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Alternative Real Estate Financing Sector is Booming with Culby Culbertson #5915 · Financial Survival Network

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  There are funds out there that will come in with some additional capital, whether
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  that's you know, a short term second LEAN, a long term second lean,
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  a JV whatever that may be cover that gap for you outlined whatever return
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  metric they need to kind of weather the storm. So you know, if
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  people get a default, probably there will be some some blood in the water.
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  As they say, there's going to be some folks having to sell at
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  a level that they were prepared for. You were listening to Carrie Lutz's Financial
• 0:28
  Survival Network, where you get valuable information you just can't find anywhere else to
• 0:34
  thrive in today's trying times. You need the Financial Survival Network now more than
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  ever. Go to Financial Survivalnetwork dot com and get your free newsletter and gift.
• 0:46
  Financial Survival Network now more than ever. And welcome. You are listening
• 0:55
  to watching the Financial Survival Network. I'm your host, Carrie Lutz. Well,
• 1:00
  hey, we've got a new guest on and you're going to want to
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  hear him his views, Colby Culbertson, because he's in the space that actually
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  finances investors in real estate. We want to get your take Colby. First,
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  welcome to the show, but get your take on what's happening now with
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  the whole space, you know, banks, banks that we're in the midst
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  of a banking crisis, regardless of what anybody says. And the question is
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  how do you raise capital? Now? You can't just go to your local
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  bank and just side up and give him some documentation and get alone. It's
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  a little more complicated than that now, isn't it. Yes, sir,
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  Yes, sir, it is so. Yeah. I appreciate you takings the
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  time and having me on Carrie, and we're run forward to kind of chat
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  a little bit more about what we're seeing in the market. You know,
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  obviously from a macro level, just like you said, the bank crisis is
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  affecting a lot of investors out there, you know, ultimately because of where
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  rates are today. Obviously with the increase and say the tenure Treasury is compressing
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  a lot of the underwriting, which you know, when your rates are going
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  out of whack, it's inevitably going to cause for speculation on values as well.
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  Right, so when people are coming up on maturities or or even acquisitions,
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  leverage is going to be ultimately affected, which is going to have a
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  lot of people having some heartburn in the upcoming year. Oh, I'm sure
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  of that, right, I mean, yes, sir, definitely. So
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  we're going to see defaults as a result of what's happening in the banking sector,
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  you know it. It's really going to depend on how the investors,
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  how they how they maneuver, you know, when that scenario comes up.
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  Default is obviously an option. There's a lot of uh, there's a lot
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  of strategy that you could go into. You know, cash in redefinances is
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  something that we're seeing a lot in the marketplace. For example, if you
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  were to refinance at whatever leverage they're able to get to carry, there are
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  funds out there that will come in with some additional capital, whether that's you
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  know, a short term second lean, a long term second lean, a
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  JV whatever that may be cover that gap for you outlined whatever return metric they
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  need to kind of weather the storm. So, you know, if people
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  get a default, probably there will be some some blood in the water.
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  As they say, there's going to be some folks having to sell at a
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  level that they were prepared for. But if they're strategic, there are some
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  there's capital out there that's designed specifically for coming in with the extra dollars that
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  they need at the closing table to avoid the defaults. Okay, so obviously
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  when money becomes more scarce, lending standards go up. Right. Sure,
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  that's actually a really good point. You know, there was a time,
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  all at two or three years ago, when you could go in and get
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  eighty percent leverage, probably the best rapey possibly could. It didn't have to
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  do too much analysis because everything was linear, right, everything was just going
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  up. Those days are behind us. So now we're going to want to
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  understand what your background is, what kind of management strategies have you gone full
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  cycle with, What do you anticipate, you know, how do you anticipate
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  to operate the building? What does your liquidity look like? Not just today
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  but post close, as they say, so you know, the days of
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  five percent post closed liquidity are likely behind us, Carrie, Honestly, I
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  think that they're going to be a little bit more conservative on who they let
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  in the door going forward. Okay, So more more this, I guess
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  we should say standards are increasing, they're tightening, And so is that going
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  to mean that the the promoter of the deal, the developer, has got
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  to put more cash into it, more skin in the game. I would
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  say that's a pretty good assumption. Carry you know, obviously there's a lot
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  of different ways to get deals done to this market, whether that's JV's you
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  know, creative family office money that's available to them as prof or MEZ or
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  whatever that may be. But there is a good moving average at the moment
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  around say sixty five percent LTV, which most investors are used to say seventy
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  five, which I think that's a good benchmark that most folks are used to
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  hearing. But now I say sixty five percent. If you're doing a million
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  dollar deal, that's not too much. You know, you're probably talking about
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  a difference of one hundred and two hundred grand. But when you're talking about
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  maybe some of the larger properties that's five, ten, fifteen plus that difference
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  of sixty five and seventy five percent, we're talking about a pretty significant way.
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  So with that said, coming in with very sound underwriting, being organ
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  eyes, with your documents, updated personal financial statements, schedule of real estate
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  pro forma plans, all of those are going to be attributes that are going
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  to make your argument just a little bit better when you're when you're you know,
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  pleading for more dollars at the closing table, right, So so you're
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  going to have to be a lot more astute and shortly have your act together,
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  right, Yes, sir, when you go now, these non traditional
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  type lenders like family offices, are they positioned to take up the slack from
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  the banking banking sector from it's vacating a lot of these a lot of these
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  opportunities. So that's a good point, and there's there's a few different ways
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  I could take that, Terry. And you know, obviously working with a
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  guy like myself that's you know, not necessarily married to any capacity of debt.
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  We work with debt funds, cnbs, agencies, family offices, just
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  a myriad of different types of capital out there, all of which kind of
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  have their own positives and negatives. There's some debt funds out there that are
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  getting much more aggressive than banks are. You know, these folks have been
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  doing this much longer than you and I have and have seen it ups and
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  downs. So there are some lending institutions that could get more aggressive on the
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  leverage. However, you know, it's a give and take in this world.
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  You can get more leverage, but you're going to pay for it.
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  With a higher rate, you're likely going to get locked in with some kind
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  of yield maindance or some type of debt yield requirements. So that way they
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  know that they're making the money they need to in order to distribute debt capital.
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  So there are you know, there's organizations out there that can get more
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  aggressive even if your bank ultimately is coming in lower. There are also forms
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  of capital that can come in as a second position to fill that gap.
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  Yeah, So you think this is all temporary here or has a market fundamentally
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  changed that's never going back to the way it was just a year ago.
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  You know, I think there's points to be made for both sides of that.
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  Are we going to go back to three percent raise? Probably not,
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  at least not you know, for the foreseeable future, not in our lifetime,
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  in my opinion. Is he going to stay the same No, you
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  know, the economy's already slowed, They've already shown indication that they could potentially
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  pause hikes. They may just stay where we're at for a little bit longer,
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  as opposed to providing more strain on the economy. So I think what
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  happens from here carry is a level of silence from the FEDS probably until you
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  know, say this time next year. Election year is going to be a
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  big factor. You know, everybody wants to talk about the FEDS and where
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  rates are going. I think the leading indicator of what happens next is ultimately
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  what happens in November next year. I really think it's all about the election.
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  Yeah, well, I think there's a big part of it, you
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  know, because I think, you know, not to get into political views
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  here, but let's all pray for Red. I'll say that, you know,
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  with what the recalls coming in, and it's a family show. We
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  don't talk about politics here. Plus, our digital overlords tend to not like
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  what what I say so about virtually anything for that matter. If you know
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  what I'm right here. We got to talk in a little code here.
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  I think the algorithm now understands pig Latin. So that's the only other language
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  that we could speak in that I know. But yeah, so it's not
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  here's what I want to buy back carry. So next year, during during
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  say campaigning, you're going to hear this a lot for the people. We
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  are going to lower rates for the people. We're gonna you know, do
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  whatever, you know, whatever it is to help you buy a home.
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  But you know different things that and his history speaking historically speaking, carry every
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  election year typically raised get dropped by about four hundred basis points. So it's
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  something that it's something that I think will happen. It's just a matter of
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  time and how it's going to be done. He just reminded me of something
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  I once saw it in Barns. They're talking it was election time. Don't
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  even ask me who they were talking about, but they said, the Federal
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  Reserve is doing what it does best, and that's getting a president elected.
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  Yeah, no kidding, We're about to see that first hand, Garry.
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  Yeah, you really think so, because on the one hand, you know,
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  there's a Trader I interview extensively, Nick Santiago, and he says,
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  as long as the two year is pushing up against the Fed funds rate,
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  they will keep raising interest rates. And then there's the contrary view, which
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  believes that hey, when they get desperate enough the economy, it's the economy
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  stupid. When it gets bad enough, they'll have new choice but to cut
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  rates. So you're in the ladder, not the former camp. Well,
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  the two year right now, is I loft five point one percent, which
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  you know, obviously it could be exact. But yeah, you close it
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  off on the two year treasury. Uh yeah, the two year note.
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  Yeah, five point fifteen. Today it's up six basis points. But I
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  should mention as long as I'm saying. It's October, second first trading day
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  in the month. It just went up six points. But you know that
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  was as of a couple of hours ago. I haven't checked it, so
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  you might be closer to it than me. You've got it on your screen.
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  Tell us what you got. Yeah, I know mine. Mine's actually
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  from Shatham, which they're great. I followed them religiously. They are.
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  They're published two hours behind, so what you're seeing maybe maybe more accurate.
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  That's also a pretty good gut punch. But yeah, I think just the
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  only reason is because of so much default that we're seeing from the banks,
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  the institutions. Sure, you know, by increasing rates or even disdain where
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  we're at. It's almost like how much blood do you want to see?
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  You know, the economies have slowed, Transactions have slowed, Transaction volume is
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  slowed. Value you know, future value speculation has ultimately you know, induced
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  in the marketplace. So I think all the objectives that they were looking for
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  have taken place. So you know, now blood do you just want to
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  see people kind of be uncomfortable, Like there's got to be some type of
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  recourse back to normalcy, which I think you know, another point that you
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  made before is is going to go back to normal reality. And historically speaking,
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  you know, rates for somewhere like in the high fours, low fives,
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  so we're not too far off realistically. I think that we were kind
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  of spoiled with the utopia for a little while all at you know, twenty
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  nineteen, really twenty twenty one, but at the outside of those parameters carry
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  if I were to get you a rate back in say twenty eighteen, mean
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  I four point eighty five or even five percent, we're playing ball. If
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  I was in twenty twenty and I brought you a four pointy five percent,
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  I would be laughed at. You know, people were fixing rates at three
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  percent. Not sorrybody's assuming notes these days, you know. So hey,
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  so you live and die by the credit markets, obviously, and it's your
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  whole business and whether you do any deals or not predicated upon those rates,
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  right, So, but and I agree with you. My belief is that
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  that they will cut rates because you know, we all know who the Fed
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  wants to get re elected, and you know what they're about. On the
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  other hand, the dollars getting stronger, which doesn't portend well for rates.
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  Uh, Generally, when Republicans get elected, the dollar sinks, and when
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  Democrats get elected, the dollar goes up. But it has nothing to do
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  with the soundness of the economic policies they pursue. It's all about, you
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  know, it's just all about the results of those policies. So yeah,
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  but being a betting man, I wouldn't bet against you, but I'm just
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  not sure. I'm not sure it's in the bag yet. We got so
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  many macro trends taking place. Now, Hey, so what sector of your
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  business is the busiest right now in terms of getting obtaining financing for your guidance.
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  I would say, right now, we're seeing a lot of ownery user
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  assets getting done, and I think that's because they don't ultimately rely on the
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  leases, which is, you know, it's a fixed product with owner user
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  like say car washes, RV part yeah, hotels, what's very operationally intensive
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  From an income perspective, you're able to kind of tweak some of the numbers
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  to where you could offset any losses or deficits you're seeing in the marketplace with
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  cost overrun or labor shortages, whatever it may be. But what you're not
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  going to do is limit your income potential based on a lease that's in place.
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  You know, if a rate goes up and you still have a lease
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  that's here and you're in a fixed rate, you know, ultimately you could
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  find yourself underwater. Whereas order user, when you can ultimately start pushing more
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  business, do some more marketing, increase your cost of goods or your whatever
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  that may be. We're seeing a lot more people flock to those asset classes
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  and lenders are very receptive as well because they're also getting operating accounts. You
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  know, banks right now, as you've seen, they're very you know,
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  it's a yield starve market, liquidity stole market because you know, people are
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  pulling their money out of banks and putting them in CDEs make it five and
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  a half percent, you know, So banks right now we're really looking for,
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  you know, strong operators, and they can find that with owner user
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  asseys. Okay, gotcha. Office buildings still dead in the water, huh.
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  I think that office buildings are always going to have a place as long
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  as it's not so you know, it's not just like dead space, you
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  know, like for example, the Bank of America building, I don't know
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  what's happening about floor fifty five, you know what I mean? On one
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  hundred and te floor facility. Yeah, I think neighborhood office when there's five,
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  six, you know, maybe even ten tenants, that could make a
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  lot of sense because a lot of folks to really enjoy working from home.
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  Productivity sometimes can decline. Not everybody, it's not for everybody, you know.
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  So I think if there's a place to have a quiet, safe place
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  to go work nearby, you know, within thirty minutes of a commute,
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  I think those places will continue to succeed. But yeah, like I said,
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  some of the larger institutional office buildings, you're seeing a lot of them
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  get converted. You know, you're seeing a lot of those those buildings get
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  converted into multifamily or a mixed use of some kind. You know. The
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  full utilization of office I think is not going to say any of the past,
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  but it's going to be a while so hard to convert many of those
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  newer office buildings because the things that made them most attractive as office buildings,
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  which is like small core at the middle, large uninterrupted spaces, no beams.
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  You make it an large distance from the elevator core to the windows.
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  Make a residential conversion very tough. The older buildings like in Manhattan, Yep,
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  we're actually perfect for the purpose. So you know, it's interesting.
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  I mean, I agree with you they're going to have to convert them because
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  I do think fundamentally the office market and the way we work. Uh,
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  you know, it wasn't changed by the by the pandemic, but it was
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  accelerated, rapidly accelerated. The Zoom wouldn't be a third the company it is
• 18:17
  today without what happened during the pandemic. Right, Oh yeah, I mean
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  their price is thy rocketed. I believe it, like like five x or
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  something like that. I mean remarkable, Yeah, pretty incredible. But but
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  you know, uh, it was it was going to happen. It just
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  wasn't going to happen when it did, right as quickly as it did.
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  Yeah, I'll tell you another aspect carry to that, just to your point
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  is the cost of infrastructure to make it sustainable for you know, actual habitation
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  towards it's a livable you know, think about the plumbing, the electric electricity.
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  I mean, it's not just putting walls in you know, end visual
• 19:00
  homes with individual piping electric. The list goes on and on and on.
• 19:06
  So I mean you try to really believe in that project, you know,
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  for them to start making those types of leaps to your point, or you
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  got to have some serious government backing. Hey, one other question, you
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  into uh, clean energy projects because that figures into real estate dramatically, things
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  like micro grids, like you know, renovating buildings to make the more energy
• 19:32
  efficient, all those things. And is that something you're seeing an increase in.
• 19:37
  I am actually there. There's there's government regular regulated programs out there carry
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  that would ultimately give you a ton of tax benefits. You know, they'll
• 19:47
  do you know, grain efficient window panes, you know, rooflining, whatever
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  it may be, plumbing, low flow toilets, led lighting, There's there's
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  this a list goes on and on and on. Here's the thing. A
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  lot of those have to come in as a as a tax lean. Some
• 20:03
  of them see them as like second positions at home. When I say them,
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  lenders aren't always kosher with having that type of lean which they're in first.
• 20:14
  They're in first position the the government is, so it gets a little
• 20:18
  bit dicey. Sometimes there's a ton of different lenders that are outspoken positively about
• 20:26
  using those, but there's also other lenders out there they're like, hey,
• 20:29
  I'll just give you the extra leverage. You know, let's not muddy the
• 20:32
  water on the leans, because if something were to happen, something goes awry,
• 20:36
  it was paid first, you know. So those those conversations come up
• 20:40
  pretty often. But to answer your question in short, there is a ton
• 20:44
  of green efficient programs that are out there in today's market, right all right,
• 20:51
  Hey, I think we covered a lot for one session, and a
• 20:55
  lady guys out there, let that sink in for a bit. If you've
• 20:57
  got any questions or comments, me an email kl Carrie lets dot com.
• 21:03
  Colby Where do we find you on the web? How do we connect with
• 21:06
  you? Yeah, the best way to reach me is my email. It'd
• 21:08
  be cc at Colbertsondholdings dot com. And LinkedIn is the best way to reach
• 21:15
  me. I don't have a website because I just I don't feel like I
• 21:18
  need but I'm independent. The LinkedIn's a great way to reach me in my
• 21:22
  email, so very reached me there. I'll be more than happy to connect
• 21:26
  with anybody looking for capital arrangements or investment opportunities. All Right, you got
• 21:30
  it. We'll put your LinkedIn in the show notes to this interview on Financial
• 21:33
  Survival Network dot com. Get click through and send Colby an email if you
• 21:38
  want a and while you're there, sign up for your free newsletter. Questions
• 21:42
  comments, shoot me an email kl at Carrie Let's dot com. We'll get
• 21:47
  you an answered quick. Colby, appreciate you stopping by. We'll talk to
• 21:51
  you again. Thanks Jerry, thanks for listening to Carrie Let's's Financial Survival Network.
• 21:56
  Your solution to today's trying times. For the latest, go to Financial
• 22:00
  Survivalnetwork dot com. Financial Survival Network now more than ever