JP Morgan saying
there's going to be four rate
cuts before the end of the year.
There's only three more meetings
this year.
Do they mean like for like
as in four quarter points.
So one of them is going
to be a half point. That's how I read.
That's exactly what they mean.
And.
Welcome to Drunk Real Estate.
Grab a drink.
I enjoyed the show
here.
Welcome to episode
107 of Drunk Real Estate.
I am Kyle Wilson,
Ashley Wilson's husband,
and I'm joined by my best buds
J, AJ, and Mauricio.
How's it going, guys?
Cheers. Woo!
Got a lot to talk about this week.
Bunch of economic updates
to that have happened.
We talked about jobs last week.
A lot of things have trickled down
from that jobs report.
JP Morgan now sees four fed rate cuts
on the horizon
the rest of the year,
which before it was a lot less than that.
We have a 90% chance of a rate cut
coming in September.
It used to be below 50.
We had inflation come out this
this morning and that was a surprise.
So, Jay,
why don't you start us off,
what's going on with the,
the economy right now?
Yeah. So can I start with a,
just a pet peeve of mine.
So JP Morgan saying there's.
You talk about the top ten,
you talk about the top ten.
That that's a pet peeve of yours.
All right,
JP Morgan saying
there's going to be four rate cuts
before the end of the year.
There's only three more meetings
this year.
So do they mean like for like
as in four quarter points.
So one of them is going
to be a half point.
That's how I read that.
That's exactly what they mean.
And I'm just I'm just being funny
because I it's interesting
how the terminology is changed.
It used to be a rate cut.
Was any amount of rate
cut at a particular meeting.
Now it's
I think a rate cut is a quarter point.
So yeah.
So they're saying that there's
going to be a four point cut
before the end of the year.
The market is agreeing with them.
The market's saying that there's
a 90% chance of of the first cut.
I don't know if that's agreeing with them
by the end of the year,
but the market's saying
there's going to be at least
a cut in September
at the September meeting.
And a month ago that was like 50%.
Now it's now to 90%.
And so
I think
today's inflation report kind of cinched
the idea
that we're going to see a rate
cut in September.
Which is interesting
because if you look at the inflation
report, typically speaking,
when inflation is low
it's a lot easier to cut
because cutting could lead to inflation.
When inflation is high,
you don't want to cut.
And so the headline came out today
that inflation looked good.
And the headline number did look good.
If you looked at just the CPI number
month over month point up 0.2%.
So same as last month, 2.7%
growth of inflation since last
year, which is a good number.
If you dig in a
little bit though,
it's not as pretty a picture.
I mean, it's not horrendously bad.
But it definitely doesn't
look as good when you dig in.
So,
if you look at that, that 2.7 number,
a lot of it was driven
by the fact that energy was down 1.1%
last month.
And that's a monthly number,
1.1% means down annualized over over
12%, or over 13%.
Gas was down 2.2% last month,
which is a big number.
It's actually a good thing.
I mean, gas prices are now back to where
they were at the beginning of the year.
So we always want gas to come down.
That's not in California, man.
And California
is still over like five bucks a gallon.
A half of that's tax though.
Yeah I was going to say that's, that's
a lot of states
have have extra taxes that they throw on
and that's, that's, that's a state issue.
But yeah, gas is down a lot last month.
So if you take out energy,
you take out that 1.1% drop,
you take out, food.
So that's the other piece
that's pretty volatile, can change a lot.
And so we have this
metric called core inflation.
So it's the inflation number
minus energy minus food.
That one went up a bit.
It went up from 2.7% to 2.9%
last month and 2.9% to 3.1% this month.
And basically,
if you dig into core, what you see is
things like furniture, appliances,
household goods,
recreation equipment, footwear,
basically anything that you get from the,
China, Vietnam and India,
those are the big ones,
that are sold in big box stores.
Those went up a good bit.
So, I think it's clear
that at least for certain things,
big box stores are starting to,
to pass on costs.
Also, cars
and trucks were up a good bit
last month, 0.5%.
And then there's another measure
that we don't talk about a lot,
because normally
it falls in line with either
the main CPI number or the core number.
But that's called super core.
And super core is
where you're
basically just you strip out energy,
you strip out food just like core,
but you also strip out housing
and you strip out goods.
So it's basically just services.
Services that are you
just strip out like two thirds
of what everybody spends money on you.
Well, that's the funny thing.
A lot of what we spend money on in
this country is services.
And you don't realize it.
We talk about the goods
portion of things a lot.
We don't talk about the services
portion of things a lot.
But the reason why it's important
to sometimes focus on services
is because when you measure super core,
when you measure the cost of services up
or down,
you're basically measuring wage
induced inflation.
So you're measuring
how much business owners
need to charge more
because they're paying higher wages.
And that's what we see
in the service industry.
That's the core component
of of cost to business
owners in the service industry.
It's wages. And so when we see
super core
inflation go up,
typically it's
because we're seeing wage inflation
or we're seeing, businesses
that are having trouble
finding employees
at whatever previous wages were.
And so for super core this month,
we saw an increase of 0.5%.
So 3.7% year over year.
And we saw some major increases
and things like airfare,
shipping costs, insurance costs, health
care costs,
personal services, things like haircuts.
I mean, basically all the services
that, that most of us need in our lives.
I mean, maybe
we don't need to take
take plane flights all the time, but we
we need insurance. We need health care.
We need these personal services.
And so super core inflation was up
quite a bit from last month.
So when you dig in again,
the headline number wasn't that bad.
The headline number basically said
things are the same as last month.
Which is good.
Don't get me wrong, that's a good thing.
But when you dig in, things
weren't quite as good. So given that,
you might think, okay,
there's
a little bit less chance
of of the fed cutting
if at the September meeting.
But given that the headline
number looked good,
given that the jobs data was
was really soft
the last couple months and,
it looks like the Fed's going
to want to kind of get ahead of that
if it's not too late
to get ahead of that.
I think there's
I mean, the market's saying
there's a 90% chance of, of a cut.
I think that's probably
pretty reasonable.
So I think we're looking at a rate cut
at least a quarter point come September.
You know what's interest?
I was just looking this up because I was
I was out all day.
So I just
didn't see the news this morning.
But what's interesting
is that the next fed meeting
is September 16th and 17th.
The next CPI reading is September 11th.
So five days before the meeting,
we have the new CEO.
We also have BCE too. Right?
Like theoretically when the fed
came out and said like what
their preferred inflation gauge,
it was core PC
and that's end of August, right.
Like the 29th or something.
Yeah, it's the last Friday of the month.
So technically we still have a PC report
and a CPI report coming up.
I was super surprised
because I literally had to go
and look for this.
Like if you look at headline news,
go to any major news site,
because I just, I just hit the top three
right now.
None of them are reporting anything
about that inflation report.
What a top three, Mickey Mouse.
Well, so
for if I go to, I go to all sides.
First of all, because that's, that's
where I like to get my news
for the most part.
And it's not even one of the top
ten news, things.
And I went to MSNBC
because I was like, okay,
if anyone's going to be
on this inflation report,
it's going to be MSM, NBC right?
And they have nothing about it.
And so like, I guess like this was to me,
I looked at it,
this was the quintessential
like you could pick and choose
your your headline rate.
You could either pick
to Jay's point, you could pick headline,
inflation and be like, hey,
we got this under control.
Everything's good.
Or you can pick core inflation,
be like, look at the last three months.
Like core inflation is an issue.
And I feel like no one's
jumping on either side of that,
which I don't know,
I guess is kind of a good thing
for the fed. Right.
Like they can,
like they don't have to really answer
to anyone because of this report.
They could just
like slowly do their thing.
Yeah.
Well, keep in mind
the other
the other piece is,
reality versus expectation.
If if the media and
everybody expected
that inflation was coming in lower
this month,
people would be freaking out
about this particular report.
Everybody expected
that inflation was going
to come out a lot higher than it did.
And so things actually were better
than expectations.
And so a lot of times
when you look at the media,
the media
is reporting relative to expectations.
If this is better than expectations,
well, it's hard
to find an alarming headline,
even if they might want to.
And I think at the end of the day, again,
if you dig in
and I probably dug a little bit harder
than most people, you can find good.
You can find bad.
But at the end of the day,
I think a lot of us were expecting
a much worse inflation rate,
and it wasn't that bad.
And so I was not at all.
Yeah,
I don't think
I mean, again, services is is a scary
certainly like the, the
the big box store
commodities is not good but food
I mean food away from home was up
but food food was down.
And I think that's that's amazing.
I think nobody expected that.
So that was a great thing to see.
And so yeah,
there were it was,
it was a lot of good, a
lot of bad in this report.
Jay, was food down or was the
rate of increase lower?
So, food was actually let's see,
like my, my eggs were cheaper this month
and they were last month.
My eggs were cheaper
because my chickens are 11 points
less because your coyote population's
going down. So. Yeah.
Negative, negative.
Oh. No.
I'm sorry. Food was was zero.
So there was no inflation in food
this month.
Food at home was down.
So yeah, food at home
was down a 10th of a percent.
So literally
just seems to be a reoccurring thing
with this inflation.
It's like we were told how the economy
was going to implode
and they've been screaming
and it just keeps missing.
Like it's like Miss Mess mess.
It's better and better
every single month.
And it's so frustrating
to listen to the fed
and everybody else be like, oh,
we can't do anything because this is
happening and
it's not, and we're not getting it.
It's not that it won't,
but the driver of these
excuses are inflation and labor markets.
Well, when you
when you say things are better
every month,
they're not they've actually been worse
every month.
Not than what we've expected.
Well and then again
that's that's expectation.
That's expectation
that that goal
basically of
we're like basic right at the fed.
And if you take out literally housing
like you're there.
So it's we are I mean we are
better than anybody talk
Jada's super core strip housing.
Super core strips housing. Yes ma'am.
So I it just once again
it's like there's these excuses.
It's not
that the economy is not doing horrible.
We don't have inflation issues
and we're still doing all
these things and tariffs.
Yet these are the excuses that
keep getting given.
And it's I think everybody's being told
oh it it will come though.
But it it is guaranteed
it's going to come.
And we've been told that all year
and it just hasn't never happened.
Yeah I still think it's too early.
I mean we say this almost every week,
say it's too early
to tell any of this stuff.
So anyone who acts like they know
for sure,
there are some indicators, AJ said.
Some of these things
that come from China, Vietnam
and things like that.
We are seeing some inflation,
but we also are seeing disinflation
or in in other things.
So it's like maybe
this thing could offset
or maybe that's just
those are the first things to act.
We don't really know.
And honestly,
as I said,
we've already spent more time
talking about it right now
than the entire media.
Has.
I'm like,
you asked me
which sites
I'm on Fox News right now,
and the headlines
above inflation, I can't even find it.
Are the former
first daughter and marriage
with social media post
Chiefs legends reveal how,
Travis Kelsey's love
life was before Taylor Swift.
This is all
before the inflation report, so,
no one's really talking about it.
When 2025 started, inflation
has gone down and stayed below 3%.
It's gone up,
a little in the
spring, you know, but
can we just say that core CPI at 3.1.
So once again
you can kind of pick and choose
which ones I'm looking at.
I'm talking about the CPI.
Yeah. Yeah.
So most
I mean the feds always said
they care about core right.
But they also would say PCG
which is calculate
a little bit different.
And we still have yet
that's to your point.
That's still below three as of right now.
It could change in the end of the month.
But we still have two more reports.
So with that,
you know that
we still have a lot that can happen
before the next fed meeting.
But what we care about, obviously,
is how this is affecting
what the fed is going to do
and more importantly,
expectations going forward. Right.
Like our our interest rates
aren't just most
people think interest rates
are just the fed,
but more important than the
what the fed does is
the expectations of what the fed
is going to do after next meeting,
and how many cuts are going to come
after that.
And the forward curve, as you might say.
And so AJ, I'll throw it back to you.
Like
how do you
do you think this
is a too big of a whiplash reaction for,
you know, as we said,
what was it JPMorgan said for cuts,
which like
a lot of people were calling for zero
all of a sudden one jobs
report we're going to for cuts,
which would obviously be great
for us as real estate investors.
That means rates are coming down.
But is that
do you think that's going to happen?
And if it does,
like what's the effect on us
as real estate investors?
Well, I mean, I think, you know,
kind of like what was already discussed.
I think everybody's
kind of assuming cuts are happening.
JP Morgan has for I think,
they needed labor and inflation.
That's that's what everybody's
been waiting on.
So and I mean inflation like we talked
about is
it's nothing kind of a
nothing burger there.
And then labor markets
have softened and eased.
So it was like we talked about last week.
It wasn't strong.
So I think that they have a path.
It's whether they're going to
take it or not.
But I mean yeah of like we talked about
yeah I think they're going to lower it.
And that's what the real estate
investors need.
We need lower interest rates.
We need to be able to refinance and buy.
And I think JPMorgan's
four points
and everybody else is saying
it's just how many how many cuts.
Right.
I think we're going to be in
a news cycle.
Oh, like we're in an easing cycle now.
Not a tight tightening one.
Yeah, but you got a you take in.
Let me ask you,
JJ, is your contention in your position
that if the fed lowers the overnight rate
that's going to lower the ten year,
which is really what affects real estate.
Do you think the correlation
there's pretty strong.
Because if you look at the ten year
over the last,
as you guys all know, it's
gone down a lot.
You know,
I think whatever 5 to 10% in the last
I don't know, 30 days or whatever.
It's it's come down significantly. Right.
There's been a lot of buying
at treasuries over the last,
you know, 2 or 3 weeks.
So the question is, is the fed
just catching up.
And you know,
this is the ten years leading the fed.
The fed is going to catch up.
Or do you think the fed reducing rates
by 25 basis
point is going
to really move the ten year. Well yeah.
Because right now we have the
we have on the table
that basically the fed
like isn't going to cut at all.
Like they are like in inflation bulls.
And they believe that,
hey we can't
we can't be cutting into this
this future versus if they just come out
and like once they break this
like like dry spell of cuts
and do one cut that kind of like eases
everyone's mind that,
okay, they are willing to cut
if they're presented
with enough information.
And I feel like that will bring it down.
But it's also expectation is right.
There's already a 90%
expectation of a cut.
So if they actually do cut,
it's not going to change anything.
How is that could affect the ten year?
That's the real question.
Well that's what I'm saying.
There's a 90% chance right now
expectations.
The market is expecting a 90% chance
of a cut of the fed of the overnight
of the Fed's overnight rate. Right.
So that's a short term.
Like what does that have
to do with the tenure.
Because if they just keep with what
the expectations are the 90%
and they cut the ten year
going to be barely affected at all
because that's the market expectations,
is that they cut
what would affect the ten years
if they came out
and they went against what
the expectations of the market,
or even if
the market expectations
came down in that,
you know, somewhere
in the 40 to 60% range,
then you'll see bigger swings
based off of what the fed does.
But if there's if we're getting into 90
plus percent chance
like a fed cut doesn't
change the tenure at all,
I just don't think.
And that's why
I don't want to take it away from me.
I was just questioning
just questioning,
just kind of as a discussion point.
Like I'm questioning
whether the ten year
is affected by the fed cutter
because a lot of people argue
and I'm one of them,
that it doesn't, that there's
first of all,
the ten year treasury
market is one of the deepest
global markets around.
And I've actually seen graphs
where if you look at the
the fed funds
cut rate, rate rate going up and down
doesn't strongly correlate
with the ten year.
And so the short term, the short term.
No. But the long term. Yes.
And the reason for it
is that it's the same pressures
on the thing
that actually controls the ten year
or the other,
the other expiration dates in bonds
as drives
the fed to increase or cut rates
when the economy gets soft.
The Fed's going to decrease rates.
Well, when the economy gets soft,
investors are going to move money
out of the stock market into bonds,
which is going to drive yields down.
And so it's it's not that this
is that the fed lowering it
or is the economy being soft lowering it.
Exactly.
It's the it's the economy being soft.
The economy being soft
gets the fed to lower their rate.
The economy being soft
gets the other rates to go down.
And so they both go down
and it feels like
the Fed's controlling it.
But the reality is
and a lot of economists would argue this
and I don't know,
I've never done the regression analysis
to see if it's causation or correlation.
But a lot of,
economists would argue
that the fed doesn't
control the longer end.
It just so happens
the longer end of the curve,
the ten year and the fed
are both being controlled
by the same thing,
inflation and the economy. Right.
But there is like
if you look go and look back.
And if you ever look at drastic swings
in the expectations of rate cuts.
So we just saw one.
Obviously it was only like
it was right around.
It was bouncing back
between 40 and 6, but it was
it was
basically a coin flip for September
before that jobs report.
And all of a sudden
the jobs report comes out.
The expectation
for a cut goes from coin
flip to 90% chance.
And what happens?
The ten year Treasury
goes down by 20 Bips or whatever it was.
And so
and if you look back
to any major movements
in the expectations for rate cuts,
then that has major movements
in the ten year Treasury.
So like you could
you could say, okay, they don't
they don't affect each other.
But at the same time,
the expectations for the rate cuts
is what affects it.
So
and as they're both
reacting to the same thing,
they're both reacting to a supposedly
bad jobs report,
which means we have a weakening economy.
And that's what's really moving
the ten year,
not the fed expectation of what
the fed is going to do.
It's like they
the the economy's not doing great jobs.
Again, it's just one report.
But if suddenly,
you know,
the economy's just not doing great,
then that's
part of the reason
why the ten year move
is part of the reason
it went to 90% because investor investors
were reacting
a certain way to other news.
And so it's not that that it but
the ten year dropped
because it moved to 90%.
The same thing that moved the ten year
down 20 Bips
and moved the likelihood of a rate cut up
was the same first.
So AJ, do we do we believe them.
Do we think that's coming.
Yeah I think
pretty much like either
how many sources there's
I think
it's a market consensus right now.
I think it's yeah going to happen again.
These happen
is it
is it kind of
is it going to be too little too late?
I guess
is the thing
because there's been this, this feeling
in commercial real estate
that there's a lot of people
been hanging on. Right.
They've been saying, okay,
if we just hang on
till we see these rate cuts
until until they start,
when they start cutting rates
again, everything's going to be fine.
And, you know, back in 2024
it was the survive to 25.
And what was Morrison's
version of this persist to 26 or whatever
are we actually is it hasn't come
the persisted 26 is is
if you have made it this far,
you're going to be fine.
It's going to be heaven in 27.
Yeah.
I think the first of all,
I think delinquency.
Well, I don't think delinquencies are up
their way up.
There's only so long
that people could put it off.
And that is the usually the end of a
that is a key indicator
of an end of a cyclical cycle.
It's the finally people
letting go, like the hope's gone,
they're dropping off.
So we've seen large defaults
that can't just keep bleeding.
And that's what's starting to happen.
And the fed reversing course.
Right. That's the start.
But it's not the end of the defaults
necessarily
because they don't just drop rates
and it goes down to where they need it.
What generally happens is
you know we move through.
So you as the capital shifts,
as interest rates come down,
you still have to entice buyers
to the market,
but you're still having the problem
with defaults just changing comps.
It changes the way that banks loan money.
So it
it takes time, but it is almost always
the defaults are the start
of the new cycle.
It's just a lagger.
And so
I think that
that's going to persist with that.
I think we're going to see the defaults
as they've they've really gone up.
And I think that that will continue
to happen through the rest of the year.
But next year and on its
I think and I think JP Morgan
lots of other
that Fed's now
going to move into more of an easing.
But it's not going to be dramatic.
It just it's
it won't
as long as the economy's
doing as good as it is
it can't be dramatic.
You can't I mean inflation
isn't
a problem right now,
but that's because interest
rates are sky high.
So, you know,
they're they will begin to ease
how much they do.
Right.
That's the question.
So they're going to be late
probably to the party
because they're not
going to ease it enough
I think, to stop a lot of damage.
But that still has to come.
The job numbers was helpful for us,
showing the reality of the situation.
And the job market,
that's, you know, once again,
one of those key indicators.
But for real estate investors,
you got to remember a lot of the stuff.
It doesn't even correlate. Right.
So what the fed is doing
and trying to manage,
they're not thinking about
you and your property
and how it's better to have
a lower interest rate. Now, I don't care.
That's not,
even for the most part, a systemic issue.
They'll let real estate
developer operators default to avoid
inflation and crushing Main Street.
That's just how it works.
So, they're
they're going to walk easily into it,
even if they do four cuts
from where we're at,
that's not going to change
most of the problems,
the resetting of value.
That won't happen until
we get deeper into it,
which will probably be 12 months.
And then markets will start to,
adjust further.
But you're going to have to
some of the stuff's got to go out.
Defaults will probably continue
or we'll see more job
properties on the market have gone up.
People are trying to sell.
Capital is moving.
They're walking away from equity now,
which it's stalled out
for basically two years.
Once again,
the wealth transfer has begun.
That's a good sign.
And, as that stuff flushes out.
So.
Yes, but it's it's not fast.
But yes, the news cycle,
I believe,
is completely begun, where
we're putting in 15 plus million
of our own capital along with investors
on the next six months.
We're buying everything we can
and just to clarify, for everybody
that's listening,
I assume when you're talking about
you think defaults are going to,
pick up,
you're talking about
the single family market because not
you're not talking
about multifamily or self student.
I'm talking you are.
Yeah. I am talking about commercial.
You are talking commercial.
Okay. Yeah.
Commercial markets right now
defaults are at or as are.
So if we looked at a CMBS
market of delinquency rates
they're up to 7%.
They were below five.
They were down like almost 4 in 24.
But to be clear, commercial.
We're talking
office, warehouse, retail, multifamily,
you know, all of it.
Right. It's not all of it.
By 2024,
overall delinquency rate
of all commercial CMBS,
which is a is a big distinction
if you are in the multifamily space.
But this is see, CMBS,
was 5.431
year ago and is now 7.23.
It's huge, huge moves up.
And we're seeing
and we're seeing that in the trenches,
by the way. Right.
Well, seeing
we're seeing that where
like we have all
have our own
anecdotal evidence of people
we know well.
Yes and no.
Multifamily
I feel like
has to be taken
a little bit separate from,
from these other aspects,
just because
such a large portion of these
loans are Fannie and Freddie loans and,
you know, at its peak,
Fannie and Freddie had over
had like 85% of the loan market.
That's come down quite a bit.
I can't it's tough for me
to find exact numbers,
but it's still in the,
I think, 70% range, 60, 60 something
range of all loans or Fannie and Freddie.
And if you look at the Fannie
and Freddie delinquency rate,
we're still like 0.5%, like
less than 1% for Fannie and Freddie
by the nature of those loans as well.
Like,
there are obviously better
loans than you're
getting on the CMBS markets.
But if you march to July for multifamily
delinquency rates
went from 5.4 to 6, what, two I
and so I actually
I dove into that a little bit and
if you look back,
that can
kind of be brushed,
I don't want to say brushed off,
but that can kind of be attributed
to seasonal,
like just
just the way these loans are
that the delinquency
adjusted a seasonally adjusted numbers.
Well,
I read enough articles that said that
that it's
like if you, if you look at like
still eight of the top ten. Okay.
But don't look at it
seasonally year to year. Right.
So if you look just like year to year
where it's up,
I mean springtime low, but I mean
they're still definitely moving up.
You have a 24 basis point increase.
I think that all commercial real estate
delinquencies are going up
and you know it.
That's
I think obviously some are much higher.
So if you looked at office
or others, they're they're much higher.
Right. Than the average.
But they're all going up.
But keep in mind,
I mean,
when we look at the single family market,
a softening in, in the economy overall
is likely to lead
to a higher default rate.
Now, talking
historically, I'm not talking
about today specifically, but in general,
softening in the economy
is going to lead to a higher default rate
because people are losing their jobs.
And, and people are having to move
to other places for jobs,
and they have trouble
paying their mortgage
in the commercial space.
And when I say commercial,
I should say in the multifamily space,
because I don't want to speak
for other asset classes
I'm not as familiar with.
But in the multifamily space,
there's some amount of, economic pain
that is actually good
for multifamily investors.
If there's enough pain that we see
rates drop
without seeing vacancies spike,
without seeing rents
drop, without seeing,
other bad things happen
on the income side,
if we see rates drop to the point
where we can refinance,
we can originate
new loans at lower rates.
We can basically cut our expenses.
And again,
with, with unless there's something
major that happens,
we're probably not going
to get hit too hard on the income side.
So softening
economy can actually be good
for multifamily to a degree.
Also keep in mind
that for all commercial real estate,
the value of that real estate
is going to be based on a cap rate,
and cap rates have a relationship
with the federal funds rate.
There's going to be a delta
between what
somebody can get in the bond market
and what somebody's
going to be willing to to invest in.
That's what the let's just clarify.
That's not the fed funds rate.
That's the bond market
and the fed funds rate.
Sorry. You're right.
And that's that's 100%. Right.
And so
when I say rates coming down I'm
not I'm talking about
the softening economy
that leads rates down.
Not just the fed
arbitrarily lowering rates.
But if the economy softens and rates
come down,
we're going to see cap rates
likely come down.
Some which I would say right now,
multifamily is probably most
tied to the ten year
just or you know, those longer
and maybe seven year.
Just because
what I'm seeing in the market right now,
there's very few people
who are getting these bridge
loans, right, like fool
me once kind of thing.
Like,
no one really wants those,
like high priced bridge loans.
Right now,
everyone's
trying to make the numbers
work on these
these fixed rates,
these longer term ones,
and those ones are tied
to those longer treasuries versus
if you were getting some sort of bridge
loan, those are tied to almost directly
tied to the fed funds rate
and the sofr curve going forward.
So I like I just want to do I'm sorry
I, I didn't want to derail
but what's that like.
So what's that orange line industrial.
What's included in industrial
storage warehouse storage.
Self storage.
What was their delinquency rate
on the CMBS markets?
Well I yeah
AJ, I don't know
if you should be taking credit for that.
I think that's
a lot of the large industrial
warehouse type.
I'll take credit for it.
Yeah I don't think they
will default or not.
And I know a lot of those like
especially those like marijuana
growers and stuff,
like they're paying their year
in advance, you know what I mean?
Like they're these,
they it's tough for them to go in
and go delinquent on these things
when they're paying the year in advance.
Here's an important thing
to keep in mind with this chart.
For those I'm sorry,
I probably should let you say Kyle off,
because I know you've been waiting.
But Kyle put up a chart of
delinquency rates.
For anybody who's watching on YouTube
of different asset
classes, it's really
it's worth mentioning here
that, multifamily,
is going to be a good bit
different than all these other
asset classes
in the sense
that leverage or the total debt to
to price
ratio is going to be much higher
in multifamily.
Oftentimes
we get
loans for
65, 70, 75, even 80% of the value.
And so it's a lot easier in theory
for multifamily to to become delinquent
because values only have to drop 10
or 20 or 30%,
before our properties are underwater.
AJ, what's typical
in the self-storage market?
What's typical 30, 30%
in the office space?
I think
I think I once heard the number
like 42% is the average.
And so for office to be all the way
at the top,
delinquency like way
above all the other asset classes,
that's scary
because those, those properties
are like 40% loan
to value that barely leveraged.
And so so just keep in mind
that not all asset
classes are created equal
when it comes to delinquency rate,
because leverage
ratios are going to be a good bit
different between, asset classes.
I've been surprised by lodging.
We did discuss this before though
I, I also think that's lodging malls.
I think they were on a different cycle
where like, you know,
like Covid and other things, like they
they kind of put them on a different path
in the rest of commercial
where, like,
they really bottomed at a different time
than the rest of these asset classes.
I completely agree,
and I will I'll go
I'll go pull a different chart.
I always reference
so I like trap for their, for their,
loan data.
But then I like Green Street actually
for their, their value of, of assets.
So while we talk
I'll go and pull that one.
But if you look at like where
the peaks and troughs are, like,
you could see that
those are, those are two asset classes
that are completely different
than multifamily,
self-storage, industrial,
those things like that.
There's an interesting observation
I've been making.
And I
in preparation for this, I, I pulled up
all the different schools
of economic thought,
like whether Keynesians or Austrians
or traditionalist or monetarist.
They all have different explanations
of what it means
that interest rates are going down.
Because what's
what I found
fascinating is a lot of
people are saying, well,
interest rates are going down,
which is going to be great
for real estate,
but now it's going to be like,
oh, the booms going or whatever.
And none of the schools
that I was looking at it
like how they would,
they all have different explanations
to why interest rates are going down.
Some some would say, look, it's
inflation and growth.
Expectations of interest
rates are going down.
That means people are expecting inflation
to be lower
and growth to be lower,
which is not a good thing
because they're buying bonds
and all that stuff.
And other people say different reasons,
but none of them say
that it's a good thing.
And so I find it fascinating
that when people are arguing
interest rates are coming down,
this is a great time to buy.
It's like saying,
you know, hey,
you know, my
the good news is my my property taxes.
We talked about this a couple weeks ago.
The property taxes are down.
It's like, yeah, they're down
because your properties are lower
like less.
So it's like it's good news
within the overall bad news.
So the
the fact that we have lower
interest rates,
if that means the economy is softening
and we're going into
some kind of a recession,
even if you're getting a better deal
in terms of a better loan
for your real estate,
does that really mean it's a good thing
that I throw that out to you guys?
It's the 2008 effect.
I talk all the time about how
after 2008,
once we had forgotten about 2008,
by the time we got to 2014, 15, 16,
everybody was talking about,
well, I wish we had another 2008 event
because I would buy everything.
But I was around during 2008.
You guys were around during 2008.
Nobody was buying everything
because everybody. Yeah.
How long did you have to wait?
You probably had to wait until 2010.
11. You couldn't even get a loan.
In 2008, I was buying,
I was buying stuff,
but only because I was too stupid
to know otherwise.
Turns out that it worked out well, but I.
I didn't know that at the time.
But yeah, everybody thinks
if stuff were on on sale half price,
they would buy everything.
But they don't realize
that at the same time,
you get out of bed in the morning
and you're terrified to walk outside
because you don't know
what's going on in the world
and you can't get loans
because loan is is tightening up
and you can't sell
or your rents are there,
your rents are weaker, software
or your occupancy is lower,
or maybe no occupancy,
but at least
your economic vacancy is lower because
people up,
you know,
they're losing their jobs
and they can't pay rent,
or your delinquencies go up
and it's like, it's
a nightmare out there. Yeah.
So so
everybody is wishing for lower rates,
but they don't realize that
with lower rates that they just assume
you can have lower rates,
but none of the bad stuff.
You can get the good stuff
without the bad stuff,
and that doesn't work that way. Right?
I mean,
does anybody on the panel, at the panel,
anybody here think that lower rates
is in generally
a good thing in the economy,
or does everybody
associate lower rates with
bad things to a softening?
I mean, theoretically they could be.
It's just historically
especially like we obviously want a rapid
rate decrease.
And anytime
there's been
any kind of rapid rate decrease, it's
because of a bad thing happening. Right.
Like theoretically
we could just see
these rates taper off
into that quote unquote
neutral rate
that no one really knows what it is.
But, predicted
the fed is kind of implied.
It's somewhere in the mid threes.
So theoretically
we could just see a taper off
into those mid threes
and then just hold it
and everything's going to be great.
But historically most rate
significant rate
decreases have come at the result
of something bad happening.
And usually that's
something bad happening.
Is is bad
for most of commercial real estate.
But but this goes back
to what we were talking about earlier.
It's the economy.
I think it can be argued
that it's the economy that drives rates.
It's not the fed.
And so the fed could lower rates
all they want.
But the ten year and mortgage rates
and cap rates aren't coming down
unless there's something bad
going on in the economy.
So I think to Moriscos point,
my take is
there's no way to get low rates
without the pain
that comes along with them,
at least not in the current environment.
Right?
I mean,
if we were
if we were in a free market place,
then rates would come down.
When there's more
you could pick and choose, obviously,
like if you go back
and look at history of of the fed moves,
like there have been fed moves
that were not as a result of something
bad happening.
You know,
like most recently, just back
the last time that Trump
yelled at Powell,
Powell was raising rates
and then he just started backing off.
And nothing bad
was happening at the time.
And that right up until Covid.
So like like you could pick and choose.
There are instances of well
that was 2018, 19
and we were starting to see
a softening in the economy
leading up to to the pandemic.
So I feel like it was
the same is going on right now
where some people were saying
it was softening.
Other people were saying
we have a robust economy.
Like it
just kind of depended who you were.
Yeah, but it wasn't clear.
It wasn't clear.
We should be raising or lowering.
It wasn't clear
the economy was strong or weak.
And if anything, I would argue that,
we could talk all day
about whether we think the economy
is getting better or getting worse.
But rates is going to be the best
indicator of that,
regardless of what we say
or anybody else or the fed says,
rates
themselves are a reflection of the market
in general.
The long in the longer in
the long run, certainly.
So I'm interested.
So AJ, you
mentioned that
like how much money
you were earmarking for investing, right.
Are you doing
are you planning right now
or do you still see
additional softening coming.
And you're
just kind of like ready to pounce. Yes.
And then we see we see softening coming.
But we're not waiting.
We don't wait.
We don't time markets.
So the deals are there.
We're we're buying. We've loaded up
capital and we are we're executing.
We're buying as much as we can.
So we'll continue to over the next
with the expectations
that like, things
still could start to come down
a little bit or that. Yeah, absolutely.
And it's similar in the multifamily.
And we were just came back,
Jay and I were at limitless.
And so I was talking
to a lot of operators out there
in the sort of the larger ones,
they were all saying,
at least in the multifamily space,
that this is it.
This is the window.
You got 18 to 24 months to load up.
Everybody's fearful.
It's like uncertainty.
But this is
if you know what you're doing,
you're buying stuff that's cash flowing,
that's below replacement costs.
You've got like a two year
window to go buy it.
It's it's still so tough
because here's, here's
the it's harder to buy
when when the nice falling
and you want to go
you don't want to catch
the falling knight.
But this is the time.
That's when you start.
Well this is,
this is
when you want to be Blackrock right.
Where you can
basically just
you have all that capital
and it's trusted capital.
And they just kind of like
like you don't have
to really answer to it.
Because here's the problem is
even if you have the theory
of all of these things happening,
and it's going to be the best
time to buy,
you still have to put together a proforma
and sell it to investors
that this is
this is going to be a good investment.
And if you start putting any
expectations of of growth or,
like any of these outsized
things that aren't
historically
haven't happened into your proforma,
like investors aren't going to invest in
your deals like you.
So, yeah, I mean, I,
I'm I'm pretty sure, AJ,
you're not promising
to double people's money after year one.
Like, it's like this
the you educate your investors
to say, look,
this is where we are in the cycle.
And this is,
you know, in the it's a 5 to 7.
In five years from now,
we're all going to be great shape.
Maybe next year.
It's not great the year after.
That's not great.
But I know we don't
we don't even invest like,
like that at the end.
At the end of the day.
That's right.
You have your
your investments are all ATM
machines, right?
AJ you that's your deals.
And then you get ATM they,
they've they just spit out money
like it's it's stupid.
It's just like crazy.
No, we
we buy deals predicated on yield.
So at the end of the day,
I don't care
what the future market's going to do.
I don't care
if cap rates are going to go down,
because if I can purchase at a yield
that is,
you know,
we can get it to our what we call our,
our golden ratio,
then we're going to buy.
And that is hard to do at certain prices.
Right now
we're getting deals
that are hitting our golden ratio.
And of course as things
soften, we get more deals
and we believe that's happening.
But we have got we're getting those deals
that we're getting yields
on cost that are amazing.
And we believe
that obviously will continue
and we'll just keep buying.
So weather with the markets
turn around and eventually come back.
Right.
Which for us we care
I care more about occupancy and rates,
which we believe
that will happen due
to the, contraction in overall supply.
So the biggest thing
with high interest rates
are it constrains, market supply.
You can't high cost because of inflation.
High interest rates constrains new supply
out of the market.
There's a three year lag.
So that is pent up demand.
So today's yield
we can buy a stabilized
ten on cost
tomorrow with without saying market rates
are going to go up.
What that happens
in high demand and high markets.
It's
and once again we did this in 2008.
And it was you know
obviously at those returns
if Mark with markets change
or when markets change
you get a huge windfall from it.
But we don't backed it.
We don't underwrite it for it.
I mean so as markets
go down and buy, go down, I mean
price of assets that are being sold
are sold
at lesser and lesser amounts
as people are either bailing or ditching.
We do not believe there's
too much liquidity in the market
right now
to we're not going to see anything crazy.
We have $3 trillion in money markets.
We have,
you know,
almost $1
trillion already earmarked
for real estate.
It's it's bonkers.
And we have Blackrock, Blackrock, others.
They're rolling out billion dollar
funds at the moment.
There's so much liquidity in the market.
This is not 2008.
You are not going to get assets of
fire sells like we did. Why
I'm buying them
I don't need it to give me it for free.
I need a ten year old on cost.
And then as Marcus I, I assume AJ like
and maybe this is just me
trying to make excuses for us
not being able to buy deals.
But I assume because of the nature
of your industry,
you're still able to find some deals
where you can buy them
with no competition, right?
Like whatever
your marketing tactics or whatever,
how you're finding this,
this isn't
like the problem with
multifamily is we're competing.
If it's if it's an asset and good
if you guys operate on margins
in competition, that it's different
than we do for
a lot of ours is operationally,
hard.
And so to have be able to underwrite,
be able to execute
like everything from expansions
to understand the difference
between street market rates, there's not
lots of people
that are versed in that
in the storage industry.
You got to remember 80%,
over 80%,
well over 80% of all syndications
and funds in my industry came after 2018.
Like,
you just don't like how it.
So when we're looking at getting,
10% yield on cost,
I'm not talking about a listed deal,
even though I,
we've bought listed deals stuff.
What I mean is it's
not like other markets where it's just,
oh, yeah,
deals are just
everybody kind of we go back to 2008
where you could just go buy it
like you just go on
the MLS and buy something.
That was great, right?
That will not
I just don't think that will happen.
As of right now,
I haven't seen one deal in two years.
I mean, not even close.
That actually traded
what it was listed for.
It was listed for $10 million
and it sold for eight.
The last two development
or excuse me not development deals,
but brand new builds that we bought.
Both groups walked away from all
of the equity, all of it.
And so they're walking away from millions
that we're now buying, which,
you know, a lot of times that was
what it cost to build put into it.
They didn't
they didn't listed on the market
for that.
You know, we
we had a deal
a month ago
I didn't get, which sucks,
but it was put on the market
for $16 million.
We found out from the broker
it closed at, like, nine.
What's, what was.
So, I guess.
What's the change in cap rate?
Have you seen since the peak to, like,
what you're purchasing?
Third tier markets.
We've seen easily at 300 basis.
So it's gone from five.
And this is third tier,
fourth tier markets
if you go into first tier market.
So I, I'm in the middle of a sell.
We're selling at a four cap.
So I sold a deal a year ago
at a four cap
at this disparity is massive.
The inefficiency in their market
that you're able to buy things
probably at seven
plus and still be able to sell things
at four, right? Yeah.
And to the inefficiencies
in the operations.
So when we go in
and I'm buying something at 30,
40% occupied
because you have an operator
that's never even ran,
it doesn't want to write.
That is hard
in asset classes like multifamily
that are extraordinarily efficient
and even even those ones,
because those ones do pop up right now
because you're you're having some kick
the can people
and the occupancy just goes
down, down, down, down.
But even those ones, like
they're still hitting the market
and they're still catching
like to your point,
there's a lot of people
who want to be buying
properties right now.
They just they just don't make sense.
The numbers don't work.
And so every single
one of these properties,
like there's a lot of eyes on it,
a lot of people
who are still bidding on these things
and all of those people,
you know, I guess this is probably me
just complaining.
All of those people
are willing to underwrite outsized,
like cap rates, outsized rent, gross
outside stuff. Because you know what?
They're probably right.
If I'm going to be honest, there
probably, probably will happen.
But you don't know that
that's the problem.
You don't know that
we probably will see cap rates come down.
We probably will see occupancies go up,
and we probably will see
rent growth above 3%.
I actually believe
those are likely scenarios.
But the same point,
if I'm doing the underwriting,
I can't go to my investors and say,
hey, look, I decrease the cap rate.
We I know for the last five years
we've been
increasing the cap rates on sale
every single one.
Now, right now, we're
not only we're not keeping it
level, we're actually
performing a decrease in cap rate.
And not only that,
we have a three and a half rent growth
instead of a three or a two and a half.
And we also on the top of that,
we think occupancy is going to be 97
instead of 95.
And do I think those things could happen?
For sure.
I'm looking at all
the data like there's there are no
no Arclight properties coming online.
So that's like
like you being
a conservative underwriter.
That's the difference
between our market or our industries.
I can do that.
And by deals,
as in, I cannot project lower cap rates,
I cannot project rate increases
and I can still get deals
that will get me right, that high yield
because of two reasons.
You're
the competition in your industry
is it's a lot,
but also you have a system
that supports it, right.
In self-storage, try to go to a bank
and tell a bank, no bro, it's it's cool.
It'll go from a seven to a four cap,
I promise.
Like you're going to see rates
that are going to go up, a lot.
Even though they went down 15%
over the last two years.
Trust me, occupancy
and rents will go go up.
Banks,
they don't because the replacement cost
is not nearly, a thing like it is in your
your industry.
You have a large asset
where banks can value it.
Investors can value it out.
Like what it's built cost self storage.
It's like net income.
Like these are metal boxes.
So the value
can go from 4 million to 15 million.
Just purely it's
still kind of the same with apartments,
but I guess so
there's more of a floor to that
once you get to replacement cost. Right.
People are going to start buying well.
So I always use the example
that like you have two properties
that have $1 million
and NOI ones, 90% occupied ones
50% occupied.
Like I'll pay a three cap
on the 50% occupied, one 100%
because the the opportunity
of buying that even.
But then I'll pay, you know, a five cap
or a five and a half
for the one that's 90%.
And that's what we're doing.
We're buying deals that are not
we might pay a negative cap rate.
You might buy a property
that's losing losing money
if it's got if it's got value at.
Yeah, I bought one four months ago.
Yeah.
Because because of that exact reason.
What you're saying.
Yeah.
That's why we talked about the fact
that going in cap rate is meaningless.
We will buy a negative
going in a negative cap rate property.
If we can get a good deal.
And to, to Kyle,
I'm going to point out to you
and make you feel a little bit better.
I've been sitting in weekly meetings
with you
talking about the market
and underwriting for five years
now, six years
now, and five years ago, four years ago,
three years ago,
you were saying the same thing.
How annoying it was that
all these people were outbidding us
because they were willing to assume
cap rates weren't
going to expand as much.
They were willing to assume
ridiculous rent increases. Whatever.
Well, we're
patting ourselves on the back today
because we didn't
get into the same issues
that they did for several years.
So yeah, we probably will miss out
on some some opportunities,
but quite a few acquisition fees too.
Yeah, but that said, well, who cares?
We protected our investors
and I was that was I was being facetious.
I know you were,
but it just pisses me off
that there are investors out there
and there are a lot of them
that honestly, they wouldn't do that
go after the the acquisition fees and,
and just hope that
that cap rates come down
and hope that occupancies go well.
They have to.
And we ran into this problem
like for two years
and for self storage
because self storage got slaughtered.
As we were looking at those numbers
we were like the worst
performing 1 in 24,
I think, you know, we had like our
we had market rates dropped like 20%.
Right.
And all of a sudden
you have firms that they
they only can make money by doing deals.
So what do you do in a market
where deals are gone lower than 2008.
Like let's Deals were trading hands
and I think
224 than they were in you know like 2008.
What do you do in that scenario
when you have staff,
when you have all these people?
Right.
And you built this big engine off
doing deals
and you're getting paid for those fees,
all of a sudden you got to fire people.
You're doing mass layoffs.
And unfortunately,
a lot of people like Jay
saying they choose to,
we're just going to keep
trying to do deals.
We're going to we're going to do
whatever we can
to keep the money flowing in,
not to get good returns.
And that is a dangerous game.
So but you guys, you know, for for that
being more conservative
and keep a tight ship it
you are placing
reality as opposed to hopes and dreams.
So a lot of people are doing deals
saying we believe Kyle, like you said,
all those things will happen.
But what they really believe is
I need that fee.
That's what they really believe.
And unfortunately,
there are a lot of people
that are doing that.
It just sucks
because I do believe
those things will happen.
But at the same time, like,
I can't, I can't underwrite it, right?
Like I can't, I just can't.
And so like, if you can find a deal
that you can make
pencil,
even if it's like skinning in their eye
to your point,
like I would be if it was,
if I just had a war chest
like I would be buying
everything that I can.
Every single property that came on
that had that value add, that had,
you know, even some distress,
even those things.
Because there's some crazy stuff.
I don't know if you're seeing this
in your market,
you're probably not seeing it as much
because you said, like,
the TVs aren't as crazy as ours,
but banks like banks
don't want to be running
these properties.
And banks are doing awful jobs of it.
And they they learned their lesson.
They're not very good at.
We have a
we have a property
that's like next door
to one of our properties
that the bank took over.
And the place looks like a war zone.
Now. It's killing us.
But anyway,
the the point is, is
that the banks are terrible,
but the banks are terrible at it.
But they're pretty good
at matching people.
So they may want to take over property,
but they can go find another syndicator,
another buyer and say, hey,
why don't you take over the loan
or we'll take a 5% haircut on the loan,
but hey, will you come in and buy it?
AJ your bank. Thank you.
So that's
that's where I was going with that.
We've we've had quite a few properties
that we've been on.
We didn't end up winning them.
But the banks are willing to because
they're taking this over
or even if they're not taking over,
they're about to take it over.
And so they say they
they go to the current operator
and be like, hey, like flip it.
These are the terms
that we would be willing
to like take the quote
unquote loss or whatever.
And they're, they're giving like
the terms
and the loan
that they'll give to the new operator
because they,
you know,
you have to obviously
stay with that lender.
So they don't want to
take a huge haircut,
but they'll give
you like a 95% LTV sometimes or like,
like up to
they keep that includes
like renovation budget and stuff.
But like they understand
a lot more than they did in 2008.
To your point, though, like, I mean,
the DCR measurement,
they've got to work within that.
So, you know, they're looking at
who's the operator, what can they do.
But they it's it's a conversation
just wildly different.
So we had a conversation on a property
where our DCR is
it doesn't work on the property.
And the bank's
literally like
your taxes went up 3X1 year
and they're like, this is 100% because,
you know, like of taxes
want to nothing else has changed.
And they're having conversations
that I'm like,
we never had these kind of conversations
with banks before.
I think the 2008 issue was the banks
didn't have an exit strategy.
They thought a reasonable exit
strategy is
we will take over this property,
and we will manage it
until we find a buyer.
And what they realized was
banks aren't in the asset
management business.
And when they sell shady stuff to
if they take over a $50 million property
for $40 million
because the the borrower can't,
can't make payments,
well,
that property is going to be 30 million
by the time they get rid of it.
And so they would have been better off
working with the
with the borrower
to either cash themselves
because now you have comps,
they're like,
oh, we're going to take it
lower in this market.
And they're like, well,
we have 100 million or 500 or a billion
more of assets in that market.
We just shot ourselves in the foot
because we just literally,
you know,
we're destroying our own market.
And it's fun.
It's funny,
you're actually better off right now.
The worse
your property is, because the bank
won't do anything.
They'll try and help you
if you
if you are
like struggling
to make your payments
because of a rate cap or,
or something like that,
but there's equity in your property
like then the,
the bank's going to be all over you.
They're going to be pushing you
to very short sale.
They're going to put like
like trying to figure out something
for you to do versus
if you aren't making payments
and they're looking at and say, hey,
we got a $70 million loan on this
and this property is worth 60.
They're going to be like,
let's work something out.
You know, keep
let's let's try and get you paying.
Let's extend this.
Let's, you know,
you put a little bit
more money in reserves
will lower your rate.
Like they're willing to do a lot more
than if it's a property
that's actually not doing that well.
But they there's still equity in it.
Just the,
the one of the things that we've seen
with the banks too, is
I think they are on board
with the rates thing rates being lower.
I think their outlook is similar
and that changes, I think, how they act.
If they know in six months
rates will be lower
and some ways good, in some ways good,
right where they go, hey, you know,
we're on a better path
and we might succeed.
But in other ways not so good.
And we've seen them drag out things
that aren't, I'll say, beneficial to them
and no reason at all for it.
Like they're no driving factor.
They're just.
We couldn't like it got weird.
We're like, what is going on?
Why are you dragging
some of the stuff out?
That's just we didn't see
the market was more fluid.
We didn't see banks doing these things
2 or 3 years ago.
Right. It was nope.
We do a deal done.
And there's a lot going on
in the inside of these banks.
I think we don't know about.
I think their balance sheets,
what they're playing around with
as they're getting while interest rates
as they're moving up on deals
and that equity is changing.
I think there's
a lot of internal discussions
at local banks, different credit unions
and even some of the national banks,
but not nearly as much
because they don't deal as much
in commercial real estate
where they're looking at,
more of portfolio management right now
and saying, we're moving cards around.
And I think people can be
a little surprised at which
side they end up on. Right.
Because
they're motivated by things
that aren't specific to that property.
But hey, but it's even a
like even if we talk about the JP
Morgan prediction
and let's just say interest rates
go down one
100 basis point, like,
does that really help
other than those on
the margins obviously.
But does it really help?
I mean,
if you again,
going back to the multifamily.
So this is maybe you know Kyle you're
this is your area.
But if you bought this property at 4%
or like a 4% interest
or four and a quarter
and you have a recap at 6%, like
the interest rates has to go down
to meet your stress test level, right?
Are you
you stress tested
where this kind of breaks
even or whatever.
The interest rates are way
above that stress, does it?
They would have to come down sufficiently
to reach that stress case.
Well, there's two sides of it, right?
Like there's
the one you're
the side you're talking about is people
being able
to like perform
on their current held assets.
And then there's the other side
to getting to getting the two to the DCR,
DSR right.
That then the other side of
is it like like
if it does come down
significantly enough,
first of all, it's not 1 to 1.
So like if the ten year Treasury
like it wasn't that long ago,
the ten year Treasury was was below
four and staying for
and we didn't think it was going
to go ever going to go above four
if it comes down.
And the other side of this is too,
if banks start to get a little bit
more comfortable with rates
and where they are
and them not running up
and not doing anything crazy,
like we still have a lot of runway
in spreads, two
that spread above the treasuries.
So like we could see if we see rates
come down for multifamily,
if we see that ten year treasury down,
you know, in the 4% range,
and then banks all of a sudden are,
you know,
they're bringing their spreads down
that like let's say we get it down
to like ten year treasury at three,
seven, five.
And the bank
spreads are like one and a half,
which we we've seen at some points
that's low, but that's, we've seen that.
Then all of a sudden
we're looking at five
and a quarter rates.
Then like that's, that's significant.
And then all of a sudden
we're seeing cap rates come down
quite a bit.
So if the cap rates come down
quite a bit, even if those properties
that are on those, those loans that,
you know, word
really got hit,
they took about the peak of the market,
at least they should be able to exit.
You're getting a more fluid
market, right.
They should be able to get out of it.
The problem is
you can't get out of these loans at all.
You gets the second.
Like,
I don't think I think for us
and Wells, it's it is actually the
it really second or third consequence.
It
lower rates
will help move the housing market.
And I think that
is going to be beneficial. Right.
I mean for, for our industry,
if we got rates to come down
100 basis points, we already saw it last.
Was it last spring?
J when we saw that drop in the rates
where it was like,
oh it was well I don't remember.
That was me.
Yeah. Right.
Where that sudden drop
occupancy across our portfolio
boom shot up.
We were having like 150 200 move a day.
And then when the rates went back up,
completely done.
And it was amazing
how much pent up demand
there was
that even a small move in the markets
immediately shot
changed the housing market.
And I think there's a
lot of that going on.
Not just in the housing market.
And whether you're multifamily
or storage, moving is good.
People.
Moving from California to Texas
is really good.
When you own multifamily in Texas, right?
So when you have a market that's frozen,
commercial real estate gets hit.
And so we need movement
and economic activity,
not just in the form of cap
rates sale,
but in the form of overall demand
from people having different
housing choices,
lifestyle choices
and being able
to actually extract on that.
You get 100 basis point.
I mean, we saw movement,
you get 200 basis point change.
It's an entirely different world
for us than we've been in for two years.
Fair enough.
Well,
any final thoughts, Mauricio J or,
can we get a sneak at the top ten here?
I know Mauricio has been waiting.
Let me see if I can stall this out
for another hour
so we can avoid the top ten.
Let me see what I can come back.
One topic
and we're still one over an hour.
Good job guys.
Yeah, I mean, this is at the root.
I feel like
there are some people who that they love
to listen to the podcast
just for some real world. So yeah. 100%.
This is a good of what we're seeing.
So I it's always good to
come back to that.
Every once in a while. We'll touch on it.
Hopefully in a month it'll be a second.
Let's let's do quick predictions.
How many rate cuts are we going to see
before the end of the year.
Oh, let's define what rate cuts.
Thank you. So
we have three more meetings.
There's going to be six
different rate cuts
ten basis point each.
I mean, we could joke theoretically like
the fed can call an emergency
meeting at anytime. That's true.
I'll start it off.
I'm going to say
we're going to see 50
basis points between.
Oh, I
that's why you wanted to start it off.
Because that's
I feel like that's
a general conservative consensus.
Well JP Morgan says 100 basis.
Yeah I know but I said 75 whatever
that was two weeks ago
and I'm sticking with it.
75 Mauricio
I think it's going to be data dependent.
I agree on that, Jerome.
It was not so low.
So I think it was like
these days, though,
where
we're apparently
getting news that the BLS might
just stop reporting jobs.
So, like, you know what,
what data they depending on.
Yeah, I heard
the BLS might be changing their,
their technique.
No, I think,
you know,
all kidding aside, I think, you know,
I think the September 11th report
will dictate
if the September 11th report
shows more weakening that I'm.
Look, I'm just gonna say 50 basis
I I'm ruling out AJ.
AJ is
I don't know what he's smoking today
75 I forgot it.
There's no way 75 basis point but 50.
If the if the September 11th comes bad
I could see 50.
But if it's normal I'm
to we're talking about
by the end of the year
how many how many ways are
we allowed to hedge this?
Am I allowed to hedge each meeting
and each jobs report
or or we just get one like Mauricio,
we're allowed to hedge one time.
Mine's going to be a moving average.
I'm going to adjust it
every time the fed speaks. Yes, exactly.
Every every
I'm just episode until I get it right.
Just because Mauricio said that
AJ smoking something
by saying 75, I'm
going to say 75 to
then just to jump on with it.
Well, we know,
we know you're smoking is just more it's
rare for AJ to be smoking,
but for you it's like a daily occurrence.
I'm going to be in Canada in like a week
I guess most.
I can't make this joke anymore
because most of the US
it's legal anyway now.
But I was gonna say in
Canada it's completely legal.
Yeah, me and you will be in Canada
in a week.
I'm going to be in Canada
a couple in like next month or something.
And we're all going
to let you guys in jeans.
I'm snaking, running across the border.
Oh that's right.
Aren't you bringing guns too?
Yeah, that's
that's got to be a tough one.
Have I know?
Okay, I'm telling you the story.
This is my favorite story about.
You're already told it on the podcast
one time.
Okay.
I'm telling again
I'm guns in the airport.
All right.
My one of the about the airport.
Everyone that listen to this podcast
and heard it.
You are going to sit
and listen to this again.
All right, well, let's do it.
Cheers to the drink.
While we're while we're doing this,
I'm drinking Woodford, by the way.
Diet Coke solo cup baby
red blend from North Carolina.
All right.
So I love Canada like I'm.
You know, I, I do, you know.
Okay, listen, I love western Canada,
so I,
I love Vancouver.
He doesn't love Vancouver I love Alberta.
So I, I go up I go up there,
I mean,
almost once a year,
but we go up there,
and it was on a hunting trip with my son
because he wanted to go hunting.
I'm not a hunter, but I guess I am now
because he wants to be,
I go to the airport.
They're crazy about guts.
They kick you out of the airport.
You got to go check in.
You got to come back,
and you're going through
all the security stuff, and I'm in there.
And I asked the guy,
we're down in the bottom.
I'm like,
do you think this is a little overkill?
First of all, not a lot of this
even makes sense.
And let me tell you what, I got a speech.
And that speech was how us Americans
don't value things like guns
and Canadians.
They understand how dangerous
guns are, and they take care of it,
and they got to be careful with it.
And this is a serious matter
to Canadians, unlike Americans.
So I'm like,
okay, sorry,
I shouldn't have said anything.
I was like, I got my big speech.
We go and we head up to the Yukon, okay?
We get there.
Guns aren't there.
Nobody knows where our guns are.
Can't find them.
We have to leave the airport.
So the following day, I'm
everything we're
calling our guns and ammo are gone.
So I'm like,
maybe I could talk
with somebody at the airport.
We can't get anything.
So I go to the airport,
not in the security,
you know, out where they have,
like, baggage.
And then there's a huge walking area
in the middle of the airport
is sitting on the floor, my guns and ammo
sitting as people are walking by,
just strolling through the airport.
I look around,
I walk over,
I just grab my guns and ammo
and walked out.
And they're just sitting
in the middle of the airport.
I don't know how long they were
there for.
You should have put a big sticker on it
like this is a gun,
and then
maybe they would have taken it better.
Oh wait, no, you could tell
it was in a gun bag.
I don't know, guns, I assume was a rifle.
That's.
That looks a lot like a hockey stick.
And those are just left
around everywhere in Canada.
So Canadians don't steal stuff.
All right. Sorry.
I love that story I got. All right.
I got a little off beat top ten here.
And it's just
just because it was something
interesting that I found,
I saw a random article about this.
I don't even know how it's pronounced.
SLA train.
And they were really
excited about it
because it's
now going to go up
to 160mph,
surpassing the current fleet
of ten miles per hour.
And I thought to myself, Holy, 160mph.
That's fast.
But then they mentioned in the article
how like,
we have very antiquated,
antiquated rail systems
and how this is like
nothing compared
to the rest of the world.
And I was like 160 miles.
That's that's not even fast.
So I was like,
what is the rest of the world doing?
And so I went and looked it
up, and I thought,
this would be interesting
to talk about
how fast the trains
go in some of these other countries.
So,
there's quite a few of them.
They almost all use the same systems.
But so we'll start with
number seven and it's a tie,
186mph in the
United Kingdom, Germany, Italy,
and China, one of the Chinese ones.
I'll go 186mph, which
obviously that's faster, 160,
but it's not like, okay,
like that much faster.
Then we get to South Korea 190mph.
Then we get to Spain 193mph.
And then in Morocco and France,
they have trains that go 199mph.
And then and Japan, sorry, Japan's
199mph, but it's capable of reaching 217.
They just don't
they just dial it back and then in
I'm not even going to one
few Fuyang how China they have trains.
Their trains
go 217mph from place to place.
You know,
it doesn't really seem
that much faster than 160.
But think about an hour trip though.
Like how much farther?
Like like okay,
like I was I like,
I took I like taking the train
to New York City
and like, that trip takes an hour
and a half to two hours,
depending on which train you take.
And I know a lot of these trains
go like New York to Washington,
like you will be cutting off hours
to that trip
by train like you could if you were.
If we had trains
going from Philadelphia
to New York at 217mph,
that means it would be
it was like less than an hour
to get from Philadelphia
to to New York City.
And if you do that, like,
people would just
live here in Philadelphia
and every day commute to New York.
That's what they're doing in California.
I mean, they've been, you know,
now 20 years.
They've been, doing that, that train.
And, how many billions have they spent?
I mean, there is no train nor tracks, nor
anything else, but,
they've been trying
so I think they they give up.
I still know, I know one guy,
a who, like,
our kids go to school together.
He works in New York City,
but he only has to go in the office
2 to 3 times a week.
And so he takes the train
2 or 3 times a week in New York City.
It takes some, you know, an hour
and 45 minutes.
But like, imagine if that was 45 minutes,
like it would just break down
all of these,
especially these northeast cities
that are all like three hours apart,
like people would just live
where it's cheap.
I'll think about the West.
Our closest city is seven hours away.
That's the closest one to us.
So, you know, if you had a metro,
if you had a train
that connected,
literally, you went from Seattle,
Boise, Salt Lake, Denver,
and then you could go to like, Texas.
I mean, the United States is
the perfect landscape
for that kind of stuff because it's huge.
And if you connected metros, I mean it
to the density problem traffic in LA.
Like who?
If you had a train that went downtown LA,
they could go up the coast
to those other cities.
You would disperse population
like for for reference to that 160
is really fast
compared to the next fastest.
J should know this.
What's the next fastest train in the U.S?
Oh come on,
it's all over the bright line.
And in Florida
goes 125mph
and just kills people every day.
It's nowhere near me.
So I have no idea
is that
I think that's the one
that they're talking about extending
to Orlando, to Miami.
So nowhere near you, like, isn't
Orlando like an hour from you?
Well, Orlando's two hours from me
with all the stops.
I'm better off
just popping on a horse
and just galloping.
But by the way, when we say
two hours, that's like a, hour
train ride at 160 miles an hour.
Anyway, you got to, you got to need.
What's it called?
Hypotheticals.
First J to finish this off.
Here's one.
How much would
somebody have to pay you
to be ten years older immediately,
at ten years to your
life, but $1 billion?
Can you at
can I also determine
what kind of shape I'm going at?
Can I be in, like, tip top shape
and ten years older?
You can be in the same shape you're in.
No, no,
no, I'm talking about tip top shape.
I don't want to be the same shape.
Do you,
do you guarantee that
your spouse stays with you?
I know your spouse, Kyle.
You can't guarantee that.
Now, I might add, my
my spouse is looking for an excuse, so
I'll stay the same age.
Does your spouse
also go ten years with, you know,
she stays the same.
She stays the same age.
She's going to be happy about it
because she's going to inherit that money
ten years sooner.
We can we can joke about hypotheticals.
But I like I guess, like
if you say
put $1 billion
in front of me for ten years, I mean, now
I wouldn't do it.
No. Do I.
Just ten years.
That is, that's a $100 million a year.
That's my freaking life.
Know all the things I can do
in ten years.
Be no help with anything.
Here's what you're missing, AJ.
Here's what you're missing.
Do you know how many years of your life
you can add
when you have that much money?
With the technology
that's going to exist
and that you're going to be able to look,
that's a real
that's the best argument I've heard.
Marisha.
Never giving up ten years of my kids.
That's a good point too.
But you get that you're ahead.
AJ if you don't have that money
you're going to die at 100.
With the money
you're going to die at one time.
Not miss in their childhood.
Where could you strategically do it
right when your kids are
those like pre-teens,
when they're going to like, hate
you anyway?
Like AJ, you're not missing that.
You're just ten years older now.
You're you just make you wake up tomorrow
and you're ten years older.
Everybody, everything else is the same.
Oh, but I go back to the Cody
Sanchez thing where she says, like,
take any billionaire in the world
that is 16, 60 years old,
like they would switch lives
with, oh, no, it's a Warren Buffett.
Like, I wouldn't switch places
with Warren Buffett for sure,
but he you might switch places
with the 60 year old. Dude, bring it on.
I'm in.
Yeah, I don't know.
Mauricio, you have an answer.
Come in.
It's a lock with the mortal lock.
It's a mortal.
$1 billion.
You do it? Yep.
Mauricio, do you have ten years?
That's more.
Yeah, there's.
There's the funny thing. He.
He's guaranteed another ten years
if he takes the bet.
There you go.
Well, I might wake up and they'd be dead.
Like, I'll wake up in ten years
and I'll be like, God,
yeah, if you were awake.
So if you were, if you were going to die
in the next ten years,
would you skip that event?
And just like, no, you get a second life,
you're asking the hard questions.
These are
these are like
every scenario, thought
through hypotheticals.
Mauricio, you're to get your critical
of their sports medicine.
My hair become whiter in ten years.
Or is it the same level of whiteness?
Well, I have hair in ten years.
Wake up and I'm bald.
I'm like,
yeah, I'm assuming you're doing it.
Are you doing it?
No, I'm I'm too old.
I'm too old.
I would have
I might have done it ten years ago.
How about this?
$1 billion.
Easy for you to say
looking back, but $1 billion.
But it rains every day,
no matter where you are.
See, that's where it
that that one I might.
That's basically staying.
The rest of your life
is going to be miserable. So screw that.
Yeah.
That one I'm like I'm very sensitive to
to crappy what? Forget about rain.
If you just told me
it was going to be, like,
really dark and depressing and,
you know, a cloud might like in
that just means either
my wife would divorce me
because she cannot handle
she gets seasonal depression.
Anyway, that's literally
the reason I moved to Florida.
You're Sarasota
never gets hit with hurricanes, right?
That's when you were
you were convinced that
that's not seasonal depression.
That's just like.
That's just like,
every other every other week
for a couple of months a year.
I'm never going
to let you live that down.
J what was it, 20,
18, 19 where you're like,
oh, you got to move to Sarasota.
Never gets hit with hurricanes, ever.
I've done the math.
There's
this special thing
that goes on in Sarasota
that it never gets it.
Then that like twice in two years.
Fun fact
the first hurricane of the season
is forming off of Africa right now, sir.
And so you're coming for
you could be coming for me in a week.
Okay. All those hurricanes.
All right.
Plug AJ, what do you got?
YouTube channel Alex works hard on it.
It's doing a really good job.
And they're, training
made better and better by the day, so.
Hey, Joe, go check it out.
I think our podcast is out there too.
If you want to look at the latest podcast
between AJ Osborne
and Mauricio rolled the
go to the YouTube channel. It's right.
Check it out.
Mauricio, you got to do anything else
to plug in that.
No, I'm going to plug,
if you're, a syndicator
and you want to make sure
you're doing things right,
and you want to do some consulting
with me,
go to coaching with mauricio.com,
and we'll see if it's a fit.
But I can make sure that you raise
capital Compliantly and
not end up in jail.
Nice.
Jay, you want to do
your plug or you want me
to, plug
or I'll do mine,
but we're going to do it again.
When AJ gets back,
he's gone for the next two weeks.
But when he gets back,
we're going to do a special episode.
But I'm plugging my wife.
So my wife is launching her new business
tomorrow, which I guess is yesterday
when this releases,
and it's an upscale gifting company
currently focused on cookies and,
called Smooch Cookie.
It's called smooch, but,
smooch cookie.com, and it's ridiculous.
That peanut butter cookie.
Oh my gosh.
Like oh my gosh
you're going to love this.
This is
this is the box inside the
this is the third box
you get you get your box on your step.
And that's a good looking box.
And then you open that up
and there's another box.
And then this is the third box.
And it has a magnet on it.
The thing seals with magnets.
It will hold paper.
It's perfectly sized
eight and a half by 11.
So you can put it on your bookshelf
and you can.
And there's a little like
there's a little like note in here too.
And then like it's
like special wrapping paper
and like,
look at all this thing like this.
This is
I have never received
a gift for Christmas
or my birthday in my life.
With as good a wrapping as this.
It's so good.
My wife is a design person
and a gift person.
And so,
people are going to think
it's a cookie company.
It's a gifting company.
It just happens to be cookies.
And the cookies, I think are pretty good.
She spent a year
working on these recipes.
Every cookie is like
at least a half pound. That's crazy.
Well, here's here, should I open it?
Sure.
Which ones? That the red velvet.
I thought we were all going to eat
one on the air.
I thought that was going to be like,
our thing is like, look,
it's like the size of my face.
Look at this.
My favorite is the cappuccino.
The red velvet's
pretty good to red velvet.
Oh, yeah. The red, the cappuccino.
You could have my cappuccino one.
I'm not a coffee person.
Oh, I see the red velvet one was good.
Red velvet one is good.
Keep my kids love the double
brownie blast.
You see, it's like I just love I do.
They just kill them?
Oh, okay.
I will be sending you guys another one.
Don't open it.
We will open it and enjoy it on the,
the episode when,
when AJ I'm going to give you
a, I'm going to give you a new address.
Perfect. Yeah.
I gonna have to literally
tell my family though,
that it's coming in.
They can't open it
because the moment they see it,
they're going to be like,
rip it open and just be like,
where's the cookies?
Jake, can I make a request, though?
Can you not have it arrive
like you had it arrived Friday?
And then you expected
for cookies to last?
No, not until Tuesday.
This has to arrive Monday or Tuesday.
Like there's no that.
You realize how much willpower it took me
for those cookies to sit there,
and I was like,
I can't open this thing I like.
I when I say, I can't open this.
I ate two of them. But,
I can't
I can't eat all of them
because then you're going to be like,
oh, that's everyone, have a cookie.
Me like,
I don't have any cookies
because you sent them to me on Friday
and you're expecting me to not to eat it
one cookie a day.
That's not my fault. That's JJ's fault.
So I don't feel bad at all,
because how could he expect that from me?
They were gone.
Well, thank you.
And, if anybody is interested in, sending
a gift
to anybody they love, smooch cookie.com.
And, for
the next couple weeks,
we post our addresses to just chat.
And you can actually,
if you want to send us gifts,
send us gifts, use
coupon code forward, forward a smooch.
Use coupon code forward,
and you'll get, free
shipping for the rest of the month.
Hey, Jay,
when was the last time
you plugged your wife?
I just did,
I think there was the first time
since the start of the podcast
that he plugged his wife.
That's right.
That's how she likes it.
It's been like a year
and a half like that.
That's that's that's about right.
He didn't even plug her on her birthday.
Like that's how bad it is.
Her birthday is Christmas Day.
So, we don't
we don't do an episode that day, so.
Oh, okay.
Or otherwise, you would have plugged her.
Absolutely. Right. Yeah.
Well, I don't mind. Plug in your wife.
I'll plug her right now
and I'll plug her next time we do this.
And,
as long as we're getting cookies.
Yeah. Hey, hey.
I'm okay.
I'm an easy sell.
I'll plug for anyone for cookies.
Yeah.
All right, well,
so I guess we have to say.
Or of water to AJ, then.
That's right.
Are they French
on that side of the country?
No they're not.
There's no French over there.
They actually most of them
hate the French over there.
Hey, Jim,
make sure you take some bear
spray with you.
We will take
take your boots
so you can say a boot about these boots.
Yeah.
It's all it's all a boot to boot.
New doing the boot photocopy.
Make sure you take
a photocopy of your passport
and have it somewhere safe
when they,
you know, jump you and steal
all your passports.
All right,
so we're going to have
someone fill in next week
because that the plan
ratio has somebody in mind.
Good surprise. Does he. Why do.
So you have to wait till next week.
All right.
Well I guess for everyone except AJ
and then special guest.
We will see you next Thursday.