The “2nd Wave” of the Commercial Real Estate Crash Is Close

Dave:
I’ve been looking across different asset classes, both in real estate and across the entire economy, whether that’s residential real estate, commercial real estate, gold, cryptocurrency, equities, and one asset class continues to stand out as the best opportunity for the next five to 10 years. And I’ll just give you a spoiler. I think it’s commercial real estate because if you look at residential real estate, it’s great for a lot of reasons, but the prices are high. If you look at equities, prices are high. If you look at commodities, prices are high. But in commercial real estate, prices have already come down at least 20% and in some sectors like in office, up to 50%. And I personally think that those declines could increase giving a perhaps once in a generation buying opportunity for investors. And today, to test this hypothesis, I’m inviting back investor Brian Burke, who is the smartest person I know when it comes to multifamily real estate.
Brian always gives it to us straight and he’s got one of the best perspectives on how to view the multifamily market and how to take advantage of what’s coming next. This is On the Market. Let’s get to it.
Hey everyone. Welcome to On the Market. I’m Dave Meyer, and today I’m selfishly bringing on Brian Burke because I want to talk about commercial real estate. I look at the market and I think, man, there’s going to be quite a buying opportunity here in the next couple years. There is a lot of distress, which stinks. I don’t root for that, but it just is. It is inevitable. I’ve said this before, but I kind of think that 27, 2028 could be to commercial real estate what 2007 and 2008 was to residential real estate. The drop and the correction could be that big. And a lot of people kick themselves now for not buying into residential in 2010 and 2011. And I think a similar dynamic might exist in commercial real estate a couple years from now. And so to test this theory and to just hear how to take advantage of it, because I do invest in multifamily, but I am not as experienced as some other people, I’ve brought on one of our favorite guests, frequent guest, Brian Burke, who will forget more about multifamily than most people will know in their lifetimes.
He’s always a very fun person. He always gives it to us straight. So let’s welcome on Brian Burke. Brian Burke, welcome back to On the Market. Thanks for being here.

Brian:
Thanks for having me back, Dave.

Dave:
I am excited to have you here because you are an expert in a lot of things, but today I really want to talk to you about what I see as a real disaster brewing and also maybe an opportunity, and that’s in the multifamily space. So let me just ask you straight up, how bad is it out there? How ugly is the multifamily market right now?

Brian:
Dave, are you just now telling me that you see a disaster in multifamily? No,

Dave:
I

Brian:
Will. We’ve been talking about this for months. Remember when I described it as a traffic collision in a four-way intersection two years ago on the show?

Dave:
You’ve been right, but every time you’ve been on for years, I’ve been like, “Why hasn’t it happened yet?” I thought the distress would be sooner. I feel like we’re kind of there. I don’t know. At least the sentiment in the industry, the people I talk to, people are finally coming around to this inevitability that the market sucks and it’s probably going to get worse before it gets better. At least that’s what I hear and I think too.

Brian:
Well, I was on a call earlier and somebody asked me, “What do you think about the multifamily market?” And I said, “It sucks ass.” So I think this is a family show. I probably shouldn’t say that. Yeah, this

Dave:
Is why you’re here. No, it’s great.

Brian:
But I kind of think that’s exactly what’s happening. I mean, it’s a complete disaster, but it’s been a disaster for a long time. And I don’t think that it’s necessarily anything that’s brewing now. I think this has been brewing. It’s been the old proverbial frog boiling in the pot, right? I mean, at first it doesn’t really feel anything. And then all of a sudden the frog’s a boiled frog and there’s a lot of boiled frogs in the making out there and they’ve been boiling for a couple years. It’s only now that the water’s starting to boil over and people are realizing like, “Hey, wait a minute, we got a real problem.”

Dave:
It just has seemed so obvious that this was going to happen, but were people just assuming wrongfully that the Fed was going to cut rates and come in and save everything?

Brian:
Well, maybe, but if they were, they were also not understanding how this economic system works. The Fed isn’t in charge of anything. The Fed is in charge of overnight borrowing, interbank borrowing. The Fed is not in control of the 10-year bond, and that’s what’s setting debt rates in multifamily. Now we’re seeing how it’s kind of triggering this whole second wave. The first thing that happened is the Fed actually did raise interest rates on overnight borrowing, and that triggered increases in the SOFR, the secured overnight financing rate, which is what a lot of floating rate debt is tied to. So that was problem number one, and that kind of set this whole collision in motion, so to speak. Now what we’re seeing is the 10-year bond is going up. Well, nobody’s in charge of that. So nobody made some decision and said, “Hey, let’s increase the 10-year bond.” But what does that do?
That increases the rates for long-term debt. So now anybody that was hoping like, “Oh, I’ve got this awful short-term debt that the interest rate doubled. I’m going to refinance out and go into long-term debt,” is now finding that that very long-term debt they were coveting is more expensive than it was, and now they’ve got a real problem. So they can’t solve the other problem with long-term debt because it’s just too darn expensive. And I think that kind of sets the next shoe to drop, which is something I’ve been saying for a while is cap rate decompression. You can’t sell real estate at four and 5% cap rates in a five and a quarter treasury market. The numbers don’t work.

Dave:
Literally before this call, I was checking my email and I got an email from a broker in Denver where I invest and they were just pushing these used class B properties in this market at a 5.3 cap. I’m like, “You’re calling me a fucking idiot if you think I’m going to buy that. That is a worse return than even a 10-year treasury right now with a lot, lot more risk in one of the worst markets in the country right now. Denver’s absolutely collapsing.” What do they think they’re doing? Are people just naive or is this the greater fool’s theory where they’re just trying to find someone dumb to buy it before the next shoe really drops?

Brian:
Well, I don’t envy the position of a broker right now because really what they’re doing in all fairness is they’re trying to appease their client who is the seller. And this is the classic real estate conundrum, is that in an increasing market, the buyers always want last year’s price and the sellers want next year’s price. And in a decreasing market, it’s the other way around where the sellers want last year’s price and the buyers want next year’s

Dave:
Price. Right, exactly.

Brian:
So the broker is employed by the seller and the seller wants last year’s price. In fact, they want five years ago’s price is what they really want. So the brokers are trying to do their job, I guess, which is representing the seller and getting the best price possible. But the piece that’s getting missed is that nobody wants to buy that trash. I mean, you don’t want to buy into negative leverage. And negative leverage means if your cap rate is lower than your interest rate, that is negative leverage because where you make money in commercial real estate is the space in between what it costs you to borrow money and what the property throws off. And if that’s an upside down relationship, by definition, you’re losing money and no sane person wants to buy it.

Dave:
People were over the last couple of years, but I guess like you said, no sane person wants to buy it. So there’s a lot of insane behavior out there.

Brian:
And why were they doing it? They were buying it because investors were funding it. And why were investors funding it? Because they just really weren’t paying attention. They didn’t know better. They were just throwing money at real estate. They were thinking hard assets, that’s better than stock market. There were reasons for that to happen, but now that people are awakened and they see what’s really going on, the investors are not funding that. And if they’re not funding it, that means no one’s buying it.

Dave:
Well, it’s good that they’re not funding it. This correction needs to happen, at least in my opinion. So I mean, we’ve talked about this at length, but just for people who maybe haven’t heard you on the show before, Brian, can you give us a quick rundown of why this is happening right now? What were the conditions during the pandemic that sort of primed the market to face this kind of correction in this kind of rate environment?

Brian:
Yeah, I mean, I can describe this best the same way I described it on this show probably a year ago, which is that this is a traffic collision in a four-way intersection. All the lights were green. From one direction, you had cap rates, from another direction you had interest rates, from another direction you had rent growth, and from another direction you had occupancy, and all of the lights were green, and then all of a sudden everything collided in the middle of the intersection, and now none of those things are working. There’s no rent growth, interest rates are higher, occupancies declined, concessions increased, all these things happened, and then you had this massive collision of real estate and there’s a big mess to clean up. Really, what does all this mean? It means that buyers were overexuberant. They were irrationally exuberant and were buying real estate at any price without paying attention to the fundamentals.
And the fundamentals at the same time have been eroding. People sometimes dismiss the demographic impacts to real estate, but look at a few demographic pieces here. Who is your primary renter on apartments? It’s the 18 to 30 demographic, right? Well, birth rates have been falling for 18 years. That means there are more 18-year-olds today than there will be at any point in the future for at least the next 18 years. And so therefore the number of potential renters is declining. You also have population growth that is at historic lows. I think it was 2022 was the lowest population growth since World War II. It came up a little bit in 23 and 24, but because of international immigration. But now you look at what’s happened to international immigration in 2025 and 2026, sharp decline. So you don’t have a lot of new people coming in, but at the same time, builders were building apartments like there was no tomorrow.
I mean, take a look at what happened in Austin, Texas. Denver is right in there with Austin, Texas, maybe not quite as bad, but you’ve got this whole demographic and supply and demand dislocation where the left hand and the right hand aren’t coordinating with one another. And that’s kind of what’s created this situation that we find ourselves in. Everybody wants to blame it on, oh, well, the Fed raised interest rates and all that. That’s not the only story. That’s just a piece of it.

Dave:
It absolutely is. Well, I want to back out and sort of talk about what happens from here and then we’ll talk about opportunity, but we got to take a quick break. We’ll be right back. Welcome back to the On the Market Podcast. I’m Dave Meyer. I am here with Brian Burke talking about the four-way traffic collision as Brian described it, that’s going on in the multifamily space. It seems to me, Brian, it sounds like you agree that the rubber is starting to hit the road, but does that mean this is going to be a crash quickly? Do things fall apart in the next few months or is this kind of going to be dragged out over the next couple of years?

Brian:
Oh, this is going to take a couple years. There’s no question about it. I think I’ve said before on here that the only people that make money at a traffic collision are the ambulance companies and the tow truck drivers. These are the people that are kind of cleaning up the mess and trying to make things right, right?

Dave:
Yeah.

Brian:
That’s the same thing that’s going to happen here. I mean, you’re going to have people that are going to come in and buy some of this discounted real estate and they’re going to make a lot of money off it. There’s absolutely an opportunity to be had, but you don’t want to be in the opportunity too early because you can have a steep trough and you could say, “All right, we’re at the bottom. It’s time to buy because I want to buy at the bottom and I’ve got to get in at the very bottom when prices are the lowest.” But you don’t know how long this bottom is going to be. Nobody knows how long… This could drag on like this for years. I remember in 1992, property values fell about 10% and did not move until 1997. So for five years, property values were completely flat, and then it took a couple years just to get back to 1992 prices.
We could see something like that where these prices are down for five or six years. It’s already been like four, so it won’t take much longer for us to beat that. Another piece that I think people don’t appreciate fully is that this is the third time in the last 50 years that there’s been a double digit decline in commercial real estate prices. It’s the third time. The other time was in the 1980s after a tax law change, and then the time after that was in the 2008, 2009 great financial collapse. Subsequent to both of those previous double digit declines, we saw a multi-year bull run that lasted longer than a decade. So I think the important thing for people to realize is that you don’t have to get in at the very, very bottom. You can wait for the evidence to show that the bottom is clearly behind us and still take advantage of a decade long bull run.
There’s no rush to get in.

Dave:
Yeah. The point is get in somewhere near the bottom, somewhere in the trough, which could be, I think you’ve said on the past, it could be a window open for several years, right?

Brian:
I think so. And I think there’s just no rush. I mean, I’d rather be a week late than a day early because when you’re a day early, you don’t know. You’re taking on so much additional risk for how long that bottom’s going to scrape along. But if you get in after the bottom has clearly been formed and you’re starting to see an uptrend, you get in then, it’s a lot less risk and you can still capture a lot of upside. Okay, maybe you missed a couple percent, big deal.

Dave:
Yeah, but you’re taking so much risk off the table.

Brian:
Yeah.

Dave:
That makes a lot of sense. All right, so how do we do it? How do you take advantage of an opportunity like this?

Brian:
Well, I think first you keep your eyes open and you wait for the right time. I am a believer in employing some degree of market timing. I know a lot of people think that that’s kind of not very smart, but it’s worked out well for me.

Dave:
Well, I tell people not to do it, but I also do it myself. I just do the hypocritical approach.

Brian:
Well, there you go. I mean, that’s one way to do it, but you’re a podcast host, you’re supposed to do stuff like that. The thing that really matters is what are you actually doing because that proves who you really are and you’re really an investor. I mean, you’re really thinking about this long-term because that’s what you want to do. You want to be watching the market really closely. And I’ll tell you, it’s always darkest before the dawn. So when it really sounds like everybody is just completely pessimistic, probably tells you you’re getting close to the bottom. But the things I’m looking for is I’m looking for declining rates of concessions on new move-ins.

Dave:
Oh, like rental concessions. Rental concessions. Yeah. Okay.

Brian:
Rental concessions. I mean, that’s how things are priced. I mean, income property is really priced off the income it generates, so that’s what you need to be looking at. Forget about the price of the building. Look at the income the building generates. When rental concessions are declining, that’s a sign that there’s some strength. If lease trade-outs are positive, meaning that the new tenant that moved in is paying more rent than the last tenant that moved out, that’s a positive factor. Right now, it’s not. The new lease trade-out is negative in a lot of cases. Look for vacancy rates to be declining. Look for rent growth in the market. These are the things that you want to see, and when you see those positive indicators, then you know that maybe you’re a little bit past the bottom and making an investment will make a lot of sense.
Now, if you’re a long-term, long, long-term investor and you’re thinking like, “I’m going to buy stuff now that I’m going to hold the rest of my life, and that’s my retirement plan. It’s 30, 40 years out,” the timing doesn’t matter. You can buy it any time. But if you’re buying large multifamily buildings with investor capital and you’re raising money and all that kind of stuff, that is a whole different game and you need to really time it right.

Dave:
But shouldn’t you still try and time it even if it’s your retirement? I’ll just be honest, I’ve told you this in the past. I am thinking about and actively making steps to try and consolidate my own portfolio, selling off some residential, not because it’s performing badly, because I see opportunity in multifamily and I want to buy exactly what you just said. I own older buildings, I want to get rid of them. I want to buy purpose-built multifamily, 20 units, something like that, a couple of those, and hold onto them for the rest of my life. But I still want to buy it for the best possible. I know I could buy it today, but I’m still trying to at least identify the bottom because I think it will just help my cash flow, and obviously getting it at a lower basis helps performance for the rest of your life.

Brian:
Yeah, I think that’s absolutely true, but no one piece of advice works for every investor. And if you’re a new investor who maybe can buy one property a year, that’s a different position than somebody that might say, “I’m going to buy four properties a year, so instead of buying four this year and four next year, I’m going to buy eight next year because I think I’m going to get a better deal.” That’s a different position than somebody that’s like, “Hey, I can scrape together enough money to buy one property this year. I’ll scrape together enough to buy one property next year.” That investor, it may work better for them to sort of dollar cost average and buy things over time. I

Dave:
Think that’s true. Yeah.

Brian:
I think you can’t go wrong waiting. I mean, there’s certainly, in my opinion right now, there’s going to be just as good of deals next year as this year and probably the year after as well. I feel like there’s no rush, but if you see the right thing come along and you can buy something at a really good basis because it’s a distressed property with a distressed owner, et cetera, et cetera, and now’s when you found that deal and it’s the one deal that you can buy, I would say you’re probably better off jumping on that opportunity as opposed to just saying, “Yeah, I heard Brian on a podcast. I think I’m going to wait another two years.”

Dave:
Right. That’s kind of the advice I’ve been giving in both commercial and residential right now is that you just got to make offers and look for the distress. And right now, at least in residential, the distress isn’t acute. There is some distress, but there’s very little forced selling going on in the residential space. But in multifamily, that’s only going to increase, in my opinion. It sounds like you agree. So yeah, if you can find the distress now, but there’s going to be no shortage of it per se.

Brian:
There will be no shortage of it in a lot of markets. Now, everybody’s market is different too, and we got to be aware of that, that some people might be in markets that may not see a lot of distress, and therefore the advice to them changes. I’m not buying any multifamily. I’m completely pencils down on multifamily. We’ve been buying a lot of senior housing, but all the stuff that we’ve been buying has been that kind of a situation where you’ve got this retiring owner, been in financial distress since COVID, and things aren’t going very well, and they’re trying to figure out how to get out and we can buy something at a really, really attractive basis. Buy. If you can find those kind of situations, that’s fine. But if you’re just playing the market and saying, “Hey, I’m going to pay full market value because I think the market’s going to go up,” you’re pushing a string uphill at least for the next couple years.

Dave:
So what would a good multifamily deal look like to you this year in 2027? What are the numbers and the rates of return that you’re looking for?

Brian:
Well, primarily, I’d have to see positive leverage and really a couple hundred basis points of positive leverage, which means that if it’s costing me 7% to borrow money, that would be a 9% cap rate. And I don’t even see Class F properties asking 9% cap rates. I

Dave:
Know, it’s crazy.

Brian:
Yeah, it’s just not there. So we’re buying senior housing at nine, 10, 11, and 12% cap rates. Wow. To me, that makes a lot of sense because you’ve got that spread. I have not been able to find that spread in multifamily yet, and I don’t expect that I will until one of two things happen. Either the distress gets really acute and the sellers just have to get out, or the banks are the sellers and they’re just getting out, or the cost of capital has to go down, meaning interest rates need to decline. I’ll tell you one thing for sure, I’m not betting on that one.

Dave:
Is that just your read of the geopolitical environment or is it just a policy of yours not to bet on interest rates going down because it’s out of your control?

Brian:
Well, I think it’s both that we don’t control interest rates, so therefore make an investment plan that’s kind of agnostic to that. I mean, I’m more of one where if I’m buying something and I’m thinking about interest rates, I’m thinking about the rate being higher than where it is currently because then I get pleasantly surprised if it isn’t versus betting or hoping that the rates are going to fall because it’s just unlikely and if it does happen, then it’s just lucky.

Dave:
Yep. I always say on the show, I love to underwrite to profit when I’m wrong. That’s my favorite thing to do, because if you’re really pessimistic about rates or any other thing happening, then if you’re wrong, you’re like, “Oh, awesome. Things went better than I was expecting.” I made

Brian:
More money than I thought it was going to make. What’s wrong with that?

Dave:
Yeah. Any investment that needs everything to go right to succeed is a bad investment.

Brian:
Yeah, that’s right. I agree. And right now, I don’t see anything that is pointing towards rates going lower. People say, “Oh, the Fed this, the Fed that.” Again – It doesn’t matter. No the Fed. It

Dave:
Doesn’t matter.

Brian:
The high 10-year rate is really being triggered a lot by inflation. That’s one. And people can say, “Well, inflation’s going to come down, so that’ll help.” Or there’s going to be a recession, then inflation will come down, and then interest rates will come down. Maybe. But there’s another piece to this, and that is just supply and demand of capital. One of the reasons why the 10-year is going up is because investors don’t want to put money into 10-year bonds. Why? Well, in part because government spending is out of control, but also another part is they have options. Now you’ve got really high quality companies that are borrowing billions upon billions of dollars for AI infrastructure build out on bonds, and people are saying like, “Hey, I can invest in a Microsoft bond and get very creditworthy borrower and a little bit better interest rate than treasuries, so I’m going to do that instead of investing in 10 years.” So then the 10 year keeps going up.
So part of it is just supply and demand of money.

Dave:
Completely agree. I think the AI debt thing is something that people are completely overlooking. I am very worried about a situation where yields stay high, even if we go into a recession. I think there’s a lot of risk right now. People are saying that rates are going to go down because AI, I don’t know if you’ve heard this logic, but people said AI, one way or another, either it blows up and then we go into a recession, mortgage rates go down, or it goes so well that it’s deflationary that mortgage rates go down. I can’t get behind that. It’s such a speculative thing. And what about the scenario where the stock market plummets, but inflation stays high because inflation right now is not demand pull inflation, it’s supply push. It’s because of supply shocks, which does not get solved by a recession, and it’s not all of a sudden going to cause people to flug into bonds in the same way that they usually do.
So I just think there’s a lot of wishful thinking when people talk about mortgage rates. It’s been going on for four years. Every six months, it’s a new reason why rates are about to come down and why you should go date the rate, marry the house and do something dumb. But I think hopefully now people are realizing and getting used to this idea that rates are just going to be higher for longer.

Brian:
I think so too. And this is a situation where even interest rates can’t fix those supply shock inflation. So there’s really no fix to it other than letting it play out and letting it play out is kind of the very thing that’s causing all this strife in real estate. So you just got to wait it out, and that’s why I say there’s just no rush to get in because this is going to take a while to work its way through the system. I think we’re in for a little bit of a long haul.

Dave:
Well, I want to talk to you a little bit more about a playbook for people who do want to start monitoring this market and maybe getting into it over the next two or three years. We got to take a quick break though, but then we’ll hear from Brian how you can capitalize on some of the distress that’s going to happen in commercial real estate. Stick with us. We’ll be right back. Welcome back to On the Market. I’m here with Brian Burke talking about the multifamily market. We’ve talked about how things are going to be pretty ugly for the foreseeable future, but there is a window, a window that’s just starting to open and potentially will stay open for a while in the multifamily space. Brian, you told us about a couple of things that you’d be looking for in terms of deals. How does an investor get in front of the best deals right now?
Because I think a lot of us, I mostly invest in multifamily as an LP, I’m not super familiar with outside of CoStar and outside of the MLS. How do you find this distress? Because to me, what I hear is it’s going to the lenders and they’re bringing it to their preferred buyers, but is there a way we can all see this distress and these good deals first?

Brian:
Yeah, but it’s not going to just come to your inbox or knock on your front door. I mean, you have to go out there and go find it, and it’s not necessarily easy. When we had the foreclosures that happened back in 2009, 10, 11, 12, I was buying foreclosed multifamily properties back then. I mean, hundred unit type stuff from banks and none of it was on the market. Part of the way that I was doing that was going through my property management companies. And so if you align yourself with really good property management companies, those property management companies are probably going to get hired by asset managers and lenders who have properties on their books that they don’t have an asset management team, so they need an on-the-ground property management company in that area. They’re going to know about that stuff long before even brokers will know about it.
So I would always start there with property management companies that are being used by lenders and, “Hey, who’s calling you about the next property they’re about to take over that went into receivership or whatever that you guys are going to need to manage and are they going to want to sell it?” So that’s one way. Another way is just getting in front of owners, and that means landlord associations or going to conferences, talking to people and that sort of stuff. But it also, I’ll say the B word, it also means brokers.

Dave:
That’s good. Yeah. They have access to deal flow.

Brian:
They have access to deal flow. They are calling constantly talking to owners. I still own about a thousand units of multifamily. I tried to sell it all before the crash and sold three quarters of it. I stuck with the other quarter of it, but I get calls all the time from brokers asking about our properties and, “Well, what are you going to do?” And I’m like, “I’m good. I got five more years on my loans. I’m not worried about it at all. I’m sitting and waiting.” They know that. They know I’m not a seller, but when I am a seller, they’re also going to know that too. And so brokers know, even not just getting listings and stuff like that, they know the situations of the various owners in their markets and what they’re thinking and what their constraints are and what their problems are and when they’re really going to need to solve those problems.
So I would start there, property managers and brokers. It doesn’t sound all that creative, but it’s a recipe that’s worked for a long time.

Dave:
No, absolutely. I mean, it’s not crazy. It’s just a relationship business. I think commercial is probably more of a relationship business than residential just because there’s fewer transactions and they’re bigger transactions, and so there’s fewer players, and so you need to get to know those players in the markets that you need to operate.

Brian:
Without a doubt.

Dave:
In addition to just getting in front of these deals, Brian, you also need to be a good buyer and be in a position to solve a problem because I think that’s what we’re going to see. A lot of these distressed properties are either going to be owned by the banks and the lenders or threatened to be owned by the banks and the lenders. And so how does a buyer position themself to be able to be a good Good solution to the distress because that’s how you land these deals.

Brian:
Yeah. I mean, you’ve got to have access to capital. I mean, that’s really what it comes down to because anytime a lender makes the decision that it’s time to offload a property, that’s a decision that they want executed with certainty. It’s like, we got to get this thing off our books by the end of the quarter because if this is in the next quarterly report, my job is on the line. So they need a buyer that’s going to perform, and that means that they want to know that that buyer has access to capital in some way. So if you want to be that buyer, you’ve got to figure out how to get your capital lined up ahead of time so that when those opportunities do present themselves, you can demonstrate to those sellers that you have the capacity and the ability to perform.

Dave:
And do you need to have capital lined up at the time of an offer?

Brian:
Yeah, I would. I mean, it doesn’t mean that you have to have a proof of funds and the money in the bank. It just means that you have to have a very viable path for having those funds ready for closing. And so you’ve always got to be looking and talking to your investors, looking at your investor base, figuring out what you’ve got, get people lined up, get people at least soft committed to way more than you’ll ever need. If you talk to your potential investors and you think that you reasonably have $20 million that you could raise at the snap of the finger, then you could probably execute a deal that needs $5 million worth of equity. And you could probably demonstrate to the seller there’s a real high certainty that you’re going to be able to close because you’ve got quadruple that amount and potential soft commitments.
Puts you in a much better spot than, “Oh, well, I got 10 million in commitments now. I know I need 20, but I think I can get the other 10.” And it’s like, “Yeah, okay, next buyer. We got this guy over here that’s got a blank check.”

Dave:
Yeah. Okay. One last question here. So if you find these deals, you network, you line up your financing to be a good buyer, what are the types of debt that you recommend people use? Because so much of what’s happening right now is because people used inadvisable debt products.

Brian:
Well, they use inadvisable debt products for the wrong reason at the wrong time. That’s what got them into trouble. If you’re at the very top of a market and you’re using high leverage bridge debt because you don’t have enough investors to raise enough money to use low leverage fixed rate financing, that’s all the wrong debt for all the wrong reasons. If you’re buying a highly distressed property at the bottom of a market for 50% of what it sold for a couple years ago, and you’re using bridge debt because the property won’t qualify for agency financing because the occupancy’s too low and all the other stuff, then that’s probably a different story. And that’s using that debt as a tool.

Dave:
That’s fine.

Brian:
So I would love to sit here and say like, “Oh, you should only be looking at 10-year fixed rate financing.” I think that you should be looking at long-term fixed rate financing as a takeout and a long-term solution, but you may need to be open to the possibility of considering other debt options in the interim while you get that property fixed up, stabilized, out of a foreclosure distress situation into a performing asset.

Dave:
And do you just use traditional banks for most people or how do people find the best debt products?

Brian:
The best debt products I’ve found come through debt brokers that specialize in the type of assets that you’re financing. So if you’re looking at 50 units and up multifamily, you want a debt broker that specializes in 50 units and up multifamily. If you’re looking at 20 unit multifamily, you want a debt broker that’s in that smaller balance commercial space because they’re going to know who all the lenders are. Every deal is different. It depends upon the performance of the asset, the purchase price, the loan to value ratio, the market that it’s in. That’s all going to dictate who the most ideal lender is going to be. And it may not even be obvious at first. It may take quotes from multiple lenders before an obvious winner really shows up. And that’s where the debt brokers really earn their keep is that they can present like, okay, here’s the five most logical choices for this asset in this market and this condition.
Get the quotes from those five and you go like, well, one is clearly better than the other four and there you go. There’s a lot of different choices that are out there and each circumstance is going to dictate which one is going to be the best fit.

Dave:
All right. Well, any last advice other than debt and being a good buyer and deal flow for people who want to get in and take advantage of this opportunity in the next few years, any last advice on things they should be working on now to prepare themselves?

Brian:
Yeah, they should be working on building their investor base. They should be working on building up a business plan. They should be working on relationships with people that are going to provide them with that potential deal flow. They should be building a buy box of exactly what it is that they are looking for and what their plan will be once they have it. Anybody that goes into this without a plan, without a really targeted approach is just going to find themselves in this paralysis of analysis or deals that they can’t jump on because they were ill prepared for it. This is a time for preparation. It’s a time to build your systems and your business so that when the opportunity is there, you’re ready for it and you know that it’s time to make the jump.

Dave:
Great advice, Brian. As always, thank you so much for being here. We always appreciate your candid take. And don’t worry, it’s not actually a family show. We’re all adults here. You can say that it sucks ass.

Brian:
Yeah. Well, it really does. So yeah, if you don’t want to do the same, then just watch what you’re doing.

Dave:
But for buyers, it could be good soon, right? It could be in the near future. And I’m going to keep asking you every six months to come on here and tell us, is now the time.

Brian:
I will be here to tell you because I will say this, and I’ve said this before, chaos breeds opportunity.

Dave:
Oh, for sure. And the

Brian:
More chaos you have, the more opportunity there will be. And every six months that passes between my visits to this show is nothing but chaos in between those visits, which is just breeding even more opportunity. So when the opportunity shows up, it’s damn well going to be good.

Dave:
Brian, thank you as always for coming, giving it to us straight and just being so much fun as a guest. If anyone wants to check out what you’re up to, where should they do that?

Brian:
Check out our website for Praxis Capital. It’s praxcap.com, P-R-A-X-C-A-P.com.

Dave:
Awesome. Well, thanks again, Brian, and thank you all so much for watching this episode of On the Market. We’ll see you all next time.