage it.

That's insane. That is insane. That's just funny money just yeah made up.

Yeah. Yeah. Unlike the housing crisis and the government stepped in, but you know there was lots of individuals that you know basically lost a lot of money.

Right.

At the time.

Yeah, exactly. Like some people—

They're responsible for them, for themselves.

Yeah. But, uh, yeah, the PE principals would come out of pocket for capital calls.

Okay.

But they've made so much money over the past like 5 years where they're like, oh, is this a down market this year?

I didn't realize.

Indubitably. I wasn't watching that in Hamptons Weekly.

Oh man, that's got to be fun. Crazy. Producer, what do we got next?

Next one?

She's texting.

Sorry.

Classic Gen Z.

I'm Gen Z. Yay.

Apparently we all are.

That makes me feel really great, actually. Okay, next one is construction loans are tricky.

Construction almost always is going to take longer than you think it is. Anytime I see someone doing a construction loan and like, yeah, we'll be in in 6 months, I'm like, I'll see you in, in 9 or 10. Or 11 or 12. Yeah, construction loans are interesting because often you've got this, whatever your period of time is to construct, most often it's 1 year, 12 months. And if you're not done in that 12 months, it's going to cost you. Construction, almost all— So true. Not to be trite, but—

Do you think it's mostly true if it sounds like it's an individual loan on an individual property? But do you think the builders have that problem?

Let's see. We, we've had things slow down. I'm thinking of the loans that we've had convert. A lot of folks are willing to work with you if you're a large operator. So in that, in that respect, the firm I work for, Related, they, they're very comfortable and connected with the lenders that they work with. And they seem to always make it work out, or it's not really breaking the bank. It's actually much harder to operate a smaller portfolio.

Yeah.

Because you've got less room for error, less, you know, it's riskier, you know, relative to the total value of the portfolio in terms of liquid capital, in terms of other sources of capital that could meet your intermediate needs. I feel like In my experience, the teams have always been on point. What happens, I feel like, is when someone's not used to the product type, it's like, oh, I didn't realize we needed more ventilation for a commercial use versus a residential use or what have you. I feel like that's where your construction then— and then as well as your relationship with the GC, are they going to kill us with change orders?

Mm-hmm.

Do we know what we're looking for? And I think that all comes down to being familiar with the product type. So it kind of seems like they were targeting the new investor in terms of that comment with a construction loan.

I think so too.

Yeah. And I, I feel like— I'm not going to get off topic with this, but I feel like the traditional paths of financing, they seem so old. I don't know why. It's like, I get it's a loan and a lot of people need loans, but A lot of news coming out recently with the whole Bitcoin and crypto and liquid markets and reducing lenders' fees. You know, you don't have lenders' fees if it's kind of a, kind of a type of syndicated fund through, you know, a blockchain and what have you. So I definitely think that's, that's a, uh, vehicle. Yeah, I just— to me it seems so antiquated, like, oh, you're behind by 3 weeks. Yeah, it's gonna cost you a ton of money.

Right.

Doesn't exactly doesn't that seem antiquated?

No, not at all. No, yeah, absolutely. You're not looking at it the way they want you to look at it. It's basic. It's like you know you go out and get a loan, just a normal loan, and then you start looking at all the fees, and it's like you know doc preparation fee. Wow, this is 2025. How much you know work did it take you to do that?

That's what seems so antiquated.

You know, yes, I agree. Let's get rid of all that stuff. I agree.

I think the fees are crazy.

The problem is when you get rid of the fees, then he. doesn't get paid because that's what he's living on is the doc preparation fee and the title recording fee.

Oh my God, yeah.

And, uh, note creation fees and all that stuff. If we don't pay him his fees, then, you know, then we have to call AI to do everything, which is fine.

That's coming next.

Which is fine, but, you know, then he's not going to be able to run around the office with his guitar playing his You know, music.

Right.

Thank you.

Might be on the horizon.

Yeah.

But AI escrow, that would be—

I will say the lenders though, your lender can make a big difference in your experience with that conversion and getting permanent financing. Because your lender, they're kind of like stewarding you through submitting to the city. Like you, especially if it's affordable, there's an affordable component, you have to let that agency know. So Your lender, you're— there's definitely— they're definitely earning, I think, a large chunk of the fee. But when you get like the document courier fee or what have you, then I start to question it. So yeah, timing of construction, again, that comes down to being familiar with the product type, maybe having experience with a mentor.

Yeah, I think it just happens too. There's some guy, I don't know how it got in my feed, but YouTube. where he's documenting he bought a house from the Toll Brothers like before it was built, and it was like 3 years later, and he's like, we're going on 3 years, the house is still not built.

Really?

Yeah, I don't know where it was. It was like a whole— it was like one community where it was not—

Epstein Island or something? Jesus, 3 years?

Come on.

Yeah, yeah, I don't know.

He just—

he has— that's his whole YouTube thing.

I bought my house But all I saw is dirt and then they built it in like 7 months.

That's what I'm saying. Yeah. So I think maybe things just pop up where it's like—

You can fall into like paperwork purgatory where if you file with the wrong entity, if you're following incorrect information, if you ignored maybe easements or deed restrictions, now you're getting into—

We never had any of that stuff in my days.

No.

Yeah.

It's like, you want to build here? Yeah. Here, go ahead, build.

Here's a shovel.

Yeah. No problem. Go ahead.

All right, there's no insurance either.

Yeah, exactly.

It doesn't matter.

Just go, just go.

Oh man, that's good. All right, I think we got one more. Producer, what do we got?

All right, this last one is commercial real estate crash.

Oh, let's find out.

Oh God, the Mortgage Bankers Association estimates over $1.2 trillion in commercial real estate debt will mature by the end of 2025, meaning a large number of properties may need to be sold at steep discounts. In looking at historical data, these market corrections don't happen overnight. Instead, they play out over 12 to 24 months as investors gradually adjust their pricing expectations. Now, the problem is that once forced selling begins, it can create a domino effect, pushing prices down faster than anticipated. Those waiting for clear confirmation before adjusting their portfolios often find themselves reacting Too late. And recent reports indicate that default rates on commercial loans have increased by 20% in the last year, signaling the beginning of distress-driven price corrections. Now, the Mortgage Bankers—

Let it go, let it go, go back. Can you put it back again? I want to ask something. Just start it all over again.

Now, the Mortgage Bankers Association estimates over $1.2 trillion in commercial real estate debt.

I think one of his kids was trying to do a photobomb.

A large number. Yeah. To be sold.

Oh no, no, that's in the background.

Yeah, that's in the background. No, he's like overlaying himself on some video.

I thought one of his kids was like, I get my dad, you know. Yeah, so I've been hearing this for a long time. What, are you hearing the same thing? It's like the world's gonna end in 2025 for commercial.

I've definitely heard that. And you know, they said by the end of 2025. I mean, we're what, halfway through 2025?

And Yeah.

Yeah, there's pressure. I mean, we're doing some refinancing right now at my current firm. That's what, a couple, probably a couple hundred million dollars right there. But, you know, again, we've got the relationship with the lender where we're coming to terms and refinancing, and we don't need to put extra capital into the deal. So I think, yeah, there's a lot. And I think a lot of people have margin on their operations where they can afford the extra debt. I think it's like your most more recent folks are struggling to make money, but they also don't have to refinance immediately. So I actually don't see this as a huge headwind. I think your people that have had their deals for a while that are now refinancing have made a decent, have likely made a decent return where their margin. They can handle the margin with this difference in interest rates.

Thank you.

And then is it just hold on until they drop? Basically, that's the game everyone's playing.

Some people get swaps, like they'll get like a financial instrument that'll like battle the interest rate. I think people are just holding on right now because if you want to sell anything, you're naturally going to have a lower valuation. I think it's— people are targeting the end of next year. Which that depends on the product type. I'm talking about multifamily, suburban, suburban office. You know, I, I don't know what they're gonna do.

Yeah.

But I think those are smaller operators where we're not talking about like a multi-billion dollar or trillion dollar REIT dragging down public markets. I think these are private operators that have done well for a really long time. that are now paying the cyclicality tax of being in a down market.

Right.

But there will be some new investors out there that are kind of a casualty with increasing interest rates, which is essentially what this wall of maturity is. But 1.5%, I think it was like 2%. So I think we've already done hundreds of billions of dollars of refinancing, and I haven't seen Pressure. If anything, you're, you're probably going to build less and you're going to hold on to your products because prices are depressed right now if you have more supply in the market. So it's just kind of a slow— you guys have probably seen it. It's just kind of a slow residential, a little less because tailwind with single-family housing, but commercial real estate has just been slow for deals.

Just slow.

Yeah, that doesn't help.

No, you got to be okay with being patient. I mean, and that's the whole thing with real estate is like it's kind of a long, long game, so you got to have your patience.

Depends how old you are.

That's true.

Yeah, I guess if you're older and it's the long game and you're just getting in, that would be tough. But my, my position is that a lot of folks that are have been in the industry for a while and are facing these walls of maturity won't be bankrupt by it.

Right.

Fingers crossed. Knock on wood.

Yeah, exactly. Exactly. Now, um, thank you for that. Those are— that's a great response to all those. Um, before we went on, you mentioned you're looking at getting into flipping. Is that correct?

That's true.

Okay, nice. Where are you at with that? What do you need? How can people help? How can they reach out to you?

So I've done kind of an intermediate step. Uh, so I, I essentially have a fractional— most people hire a fractional CFO, like, where's the direction of my business, what have you. But I've done a fractional financial analyst, kind of a different take on that in terms of a side hustle, if you will, to meet more folks, make sure that I'm confident with what I'm modeling in terms of the financial performance of a project. Networking helps a lot. And then also it gives me some exposure to some deals. So that's kind of where I've started. And I'm trying to help brokers and flippers with the modeling aspects of their projects.

That's cool.

And the next step will just be meeting more brokers and capital providers to, to be able to underwrite a deal, to first find a good deal and then to underwrite it. And then I think the rest will fall into place.

Absolutely. Are you looking at a certain price point or a buy box or anything?

So I'm under the— I feel like, I feel like that would be like a hurdle that doesn't exist for me just because, you know, I'm not going to start with like a $10 million home, but I would Start with maybe like your average priced home in either Orange County or Inland Empire. My coworkers were telling me that since they bought their home in like Corona, Fontana area, their houses have doubled in price.

Yes.

That's only like 10 to 15 years.

I know.

That's like a 10% annual value increase.

That's nuts.

Absolutely wild. So I would start somewhere in Inland Empire. Okay. Just, just core single-family markets, right, in California.

Boom.

I know there's headwind there, but yeah, compliance experience that I have as well as networking with other flippers, I feel like I'll, uh, kind of find my, find my groove.

Absolutely, absolutely. You're primed and ready to go.

That's how it feels.

Let me help you. I didn't know that you were interested in doing flipping, but let me help you. Um, I wrote a book. I've been doing this for 50 years, so my book is on here. This is a USB stick.

Wow.

And I want to give that to you.

Thank you.

Okay, and you can share it with as many people as you want, not a problem. But it basically goes from A to Z, acquiring property, what do I do, Putting my team together, rehabbing, putting it back on the market, selling it, and moving on to the next one.

I really appreciate that.

I will let you know that the biggest mistake a first-time flipper makes is that I want to put materials in there that I would enjoy because I'm, you know, maybe I want to live there or something, but you don't. So be careful with your budget. You want to flip towards the masses, and that doesn't include gold fixtures and, you know, stuff like that that are expensive and things that are very expensive, unless you're flipping a $5 million place, you know, that's different. But if you're going to do just a cookie-cutter, you know, fix-and-flip business, then just be careful the stuff that you put in there.

No, I really appreciate that. And Probably won't do anything near the coast. I don't know if you guys have ever had to deal with the Coastal Commission in California, but no, stay away. I try to stay away from these.

Yes, I don't want—

they're kind of nutty.

Yeah, it's a governing body you don't want to get involved with.

Yeah, well, I really appreciate this book. I'll give it a read and yeah, hopefully you're welcome.

And you expect a book report done by what, next week or something? Oh, okay, okay.

All right, I will have AI write it in 5 minutes.

Yeah, exactly.

Yeah, you put it in, you're like, please read this and pop out a book report. Just email it to you.

No, but, you know, commercial-wise, that book is available on Amazon.

Okay? Oh, there you go.

If you're interested in buying it, and it's a whole $9.99 on Amazon. And I thought I'd print out a bunch of copies and give them away to, you know, people like you.

Really appreciate it.

Yeah.

All the best books on Amazon are $9.99.

That's right.

Exactly. Exactly. If you have a Kindle, it's actually free.

All right, perfect.

Oh yeah, oh yeah, that's my book.

There you go, Flipping the OC by Joe Holmes.

Mm-hmm.

Yeah, can you see that?

I really appreciate it.

Yeah, yeah, thank you, producer. Appreciate it. Thanks, thanks for the, for the plug.

Let's keep this down here and then we can plug that.

Okay, cool.

Well, Kevin, thanks so much. That was, that was great. Flew by and got a lot of great information and We love your perspective on everything, so appreciate it.

I appreciate you having me. I'm the new of New and Experienced Investor Podcast, so I appreciate you having me and just sharing some of my perspective.

Sure. And how can people connect with you?

Twitter or X. I'm not sure which one people say. The real— believe I'm the real Kevin Crone is my tag. And also on LinkedIn, I've got some cool presentations featured on my LinkedIn.

I was looking at those.

Talking about AI and robots and stuff, which we can get into offline. And, and then Twitter, I generally am posting kind of a couple tidbits here and there.

Love that.

So yeah, give me a follow.

Awesome, will do. Thank you guys for joining us. We'll be back here next week, and we will see you at the meetup on the 30th.

See you then.

Thank you so much. Bye.