What We're Seeing in The Market Today (Brokers Round Table)
The real estate market is in an interesting spot - some are worried about the current environment but deals are still transacting and there are deals to be made out there. Commercial real estate brokers are on the frontline of the commercial real estate market, so we're going to give you an update on what we're seeing out in the real estate market today.
Key Takeaways:
- The commercial real estate market is slowing down significantly compared to last year, with brokerage volumes down 50% or more for many brokers.
Investment sales have dried up considerably, while leasing remains more active as companies still need space. However, cap rates have risen significantly.
The office market faces uncertainty, especially for Class B properties, but Class A properties and well-located spaces are holding up better. Co-working faces challenges after WeWork's issues.
Industrial, especially Class B, remains in high demand due to limited supply. However, there is a large amount of new Class A inventory that could face vacancies if the market pulls back further.
Retail fundamentals remain uncertain but some brokers see opportunities in Class B strip centers. However, new retail development is limited after the "retail apocalypse."
The brokers plan to focus on over-communicating with clients, thinking creatively for new opportunities, growing their teams, and ramping up prospecting and business development activities in the challenging 2024 market.
Check out CRE Launch Pro: www.crelaunchpro.com
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate developer and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
0:00
This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com.
0:25
Welcome back to the commercial real estate investor podcast today I'm joined by Chad. Oh Adams jumping in. Adam is here and Jesse. I know. I was getting a little nervous here before we go live.
0:40
Oh, it's all good man. Yeah, thank you, Tyler. Oh, it's funny. I was like, Alright, how am I gonna carry this, I'm just gonna have to start making stuff up until somebody jumps in.
0:50
It's always fun.
0:53
Always fun get to do this stuff. But today, we're gonna be diving into what we're seeing in the market. Currently, if you if you haven't been following the show, then you probably caught our investors roundtable yesterday. And man was set a brutal conversation. I don't think it was the most negative conversation we've had on this podcast about where the market is. Not that not that it was 100% negative or that everything's bad, but just you know, the outlooks rough and there's a lot of defaults going on or defaults on the horizon. And, and I think people are starting to feel it. Now. It's a little bit different than what we were seeing a couple of months ago. And, you know, brokerage is on the absolute frontlines of what is going on in the world of commercial real estate. So really excited to be diving into this conversation with these guys today. I don't know about you guys. But my brokerage is down about 50% this year. Last year, we had an outstanding year. And to be fair, I pulled myself completely out of the brokerage so my volume is gone no matter what. So I don't know what that volume ends up actually looking like when you account for that I probably should run the math, but I'm looking at it going, Hey, we're down 50%. What are we going to do next year to really improve this? What are you guys seeing in terms of a year over year change in brokerage volume? Adam, I want to kick it over to you first. I mean, how's How's business over Carolina?
2:08
Carolina business. So I was with a lot of guys last night there were more on the investment sales and office brokerage sides yesterday. So they're they're seeing things in a much different way than I am going through a much different lens than I am. Their business is down. You know, they're certainly probably more than 50% down well north north of 50%, down year over year, but in the retail world specifically for what I do. I'm not seeing a huge decrease yet. Now. Now, what has me nervous and I think I've mentioned this on one of our one of our meetings before, is a lot of the things that I had earmarked for next year in the year after big projects where I'm kind of a monetizing ground floors and kind of bringing the cool factor, if you will, those, the ability for them to come out of the ground is certainly what has me nervous and is in question like, how are these projects gonna get kicked off? So right now I feel like I'm still kind of riding the wave of just Charlotte. And honestly, retail as a whole just hasn't hasn't hit the brakes. But I seem to be an anomaly. And I can see kind of the storm on the horizon as well. Yeah, that's great, man. I mean, it's it's interesting, our leasing is actually up this year, which is that that afloat? Yeah. And our investments crushed. I mean, we probably had close to $100 million in clients like wanting to spend close to $100 million with us, probably June or May of last year, and 80 90% of them dropped off as soon as interest rates went up, because it was a lot of cap rate place, you know, buying triple that. Chad, what do you see a man how's the industrial world?
3:55
Yeah, I'd echo a lot of the same comments. It's it's a tough market out there. Anything on the sales side is dried up completely. Investments, especially its cap rates have probably gone up 150 basis points. So a lot of owners are still trying to get that late 2021, early 2022 pricing and it's tough, real real estate's a tough market. I like to equate it to let the stock market where someone buys a stock. And if the stock market goes down, they know what they have. And if someone needs to sell, they just know what the market is. In real estate. For some reason, owners just hate losing money in commercial real estate. So there's a lot of people still thinking 2021 pricing so that delta between what buyers can pay and sellers want to get is really high. And that's extended even to the owner user market where a lot of industrial companies like to own their real estate, they can just afford less. That's just the reality of higher interest rates. So it does push a lot more to the leasing side because companies still need to operate they still need to do something. So now leasing seems to be a lot more active but sales is tough. It's a really tough growth.
5:00
All right now, I'd be curious to hear what your thoughts are on commercial real estate valuations. Today. I got asked that question in my office hours episode this morning, you know, what do you think commercial real estate values are gonna go down by in 2024? I mean, I think today with interest rates and everything where it is we're probably down 17 to 25%. Year over year, just I mean, that doesn't mean that deals are selling for that. But that's in my opinion. That's what I would have to buy something for to make it make sense. I mean, what are your thoughts? Yeah, there's a report that CB just put out not too long ago, where they actually said exactly that, if you assume that. So that an interesting study, actually, they said that there's, they use the econometric evidence as the term which is the first time I've ever seen that in a commercial real estate report. They said there's a Koto metric evidence that any 100 basis point increase in long term interest rates corresponds to a 60 basis and increase in cap rates. So what and they referenced that basically saying the cap rates have gone up 150 basis points. And if you if you actually convert that that's about a 25% decline in any investment grade, commercial real estate. So I agree, I think that if somebody wants to sell into this market, they're 25%, lower than they would have been at the height of the market call it early 2020 to 25% is where it's at. But there's very few trades, because unless it's a fire sale, or group has a sunset clause in there, they have no reason to actually sell into this market. But if you did want to sell for whatever reason, I'm thinking is 25% down right now.
6:33
That's funny. It's it's always nice to hear your your,
6:37
you know, assumptions backed up by data. And I get asked all the time, like, how do you know what that'll read for? How do you know what that building's worth? I'm like, man up and a brokerage for 10 years, I have been looking at numbers nonstop for 1000s of days. Jesse, what do you what are you seeing up in Toronto?
6:54
Yeah, I mean, a lot of a lot of what the guys mentioned already, I think it's it's interesting, where you see the the investment sales, there's no, there's no getting around the fact that volume is down substantially on the investment sales side, whether that's office retail, or even multi res. Leasing is both in retail and office is pretty fascinating to me, because depending on the market, and depending on the broker you talk to, you know, there is there is a lot of activity in certain segments. And then there's certain areas where it's quiet. And I know, you know, just having in anecdotally, just two different brokers, with a different basket of clients could have totally different types of yours. Based on on that. The I think like we're we're in a price discovery phase in the cycle right now, where people don't really know where things are. And that's what I find so fascinating about the wealth effect in just in economics and real estate, right? When when we know our buildings are worth a lot, we're you know, we're more bullish, we're more positive. And when when they're not, we're more bearish, which is, you know, the opposite of what we've talked about before, from, like, the Buffett strategy standpoint. You know, it's unless you're selling or you have debt that is forcing you to sell really doesn't matter if you're if your buildings worth, you know, 70% on the dollar, if you have a solid building, and you can weather the storm, and you have good income. But yeah, we're in. We're in that part of the cycle. I think that's that's just the reality of the situation.
8:21
Yeah, it's really interesting what's going on out there, Jen is saying something is going to give I don't think it's going to be pretty thank you guys for talking about the real stuff. Absolutely. Jenna. Yeah, it's, you know, it's, it's gonna be a really interesting year, I was just watching a Moody's Analytics, you know, I guess report or market update, whatever you want to call it. And they were saying, you know, and this is what we've kind of been feeling it's a flight to quality. So Class A buildings are fine. Like everybody thinks that those are going to do okay through this. And that doesn't necessarily mean Class A office, it could be class, a retail class, a industrial, whatever.
8:57
Class B is where they say, this is where we're going to have the problem, which is usually the opposite of how these cycles go, right? Class A becomes the first one that everybody gets worried about. But they're saying Class B is going to be the problem because they're not gonna be able to make their rent payments anymore. And it largely goes into consumer debt and consumer spending. And, you know, we've been kind of tracking consumer debt and we've hit a really really, you know, high point and consumer debt, people are maxing out their credit cards, they don't have anything else, any other cash to spend. Are you guys seeing I mean, in the transactions or the leases that you're doing are these more of your class A tenants or Class B? Channels started off with you? Yeah, industrial is fantastic from that regard, where Class B industrial, it will always have demand. And it's partly because the supply has been relatively fixed for 40 years. This is very difficult to actually recreate that class B industrial space. So if you were to bifurcate the industrial market between that Class A and Class B, class B industrial is
10:00
probably 95 to 98% occupied in the majority of markets. And because that inventories fixed, there's not, there's not going to be a huge drop in that even if we do go into a bit of a recession. Class A is where they're interestingly, and this could be the reverse of office where there actually could be some concern, because they've just added so much Class A industrial to the market. And I'm sure you see that everywhere. I'm sure Nashville, it's in Toronto shirts in North Carolina, where you see these massive 200 300 400,000 square foot buildings going up everywhere. A lot of them have been on spec. So if there is a pullback and these buildings end up sitting vacant, that's when there could be a little bit of concern on that. So yeah, almost the opposite problem of what office is facing is that industrial, all the new inventory has been class A. So the Prologis actually, the largest industrial owner put out a report the other day, though, the that saying that they expect new inventory, just start slowing down largely just a function of interest rates, when interest rates go up, developers have less of an appetite to build. So they're anticipating that inventory might slowly start drying up and cause another concern of shortage, call it early, early 2026. So very interesting to see. But yeah, that's that's the general consensus is that class B is in industrial is performing very well. Class A, there's just a lot of inventory.
11:22
Yeah, I saw something yesterday that said, like 87, or 89%, of office building, I've got to go back and find this because that sounds like a crazy number. But 87 or 89% of office buildings are in default, meaning they haven't made their most recent payment.
11:38
And they're working with lenders to get that figured out. I mean, if that is true, Jesse, what do you see kind of coming down the pipe for office space? Because it doesn't seem like this cycle. Banks are eager whatsoever to take keys back to properties. I mean, I would imagine they're going to work with current owners to figure just about anything out. But what if that is true? What happens? Yeah, I mean, we work with a few receivership clients where they're, they're kind of in bankruptcy. It's funny, we're talking about that. Not funny, but we're talking about this after the announcements from we work about chapter 11, as well, with their with their offices, but, you know, while you're looking looking up that stat a, maybe we could, you know, next next time we meet, we could we could talk about it, you know, all look at the stat that I'm going to say, and I've heard this a number of times that the balance sheet of exposure to commercial office space in the United States. So all the lenders in the states, if you add up all the real estate makes all the office real estate makes up 1.5% of their balance sheet. So you know, even if half go into default, is that a cataclysmic? You know, issue like 2007 2008, I don't know I'm no smarter people are thinking about that than I. But just to jazz point on the what I'm seeing in the office, I don't know if AAA or a is the right term, it's just the fact that tenants are now more than ever, they don't care about the funky office, they want the office that has amenities that is close to transit, you know, the idea of just going to the west end of a, you know, a city or a trendy area, because it has exposed ceiling and it's brick and beam, I think is, is really I'm not seeing that as much as I did three, four or five years ago. So you know, we'll see, we'll see if that trend continues. I think, you know, it's just in fact that most AAA in a class office have the things that I'm describing. So I don't know, which you know, if the driver is more, so just those those items on the list. But yeah, that's that's probably the way it's the way I see it right now.
13:39
Adam, are you seeing anything in terms of the long term prospects for retail? I mean, you were mentioning that there may be some concern about the the deals that are supposed to be coming out of the ground right now. What does that mean for retail in the next 24 to 36 months? That's more like future product, right? That's, I mean, we're talking about stuff that currently doesn't exist. And we're talking about I mean, in my specific case, and the the points that I was making, I mean, these are main and main location, concrete tower. Really exciting stuff that's just barely penciled when things were good and certainly don't pencil when things are, are in such a rapidly changing market. But going back to the Class B class a question, I think we have to look a little bit further back in the rearview mirror to understand where we are now. Does anybody remember the retail apocalypse? Anybody remember when that was?
14:36
Literally nothing? No, nobody was going to shop anywhere except for amazon.com. ever again. We're gonna get everything delivered by drones, every app, everything and, you know, that sent the same kind of shockwaves through my world, that we're never going to go back to the office. Like I want my dog on my lap while I'm sending emails, kind of
15:00
You know, I don't want to call it clickbait because that is real, it is an absolute shift in the way people were thinking. But that kind of, you know, you have to pick a camp and and every paper you you pick up and every website, you go to talks about like the office meltdown? Well, we already we already did that, right. So there was an absolute lack of new supply, when it comes to class, a retail. And it really these things takes a long, it hasn't really caught up yet. Like there's not a lot of new large retail going around. So the class B, give me every strip center Class B strip center, you have that's 20,000 square feet with, you know, above average demographics, like any level. So I think that I think that there's a tremendous opportunity and retail.
15:56
And I don't think it's necessarily going to stop just because you were getting into some turbulent waters. I think there there is nothing trading right now, the same reason that everybody else is saying there's nothing trading now. Right, like the pricing, pricing is off seller, sellers have not adjusted their pricing yet based on new interest rates and new values. But I don't think it is at all, you know, a blanket statement on the state of retail, or should we hit the panic button? I just I'm much more bullish than that. Yeah, let's, let's dive into WeWork. Because I think that that, I mean, that's a big announcement to come out this week. And then also, I don't know if you guys saw the meridian capital issue that's going on that was literally announced today. There were some rumblings about it on Twitter yesterday, before the big announcement today, but, you know, we work, they almost filed bankruptcy back in 2020, they ended up raising some private equity to kind of carry themselves through, I thought that they were for sure done during the pandemic, I had a hard time seeing the value that we weren't really brought to the table. And I think that their business model was messed up. But you know, a lot of people are gonna point to that and say, no office is broken, we work is a perfect example of that even these smaller businesses that occupy we workspaces can't make this work. Is that true? I mean, is we work a thermometer for the overall office market.
17:19
So I can just say on the if you look at the actual, you kind of look under the hood, in terms of what they're doing. I mean, it's possible that they come out ahead, you know, don't quote me on that. But they're renegotiating or, you know, chapter 11, in the States is very similar to what I assume they're going to be doing in Canada, going forward, which I don't believe they have yet. But they're looking at getting rid of some of their leases and keeping other leases, not surprisingly, it's going to be their best, most favorable leases. And if they're successful, and being able to get off the hook for some of these leases, you know, they might basically just have the the profitable leases are the ones that are that are doing the least amount of damage. I think part of the big issue, and I don't think it's a it's a mystery that they started signing up long term, pure leases, as opposed to doing these management agreements, where you saw IW G. Regis and other co working groups doing and that seemed to be the Achilles heel, in a lot of these situations, they're on the hook for, you know, 1015 year terms for quite a subsidy, you know, substantial amount of money. I don't know what the square footage is in the in New York, but I think there were about 1.2 5 million square feet. I know, in Toronto, it's something like 500,000 square feet, which is for our markets pretty, still pretty high. So
18:40
in terms of the whether they're a good indicator of the office market? I don't know about that. Because I think it's it's a substantially different business model. When you have an operating company that looks at the real estate and says, what do we need to do over the five over 510 years? How much space do we need, as opposed to you know, we were exp model, which if it was long term leases, they basically just had the door open. And if you wanted to come in for four months, you could come in for four months, I think a lot of their clientele.
19:10
Their transition to working from home would be a lot easier than that your average company.
19:16
Yeah, cuz they're basically doing a, I don't know, hybrid work from home with that model anyway, right? I mean, it's not
19:25
we represent a lot of office tenants, right on the, on the brokerage side and
19:30
the groups that want a professional presence don't go to work, right? Like you're not going to think that you're going to have you know, high net worth clients that are giving you money or whatever coming to visit your office that we work, you know, so I think I think you're right with that it comes down to, you know, which locations are they going to keep, which like chapter 11 Bankruptcy is always such a frustrating thing to say it's like these guys get to just wipe the slate clean and pretty much walk away scot free. I think I think it's a leadership issue at the end of the
20:00
Day I think the model was broken years ago. So it's, I don't know, interesting to see it kind of play out the way that it is. But Adam, what's your thought? I know nothing about Office, right? I just I stay in my lane. But I deal with a lot of large office investors. And the kind of bummer out of this situation is, is kind of the poll that it's going to cast on any kind of co working office for a while, right? Like I could bring I brought up and I won't mention names, but I brought up a really cool concept that a piece of their business is co working office, and you talk to a big office landlord, they're like, wait, wait, they do quote, co working office.
20:46
Like, take them off the deck. Like we don't want to talk to them. And I don't think that's gonna go away. Unfortunately, anytime soon, even though it is a pretty cool little, little niche. There's certainly some buildings in some markets. I mean, I certainly think in the Charlotte market specifically, you have all these suburbs that are very wealthy, like the like the green hills or the Brent woods and your market Tyler like the the Ballantine's and the in the Huntersville in the Mooresville is in my market I mean, those those need a couple cool little like, we work we work rip offs, right and, and I think the ability to get those financed and implemented right now is going to be very, very challenging because the credibility of that whole model is now shot. I would say the most go Jesse, sir, is just going to jump in there. I think that's why the the messaging and how this plays out, and you're already seeing it in the in the news now you like leave it to the media to spin a story. But you know, IW G snaps up discounted, you know, we workspace Regis on the you know, it's all that and if there's anything to show that there is a right way to do co working. And I'm not saying that that necessarily is the IW G but you have one that is a model for co working and then there's one that's obviously not done things properly. And you know that if you know, I can't remember the podcast was but it basically was the rise and fall of Adam Newman and talked about just the DNA of the company, community EBITA term that they made up to just be like, This is our accounting EBIT. All this stuff, I think is just an illustration of you know, like, like you're saying there is a right way to do co working and it definitely has its place in our market. And then there's, you know, there's maybe not not the best way to do it. Yeah, I don't think you need to have the cult of personality behind it. Right. I don't think that it matters. I mean, tell me who owns Regis? Nobody knows. Exactly. You know, like, I mean, that's that's the funny thing about these startups today is it's all a cult of personality.
22:47
You know, when there's a group here in Nashville called center 615, it's a co working space that I started my business out of there, they're great. I mean, it's a locally owned group, they own this massive property that they bought, so they don't have to worry about you know, that's what I think was broken about WeWorks model from the beginning, is it was a lease arbitrage. And when you when you're doing that, you have nothing else to fall back on. Right? There's so many ways for you to go get in trouble. You know, at least if you own the property, I get that it's more capital intensive. But you could sell the building, you can rent it out to somebody else, you have other options.
23:26
Chad not to leave you out, man, because I know we're talking about a whole lot of office stuff. You know, co warehousing space is seemingly on the rise. It's trending. I talked to a group out of Canada the other day called tradespace, I believe was their name. I told them, they need to call you because they were they were looking at a deal up towards Edmonton somewhere.
23:45
Because I was like, I'm just not your guy. I don't even know the first thing about investigating in Canada.
23:50
But talk to us about the co working model in the industrial space, because it's really fascinating to me.
23:59
Yeah, funny, you bring that up. Actually, I was in a building a couple months ago, that older industrial building. And that's exactly what they did is they put up chain link fences, basically separating off 400 to 500 square feet areas. And companies could go and they could store things in there. And they could work out of their there's common area loading areas. So you could theoretically have stuff coming in on a truck, get it offloaded, put it into your small little space and send it out. I think the challenge with warehousing much like office, there is definitely a need for that because there's a lot of small companies out there, whether it's a small warehousing company, or it's a small accounting firm, and they just want to have small space. I think that that co working option works really well for them. The challenge is that it's not a scalable business model, because there's only so many of them in any any individual market. Otherwise, companies are just going to want to go and lease their own office space or they're going to want to go and lease their own warehouse space. So I think it's a great solution. But there's a there's a definitive
25:00
ceiling on how high this can actually grow before you run into problems, like we work as experiencing where there's too much space, and the amount that they need to charge to justify them being middlemen, and all the amenities that they offer all the common space and their marketing and their exquisite packages that they had. And then Adam, at the time needing to take a profit and Softbank needing to take a profit, every everybody had their hand out in that process. So at some point, it gets to the level where a lot of these companies would be better off just going and leasing a small space on their own. So if you're like a two or three man shop, instead of leasing at WeWork, you could probably get a much bigger space for much less, without that cool factor that Jessie was mentioning, right? Like, we work as cool, they did a really good job of that. But there's a big price and a premium that gets attached to that. So I think it's the same thing with warehousing, I think it will work really well for some users, companies that want to get off the ground, and they need a space without having to commit to a long term lease and, and get handcuffed to that space. It's a great jumping off point. But there's just only so much of that space that's needed. And once you over saturate the market, then they almost all fail because they're competing for a limited amount of tenants. Yeah, when when we weren't first came to Nashville, they were you know, schmoozing all the brokers because they have a program, you know, I'm Jesse, I'm sure you're familiar with this, where, you know, they, they kind of cater to brokers, and they want you to bring him tenants, and they'll pay you, you know, commissions and this and that and the other. So we went through and we looked at all of their bigger office spaces. And, you know, a 2000 square foot office space, there was nothing to write home about was like two to two and a half times market rate, sometimes three times market rate, depending on where you were. And I was just like, how, how are you justifying this? It's like, oh, well, we've got access to all the amenities and all the cool stuff. And this and that I'm like, I don't know, I turned to my team. I was like, we're not bringing anybody here. This makes no sense. Like, I can't justify somebody paying three times market rate just to, you know, have a kegerator in the lobby.
26:58
You could, you could go do that on your own man.
27:01
But I would one thing I would push back on on the knot, we work specifically. But I feel like we're saying this, like any any, any idiot can do this. I mean, we all do this for a living. There is that like fear of the unknown? When it comes to like, wait a minute, I'm gonna go get an office space, all I'd want to do is make widgets, right? Like, I don't understand. I don't I don't even have an attorney. Or if I do, they've told me they can't do this. So I do like, it's kind of like the food whole model in my world, right? Like, hey, we're gonna make this stupid, simple for you. The kitchen is kind of already here. You know, we're going to use the super short form lease that, you know, you don't have to have gone to law school to read. So I do think that that again, right now, it's easy to just dump on this business model for good reason, right, I got the email about chapter 11 Last night, just like everybody else. So it's a good time to kind of kicked dirt on on the, on the whole industry. But they did do some cool things. And and I do like how they've, they kind of democratize the ability to go get space and to collaborate and collide with other people. They just really got lost somewhere along the way. But I do think that there's some lessons that that we can all take from what at least the the essence of what they were trying to do in the beginning. I mean, they're the Pioneer with the arrows in their back, right, and that's right out and did it first, they proved a new, completely new way of doing it, which most commercial real estate brokers never would have even considered doing anything like this. Most developers investors would never have wanted to mess with this. And now, I think it's brought some flexibility into lease structures. I think landlords are realizing you know what, maybe I do,
28:54
maybe I am willing to take a one year lease instead of you know, making somebody do a five year lease, as long as I don't have to change the walls, maybe I am willing to, you know, be a little more flexible on the type of uses. I'm gonna allow into this office building. And I think overall, it's a really good thing for the market because it used to, I mean, it office leasing. At least back when I first got started, it was kind of pretentious. You know, it could be mean, there were guys in the market that were like good, great, guys. But it just had a totally different vibe than retail, which is kind of why I started shifting more over towards the retail side of things. No offense, Jesse.
29:26
But you know,
29:28
yeah, it's just it's just it was a different world. I think it's totally night and day today. Because you've got finally a lot of younger people that are actually taking over the office side of things.
29:39
But it's really interesting to, to see that shift and think about what we work. The impact that we work has had on the overall office market. We went and toured very space down in Dallas Fort Worth couple weeks ago. I made a video dropping about that on Sunday in May. I think that's the future of office space. What they're doing over there is really cool. I mean, they've got 32
30:00
2% common areas and a 400,000 square foot office building, but they're going all in on the amenities and creating a college like campus. It's so cool. I mean, it was the kind of Spa I was like, Yeah, hell yeah, we want to have my office here. This is really, really neat.
30:15
But I want to dive into Meridian capital. Did you guys see that announcement this morning? About meridian?
30:22
I did not. Oh, man. So I'm the only one. All right, well, I'm gonna have to pull it up on my phone and walk you guys through this. So this comes from the real deal. Meridian capital under investigation by Freddie Mac.
30:35
Yeah, he got he got raided by you know, over the weekend. They've paused their brokerage, saying you know, that they found a lot of, of fraudulent activity. And in some of the loan documents,
30:49
I mean, pretty, pretty wild to think about what that could imply
30:55
when it comes to the multifamily market, because they're probably going to start poring through all of these loan documents to see what needs to be called what needs to be adjusted. And the fallout from that can be pretty intense. I mean, you know, Adam, you said you saw it this morning, what were your thoughts? Looking through that?
31:12
The same as you? I mean, I always worry when I see one of these institutions getting getting deigned I just worry about kind of downstream consequences. Yeah, it's same thing that everybody freaked out as soon as you see one bank fail, you're like, oh, shit, do I need to go like, spread my money around? You know, it's just like human nature to worry about, like, what? what's around the corner? So that was that was just my initial thought is like, Man, I hope this isn't the tip of the iceberg. I hope there's not other I hope this wasn't kind of business as usual. Like it was, you know, back in whatever. 2008
31:44
Yeah, it's it's interesting, because the more I dove into the article, it turns out, like, meridian is invested in a winning platform with the former Freddie Mac CEO. I mean, it seems like there's a lot of, you know, the canary. Yeah, Canary?
32:03
Yeah, there's something going on there. Right. Like, there's too many coincidences for this to shake out. Right. But it'll be interesting to see. I mean, that's gonna be a story. We'll follow here over the next couple of months. Whenever there's an update, we'll get it out to you guys. But what are your What are you looking at for 2024? I mean, I feel overall positive. I don't think it's gonna be an absolute rocket year, I think that there will be deals to get done, I think it's going to be a lot of creative deal finding and creative deal sourcing, there's going to be some receivership as Jesse was talking about earlier, I think that we're probably going to end up doing more leasing, which is always, you know, painful for my side of things, because we're not representing the tendency you get to Rep. Adam. And we have to do 10 to one on what you're doing. But, you know, gotta keep the lights on somehow, I think it's gonna be an interesting year, but overall, not bad. What are your thoughts?
32:57
I try to stay positive, right. And I don't even mean like, you know, look in the mirror and tell myself how cool I am. I just, I think I'm already seeing deals that, you know, a small fish like me, wouldn't have seen 1218 months ago. So like, even if my brokerage takes a hit, I think I'm going to be able to make up for it with either really cool creative purchase opportunities or repositioning opportunities, or I'm going to be able to help somebody out that really needs it, that's going to turn into an awesome long term relationship for me. So I, again, is, am I going to break some kind of record next year and just straight income? Probably not. But I don't, I'm certainly not ready to hit the panic button.
33:49
And I think it's going to present some interesting opportunities.
33:55
Jesse Chad, what about y'all?
33:57
Yeah, I think, you know, for us, it's our we all know this on the commercial side, the deals that we finished today could be three, four or five months, a year old. So I think there's, there's an aspect that it's probably built into 2024. Yeah, I think we said last time, I wouldn't be in this business if I wasn't an optimistic person by nature. So for me, it's again, it goes really simple. For me. I feel like it's just we're in that we're in the same cycle that has existed in real estate and in business, you know, for the last 100 years. I just think we're, you know, the people that are going to survive it are going to be creative. Think outside the box. And yeah, I think that's that's the way I see 2024 in terms of actual specific opportunities, just backing up and looking at the market. I really think that senior housing and student RES is going to, especially student RES is going to come back and into vogue. I know it was for few years a lot of people thought it was it wasn't that popular, kind of like the retail Apocalypse at the beginning of COVID.
35:00
but they're like you people are never going to go back to school, I actually think that might be someplace where there's going to be opportunity. And I really think 2024 2025 is going to be a place where things are bought, you know, bought, right. And they're going to be the, you know, the 510 years from now you're gonna look back and be like, Am I happy? I was bullish during that time.
35:21
Yeah, you can you can refinance a bad, bad loan, you can't refinance a bad purchase price. I mean, that's, that's the positive side of what we were getting into right now. Chad, what about you? Yeah, I think it's helpful just to remind ourselves that the real estate goes through cycles. And we haven't really seen a cycle since the great recession in 2008 2009. It's been pretty much a bull market ever since with perhaps the exception of March, April of 2020. So it's a real estate cycle. And I believe that we get paid in direct proportion to the problems that we solve. And our clients are going to have different problems this go around. And I've also noticed that in uptimes, it's hard to really make a big difference, because quite often, clients might think, well, the markets so hot, it's a commodity, any broker could have filled our space or sold our building in a hot market. But in the downturns, which I think we're going into, there's an opportunity to really solidify your value with your clients. And people remember when you help them out in tough times, and spend that extra time and give them as much advice and really, given that service. I think a lot of really established brokers made their career in these downtimes by going out of their way to provide that extra service. So from a revenue standpoint, it might be neutral, it might be down. But I think the opportunity to really build your career for longevity, this is the time to do it.
36:54
That was a great soundbite
36:56
Yeah, that was I mean,
37:00
you know, it's funny, we, I was talking about this with a broker, we were having lunch today. And three years ago in Toronto's market. Like a lot of markets, it was like 2% vacant, and we were on the business development side, when we would call potential clients. You know, we wouldn't have anything to say it'd be like, Hey, do you want to renegotiate with your landlord and pay more Like, legitimately it was, it was hard to figure out what the pitch would be because the market was so frothy, we're now telling the younger guys I'm like, you literally have something to talk about. You can call them and say listen, you're coming up to an expiry, we've negotiated down rates we've we've gotten inducements for, for clients in your building, or clients that are similar to you. So I feel like, you know, Chad's point, I think there is a lot of opportunity. It's just about figuring out what those areas are and being able to capitalize on them. Yeah, we get paid in direct relationship to the size of the problems we solve. I think it was like, it was like, okay,
37:59
yeah, I've used it before we get
38:05
I should get that tattooed on my arm so that I could compete with Tyler for for the ink contest.
38:12
I think that's the I think that's the title of your next book.
38:17
Yeah, I mean, I think there's gonna be a lot of problems to solve next year. And I couldn't agree more. I mean, these are the times when you actually have the ability to break into a relationship that you may not have been able to otherwise. I mean, it's it's really tough when the market is frothy, and everything's hot. And there's a lot of deals going on. But you know, I mean, I look at Nashville, dude, five years ago, we didn't have all of these big New York guys coming out here and brokering these big deals. It was all Nashville. And now we've been competing with people who want to get their hands on this. And you know, it's funny. I mean, I'm sure you guys get this all the time. Like, oh, you're in real estate. That's such a hot market right now. You guys must be doing great. It's like, Yeah, I mean, we're doing good. But it's it's way harder than it was back in 2013 to 2016 to get anything done. I mean, it's it just takes so much more effort to pull one deal together than it did you know, back when we didn't have as many people in brokerage, we didn't have as many investors, we didn't have people paying crazy prices to do nothing with land. I mean, it's just
39:21
it's wild out there.
39:25
But what do you guys focused on in 24? I mean, if you're gonna say like, Hey, this is the this is my shining star. This is you know, no matter what happens, this is what I'm going to keep my my eyes on.
39:36
You know, what do you guys do? And Jessie, I'm gonna throw it over to you first. Yeah, I think for us over the last two to three years. It's crazy how time flies. We've racked up a lot and not dissimilar from office. Other office brokers. We've racked up a lot of sub leases, we've racked up a lot of listings in general which is good. I think as an as an artifact that comes out of this at the end of the day, it will be a positive thing.
40:00
Um, but we want to start targeting more on the tenant rep. So finding the companies that are actually taking up space, and they're in our market, there are companies that are that are constantly growing in this time, you know, whether that's on the technology like biotech side health sciences, education has been, has been very strong. So I think that's, that's kind of our micro focus on 2020, for getting the tenant rep side of the business back up and into kind of a balance of what we normally would have.
40:29
Jed,
40:31
what I'm going to do personally, and as well, what I want my team doing is over communicating with our clients. And that might be if normally you give once a month report on activity, I think you should quadruple whatever you're doing right now, because clients are going to be confused, and they're going to be scared, and they're going to be worried, especially if they have an upcoming mortgage. And they're now perhaps going from a three and a half percent rate to a 7% rate, I think giving too much information is is actually going to be the key so that they at least feel that you're on top of everything. And it's top of mind awareness. So that's kind of my game plan. And this goes to that philosophy of just overperformed for your clients, because they'll remember you during this period, versus when it's really hot market. So over communication is going to be kind of the theme for me.
41:24
I like that like that, Adam? Yeah, for me, honestly, communication is a big part of my strategy for next year, too. But it's kind of getting back to my roots of thought leadership and just growing my team.
41:38
So those are, those are kind of the things that I've been drilling into my own head and kind of writing on my own bulletin board for the last few months as we start to look at next year. But the other thing that I'm hyper focused on and I feel like I'm repeating myself is just trying to be more creative than the next guy, when everybody else is, is nervous and kind of licking their wounds and hearing footsteps, I want to be kind of pressing even harder to look for opportunities. And a lot of that is going to be difficult, because, you know, I just can't call the half a dozen bankers that I've spent a lot of time building relationships with, because most of them are pencils down. So it's going to be how can I reach out to investors? How can I improve my ability to perform with, you know, family offices and high net worth people, people that I typically just don't have to spend as much time with?
42:30
You know, it's it's kind of humbling myself to go to them and say, Hey, like, this is a good idea. Here's my track record, you know, let's let's get creative and create some wealth when everybody else is kind of hiding under the show. Yeah, I mean, those are the those are the groups are going to make all the money in the next couple of years anyway, because they they're sitting on a whole bunch of cash, they've got the leverage, they've got the banking relationships. I mean, if you don't think that the 1% have a better opportunity than we ever will. I mean, you know, I know, some families here in town that, you know, Windows will do anything for them. I mean, anything, just to just to get them to move some cash into their bank. You know, it's, it's really interesting to see and those are the kinds of clients you want to be working with right now. I mean, for us, my one word is prospecting. I think that, you know, that's what I'm hammering home with my team right now, the number one determining factor of your income in 2024 will be how many phone calls you make, how many letters you send, and how many people you sit down with next year? Because you know, it's not who knows it's not who you know, it's who knows you. And that's how we're gonna be getting deals done in this upcoming year. Well, gentlemen, thanks for joining me today. This has been a great episode of the brokers roundtable. I will be back in a couple of weeks to give you guys another update on what we're seeing in the brokerage market. We'll probably have a different topic to cover. But I think that we're going to be talking about the economic environment for quite some time. Appreciate you all for joining us, and we will see y'all in the next one. Great, Jeff. This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls on how to confidently buy your first commercial property today at www dot c r e launch pro.com
This conversation explored how Neighbor.com helps commercial real estate investors unlock hidden value in their properties through self-storage and vehicle parking solutions. It also discussed trends in the storage industry and opportunities to generate new income streams from underutilized spaces in offices, multifamily, and other commercial asset types.