KGCI: Real Estate on Air - Financing Programs and Trends for Commercial Clients

Episode Date: January 22, 2025

Well, hello, hello, hello. Hi, Jeff. How are you? Great. Thanks for having me over here, Beth. Thank you. Jeff Havel, who is an assistant vice president with CoreTrust Bank. And today, Jeff and I are going to talk about commercial lending, which he's a commercial lender, hence. What I really was excited to talk to you about is it's such a huge area commercial lending compared to, you know, I sell houses, condos, co-ops, maybe a fourplex. But you guys do the big sexy stuff. So it's nice to be able to talk to you and learn a little bit more about your side of the industry, which is very complex and really, very exciting.

So I love to hear a little bit more about where you work. And just go ahead and tell me where you come from so that everybody gets an idea, okay, what's this guy's background? And what does commercial lending really mean? Yeah. Yeah, so I, you know, live in Minnesota, live in the Twin Cities. I've lived in Minnesota pretty much my whole life, aside from studying abroad in Ecuador, which was a great time.

I'm working at Core Trust Bank, which is a family-owned fourth-generation bank. So, you know, the things that I really love about it are they have that family feel and they really take the client's needs as the number one priority rather than maybe shareholder expectations or making money for shareholders. Obviously, we're in business and we need to make money, but our goal is just, just our clients and the people coming to the bank. So you don't have to make quarterly dividends. Exactly. We're focused on doing the best for the borrowers and the people who are in the bank, not for people that have shares of the bank. I think that was a big part of it.

I also like the way you did business because as I've gotten to know you is that you're one-on-one. You know, what's your story? Where are you coming from? I think that one of the things I really liked about some of and we've I've seen your presentation before so we're talking a little out of school here but what I like to is that it was a very relationship driven conversation and you're experienced enough to say okay what's your problem let me see how I can fix it exactly I really like that approach yeah I value the face-to-face more than anything else because I think you you pick up on a lot more and you really build that rapport with people and that reputation right so with commercial real estate um like I said I know what I do and it's small potatoes compared to what you guys are doing.

I think that everybody's real excited to hear a little bit about what the trends are, opportunities, and, of course, the economic factors involved with that. Some of the trending that I thought was really interesting was you talked about office vacancies and that they're on the rise. Talk to us a little bit about what the history of that is. Of course, we all have a general understanding. There's a lot of print here. So if you could tell us a little bit about office vacancies and then, of course, where that's going.

Yeah. Yeah. You know, every big corporation, every business needed an office, you know, pre-2020. That was the big thing. Everybody needed space for their employees. Well, then I think everybody knows kind of what happened and what changed in the working world around then. And this whole work from home craze started. So companies started to realize maybe that they didn't need office spaces.

for their employees and maybe they could cut some overhead if they didn't own the building and they're just leasing it we could have people work from home and we can reduce some of that overhead so that causes some of these high-rise buildings in larger cities to be a lot more vacant um they don't have as many employees coming into work so now they have less of a need for those other spaces you know talking about office vacancies though one thing that is still doing pretty well are those small offices whether it be maybe an office warehouse combination or you're your smaller, you know, 50 employee types of office. They are still holding on pretty strong compared to your big downtown office spaces.

Why do you think that is? I think it's because, you know, they maybe have less technology. So they require people to be in the office or, you know, your office people, your sales guys are working closely with the warehouse, with your production. So that way it makes it a lot more efficient for you to have employees. And maybe they want to be in the office to make sure that their projects are going smoothly. Did you notice if they did well? over this new trend.

Is there sales up or down, or are you not quite privy to that? For the most part, you know, the economy's been pretty strong. You know, we're at least flat for year over year for a lot of the companies that I'm looking at, and it's been quite resilient

compared to what I thought maybe could happen. Right. Okay, because when you say that about technology, I'm always like, uh-oh. If you didn't embrace technology, it kicked you right on out. Yeah, especially, you know, those smaller office spaces, maybe not all their employees had laptops.

So, you know, there's a big sunk cost to allow their employees or buy laptops for each one of their employees. You know, the larger corporations, they probably had a lot more employees with laptops. So the transition was a lot smoother for them to be set up at home. Interesting. Talk a little bit about multifamily successful, but some oversupply. Yeah, so I don't know if you've noticed,

but it seems like every corner of the cities or suburbs of the cities you see giant high-rise multifamily units being popped up kind of constantly. And sometimes there's two or three of them on the same block. And I've thought to myself, I'm like, how many, how are there this many people that need, need, you know, an apartment to live in? But, you know, in your world, you look at the lack of inventory for housing. You look at surge costs for pricing for housing. You know, people need places to live.

And if the market's pricing out majority of the people, you know, that's where the multifamily trend really started to grow and succeed. And that's why you see so many of being built. You know, if we start seeing that inventory recover on the residential side, you know, maybe there might be some multifamily vacancies or it might be a little tighter than it has been. And I think that's where you start to see a slow down as construction is finally catching up to the end in the need. And they're starting to become a little bit more inventory out there with housing.

Yeah, I thought it was interesting just because I was in Madison. in Wisconsin, and they have cranes all over the place, too. And it's the demographics are changing there, but demographics seem to be changing in different areas of town again. I don't know why. I think that people my age are starting to look at condos. They're starting to look at different lifestyles. And I think there's a little more fluid lifestyle to live, oh, I'll live here for six months or whatever and in another place. So maybe the high rises are more interesting. or just because of the change in lifestyle. And they're typically around, you know, a lot of fun spots.

You know, there's restaurants. There's other things that go along with it because there's a lot of people in the high-density area. So it really helps small businesses, too, around those high-density areas. To have a high-rise right next door. That's very true. You also mentioned luxury properties are going uprising, luxury property vacancies. What is a rental luxury property just to be a, able to help me visualize what that is. Yeah, so you know, you have those maybe high-rise buildings and

you have your private elevator that goes directly into your apartment or your floor necessarily. You know, you might have a front door person keeping, you know, making sure you live there. So it's a little more secure, a little safer. You know, a lot of people in the last five years have moved out of the cities now and kind of moving towards the suburbs. So now you're seeing a lot more, you know, luxury houses that are being up for sale and being built. And I think people are just kind of getting into low density areas when you're on that luxury level a lot more than they used to. Okay.

Yeah. That's not my problem. Yeah. Although I'm working at it. Smaller, smarter retail. This one, I think, is pertinent. Yeah. So, you know, you see back in the day, you know, 10 years ago before the Amazon of the

world, there, you need to have a little bit of the world, there, you need to have a a box store and if you made it, you know, you had giant box stores all over the place in every city. And now you can get to that point of being as big as the box stores without having a large brick and mortar presence. So I think people are getting smarter with, you know, their overhead costs. You know, we can create a lot more profitability with a smaller overhead just by expanding online and reaching, you know, all 50 states with the same dollars that you would to reach one city before. Absolutely. So I think, you know, now that's where the smaller retailers come in and you know you're always going to need a grocery store for the

most part people want to touch their produce they want to pick out what they're going to buy what they're going to eat getting into those anchor spots with a grocery store or community presence is kind of where the smaller retailers are getting smart and and getting high you know top dollar rents i agree i also think it's interesting just because i'm in a cloud-based brokerage as a realtor and we're competing big time against everybody that has all the brick and mortar offices. Technology is where it's at. If you want a brick and mortar, we can figure it out. It's not a big deal, but just how we're working and the direction we're going,

EXP is definitely the brokerage to be in for cloud-based technology and to be able to be, you're paid faster than anybody else. Everything digital, if you're not there and not thinking about it on a regular basis, even as a restaurant, you're going to start lagging behind. Yeah, definitely. Well, technology comes up a lot, I think even in our discussion. And you don't need brick and mortar to have that face-to-face presence. People are going out to coffee shops and meeting.

You're meeting all over town. And it's a lot of traveling to where the needs are rather than making people travel to you. Right. Kind of what's changed in the last five, 10 years. Yeah, you and I are living that out. industrial properties remain strong before we get started on that what is an industrial property yeah so you think you know you buy a lot of widgets you know you're buying your furniture you're buying your phone all these things have to be made somewhere so an industrial property is

basically anything that manufactures or produces something some sort of gadget or item for people to buy and you know they really are the one industry that needs a building because you can't just make stuff out of nowhere. You can't make stuff online unless it's a creative digital project. So the metal shops, the wood shops, the furniture places, they all need a place to have all this equipment to be able to produce the things that you want to buy. And that's why, you know, the industrial properties have remained really strong is because there's a need for it. They always need a location, typically with some, you know, doors for some semi- trucks to come in and load up.

Right. That's a big thing. having those bays, you're able to get those semi-in or trucking. Also, you use the term near-shoring. Could you talk a little bit about that? Yeah, you know, things are coming back into the U.S. and we're staying, we're companies are starting to think a little bit more locally. The supply chain crush kind of, you know, made people really think about globalization and having a backup plan and, you know, having some resources local rather than offshore because if something happens like what happened, you know, 2020, all of a sudden, your whole production gets shut down and your business isn't making money anymore.

Super smart. Always smart to have a backup plan and just see how it works. Maybe it's not as efficient as you think it was. I mean, you're really, they're reevaluating every part of that now. There's a lot more contingency planning going on than there ever happened. Yeah. You just, we got comfortable. Yes.

You have to tell it doesn't. Yeah, exactly. And I understand that. I'm part of that world. That's really interesting. That's also one of those things. Those are the trends that I think that will be interesting that we're going to have this conversation now. And now a year and a half from now, we're going to have the same podcast all over again.

And see what 18 months just did. Yeah. Now that would be great. So some of the opportunities that you also talked about, cash optimization. I think that's always been true, don't you? Yeah. Yeah, I think, you know, everybody knows that cash is king always in good times and bad. I think the big thing that happened, you know, in the last five years were low to zero interest rates.

So people were leveraging pretty heavily because they could get very inexpensive money and they could use it for other opportunities. Well, typically with commercial real estate, you know, you have a five-year balloon. So now if you over-leverage yourself five years ago and your interest rate goes from three to seven, eight percent, that's a little bit different on your bottom line, and you're having to produce a lot more cash to be able to afford that. So some of the companies that didn't over leverage and are holding onto cash now,

you know, have a better safety net to get. The balloon payments are still a thing in the commercial property world. Yes. I don't know if they're, I don't know since the downfall of 2007 and eight, didn't they kind of get rid of bloom pavements for residential property?

properties. Yeah, I mean, there's not a lot of people doing balloon residential payments. And I think, you know, it's a lot different when you're running a business versus you're buying your house to live in. And, you know, your homestead isn't always, it shouldn't be seen as an investment always. It's where you're going to live. It is a way to build equity, but it's not an investment. So rather than, you know, creating a housing crisis with balloon payments where all of a sudden you could price out and you have millions and millions of people losing their houses, they kind of. thought that process a little bit. Hence. Yeah. But the world, you know, especially on the bank side, it's a lot more risky for the bank to have a fixed rate. You know, if we fixed all our rates five years ago, we would be sitting pretty sad over the next, you know, 20 years from now based on where rates are today.

Tell me about that. Well, you know, obviously the cost of funds for a lot of banks right now, one from zero percent to the Fed rate is five and a half percent. So that's a big swing when you're talking about bottom lines on, on banks. who make most of their money from interest, net interest margin. So this gives us the opportunity to look at a property, and five years from now we could reprice it at what the current economic states are. We know what the current interest rates are.

And sometimes that's higher than it was, and sometimes that's lower than it was. It just depends on kind of where the market's going. But it makes it a lot less risky for us to look five years in the future rather than 20 years in the future and try to see if this is a good deal today. Okay. Well, to me, when I look at how big my interest payments are, you know, and then over time, of course, they get smaller because it's a fixed great mortgage. But that's interesting. I don't always think about it from the point of view of the banker, but you do want to know that a bank is healthy. And a healthy bank does all sorts of loans because that's what keeps them going and gives them the reserves to loan, right? And you know, your very typical lease period in a commercial space is five years. So that's where they kind of go hand in hand. You fully lease your spot.

You buy a property. You have all your leases in place for five years. And that's where it gives the bank some, you know, comfortability that if those leases come up and then all of a sudden market rates are much lower than they used to be, now you can reprice everything and kind of think about it more strategically rather than having high vacancy rates in your retail and other investment property. Excellent. We talked about multifamily, but we didn't talk about A, B, and C class.

Tell me a little bit about that, and how does that work? Because most multifamily, of course, are rental properties in your world. They're not condos. So what does it mean? What is like an A class? What's an A class rental property? So, yeah, your A classes are going to be, you know, probably a newer construction. They're brand new.

They have some bells and whistles. You probably have a workout room. you have some great outdoor common spaces. You know, typically they might have, you know, coffee shop inside of them. They're beautiful, up-to-date and modern. Your B class are maybe a little bit more aging. They're not in as a desirable area as your A-class properties. And they're not getting top dollar.

They might just be, you know, apartments with no, you know, common areas, no workout spaces, no gyms, no Starbucks downstairs. And then we see properties are even, you know, a little bit of, step down from that. Maybe we need some high updates. They haven't been updated since the 90s, and you might have some shag rugs around the apartment buildings. Okay, so with that, then we're looking at how affordable housing works compared to, let's say, just what you just talked about with those.

We're now looking at affordable housing, and there's a lack of affordable housing as one of the biggest problems facing the country right now. Can you tell me beyond the different classes, when they say there's a lack of it, does it mean that there's a lack of good affordable housing? What does that mean? Yeah, I think everybody who's rented or has been renting for the last decade has seen in the last four years, rents increased more than they have probably in the previous five. So that's creating a larger gap of what people are demanding for rent and what rent needs. So it's really, you know, creating a housing crisis for a lot of people who can't meet that.

So what the states and governments and federal people are doing is they're creating a lot of programs where you have to meet, you know, a 50% of your area median income in order to qualify for these. So you have to have a certain number of apartments that are either at like 30% or 50% or 80% of the average, you know, median income of that area in order to get some of these government funds to build larger affordable housing projects. And then there's a lot of covenants in there where you have to maintain this, affordability for the next 40 years. Otherwise, you have to pay back these grants and these programs that are available for you to create these projects. Wow. Yeah, I mean, it can be, but when the government and the counties and states are putting in $20 million of a $40 million project,

and that's all forgivable if you maintain these standards, it makes it so you can cash flow these properties without charging top dollar for your rents. Nice. Okay. So it's a win-in for both the people living there and both the investors that are looking long term rather than short term. And to just keep them up. I think the problem is not keeping things up. Exactly. And that's true. That's true with houses.

That's with anything. It's much better to just keep it up the whole time, even if you're just keeping it clean and don't want to have anything broken. Exactly. You don't have to update everything. Just keep it up. The other opportunities you talk about. about is you use the term prop tech yeah so you know everybody a prop tech is one of those you know

keywords kind of like bin tech and in my part of the world where whatever you can do to make it easier make it more mainstream you know whether it's having digital key cards on your phone there's a lot of hotels for example now where you don't even get a key card for your hotel room you just have their app you check in and then they give you a digital key so that gives you access to your rooms the elevator with everything. So now apartment buildings are starting to incorporate some of those into their buildings. Things like, you know, your thermostats inside of your apartments can be controlled through your phone. Your rent payments can come out digitally and optimize so you're not, you know, writing out a rent check every month. And it's just, it's out of sight out of mind.

And it's becoming just more mainstream and fluid for all parties involved. Yeah, that sounds really, because I'm going to put a key code on my door, but I still have to touch it. Yeah, exactly. Okay. Like a lot of the hotels I've been staying in, you just have your phone in your pocket, you walk up to the door, you press a button on your phone, and then it opens it up. Okay. I haven't done that yet.

I was just at hotels this weekend, or this last week, so I better get, I better up my game. Energy efficient upgrades. Yeah. For example. Look on commercial. There's a lot of solar programs out there. for both commercial and residential, you know, Excel in Minneapolis market has some tax break,

tax rebates that go on. If you install a solar project, you get a 30% rebate on that project cost back. So it makes it more affordable for some of the commercial people and some of the residential people to be able to use some green energy and some solar where the technology maybe isn't there and the economies of scale make it a little more expensive for it to make sense

without these programs. Okay, nice. They're starting to put on, Like I said, I went to the University of Wisconsin, Madison. And so to my son. So we were checking out the university, just what's changed, what's upgraded. And they put a lot of solar panels, even on dorms. So I was kind of like, oh, okay, well, how's that affecting?

Is it rolling down to the parents that are paying? I highly doubt that. It's probably helping with the increased costs on the university side, a little bit. It's a pretty beautiful university, man. I wish it looked like that when I went. Okay, so let's get into, I know we're not quite at your job yet, but macroeconomics, you had some really nice points about that.

And just go ahead and fire through them because I know a lot of people have somewhat of touch with macroeconomics, but they did not have touch with what's trending. So I thought, I'm glad you put this in here, just like to learn. a little bit more how this affects getting a commercial loan yeah so you know the fed in the beginning of the year was talking about seven rate cuts this year um we've had zero so that's kind of now they're preaching a higher for longer um and they have been talking about that for a long time and basically what that means is you know don't expect rates to come down quickly or you know fast anytime soon yeah or at all they're going to keep them elevated for longer to make sure that um there's a a

very clear trend over specific periods of time with inflation and the battle against it. Okay. You know, we've been at a standstill probably for the last four to five months. Although I have to say about five years ago, I was saying, come on, raise the interest rate. It was too crazy low. I know that sounds, I know people want to punch me right now. But as a realtor, I was like, oh, come on. This is ridiculous.

So people, of course, were, it was a feeding frenzy to try and get that bigger house. It was at 2.5 or 3% or even 4, you could get into a much bigger house. Your monthly payment changed. And I think what people don't really think about or understand a lot is that we've been in a low interest rate environment for the better part of almost a decade and a half, ever since the great housing crisis, you know, the 20 dozen aid and everything. But if you look at it, you zoom out 30 to 50 years, we're really at the average. which is great and things are kind of averaged out. So we can kind of expect us to sit around somewhere around in this general realm for a lot longer of a time.

Yeah, I think it was early 80s. I think it was 17%. So it's really, it's really okay. Yeah. I think though that what's affecting it, at least what I'm understanding and what I'm getting from clients is that there's other things that are crazy expensive. right now. Gas, as we know, has gone up. But also, groceries is really expensive. So that's a thing. Yep. You have to eat. And I think that's kind of why the Fed's talking higher for longer is we're finally

starting to see at least some stabilization of prices. You know, things are starting to trickle down. Construction costs are starting to either normalize or start to come down a little bit from the last a couple of years. And it's because, you know, there is a slight slowdown compared to the big boom that happened in the last five years. Absolutely. Okay. So let's, again, we're kind of getting molecular on what you do and where it's going. So conventional commercial real estate, loan to value. I think that people misunderstand what that is. So they're thinking, okay, I have 20% down, right? Loan to value, don't you also have to appraise to say, okay, This building's worth this much.

Now we're going to tell you how much the 80-20 is. Is that correct? Yeah, exactly. So, you know, when we're underwriting loans, we'll look at a purchase agreement and we'll take the purchase price. And then we'll assume that value until we get an appraisal back to get approvals. So we won't close the loan until we have the official appraisal back. And the appraisal number is what we can loan 80% of. You know, that's our documented value of a third party who said, I stand behind what this is worth in the market.

So it's worth $100,000. the person that's taking out the loan has to put down 20,000, and you're going to give them a loan for 80,000. Exactly. Okay. And typically, you know, we'll have a five years where your rates either locked in or, or you'll have a variable rate. And that's over 20-year period of amortization. So the loan will pay off in 20 years, but, you know, you might get a higher or lower interest rate in five years. So people will refive under that because it's a pretty darn big loan.

It's never a hundred, pretty small. So it's both good for the bank and for the borrower, because if we're not able to offer you something that works for you, you have the chance to go somewhere else. And if you don't like us, you can find a different bank or if rates change, then you get the opportunity to have a lower rate or a different rate than you are not locked in with. And what's the advantage for them?

I think we touched on it in the beginning, but what would be their advantage to go to a smaller bank like yours? it's not really that small, but it is a family-owned bank. Why would people want to do that, especially small businesses? Yeah, I mean, I don't know if you've worked or try to work with big corporations, especially if you are a smaller business. You're not as valuable to some of those companies as you are with the community bank. You know, we spend more of the time to get to know you,

to get to know your business and kind of get to know your needs. And then when you've had that relationship with us for a long period of time and things might start to go south or you're really in a bind. You know, we're more willing to work with you to get to the end that you need than maybe a bigger box corporation might be. Yeah, the stagecoaches hasn't always been looking at their clients as their best interest. Yeah. Okay, the stakeholders have not that. Exactly.

You know, if you're not going to make them money, then they don't really care that much about you, but we're more on the long-term relationship side. Now, these commercial loans, any properties can be. reviewed. So again, we're going to go back to your world, which is an industrial loan, retail, which is what we all know as commercial, multifamily. Kind of what we talked about is a fourplex or higher, but really it's usually apartment complexes and things like that. I mean, it's pretty large scale. 50, 100 years. Right. Raw land. Raw land's really interesting because there's not a lot of it in like the 694 or 494 area, you're going out or do you evaluate raw land even if there's a building on it? Typically, you know, raw land's going to be a lot without a building. So like you said,

there's not a lot of it, but you start to stretch outside of the Twin City metro area and you can start to find it. And, you know, based on on real estate and property values right now, some companies who have the ability to maybe produce outside of the cities and still get a workforce or looking at that because it's a lot less to acquire that type of land. Right. And the land and the reason why I say that is because people are looking at stuff going out, I want to just knock that building down. Just give me, I'm only want to pay the raw land. Well, first of all, OSHA is going to get a hold of you. But in other words, you really have to evaluate somewhat what that building on that land is worth. Exactly. And that kind of goes into the construction, you know, knocking down a building and building a new building is more.

kind of the construction side, a construction note, because we're doing a demolition and then building a new structure up from the ground up there. Okay, because that's a lot of what we would probably work with in our part of the cities. Otherwise, we're going out of ways now. Yeah. And then construction. Okay. And when you say a note on construction, are those two separate loans? Are you going to have land loan and then a construction loan? So maybe a company or some investors might purchase some raw land with the intent to build a construction, you know, have a construction project in the future, but they don't want to start it yet. But they'd want to acquire the land because maybe land prices are going up, but they don't have the need with their business. So, you know,

a forward-thinking business might know that there's some land out there that in a high-growing area that is going to be prime, you know, in five, 10 years. And they know their business is going to need to expand, but they're not ready for that expansion yet. Nice. And raw land usually has pretty low taxes. Yeah, yeah, and it's taxed a lot differently. Relatively. Yeah. So the SBA 504 loan option. Do you have any stories or anything can tell us about this and how this maybe bring it into focus for a small business owner? Yeah. So, you know, currently I'm working with a group of people looking to buy a wedding venue property kind of further up north. So, you know, they haven't had a wedding, you know, property. They haven't owned.

businesses before, but they're high in the corporate event planning industry. So they have the background with it. They know what they're doing. But if you're talking about a $5 million piece of land, that's a million dollars you need conventionally to come up with to put down on it. So if you're not an entrepreneur and you don't have, you know, a business to sell or a building to sell, it might be a little hard to come up with those funds on your own. So where the SBA comes in is they provide the bank a 40% guarantee on the loan and the bank has the 50% on their books. And that gives the ability for them to only put 10% down. So now we're talking a half a million dollars versus a million dollars down, which is a significant amount of money.

And maybe you can find a way to make that happen. So that's where SBA options has kind of help to get the smaller guys into the buildings and the real estate that they need to operate their companies. Interesting. Do you evaluate the risk on it? I mean, that would be part of the appraisal, but my understanding is appraisal is just looking at the land. Are they also looking at the risk of, is there really this type of business necessary? Is there, is there a market demand? Yeah. And so that's where like, you know, real estate like a wedding menu is called a special use or special property. Whereas you can't just, you know, whip it out and create something else and put anything in that space. Whereas like a warehouse is much different to where you can have, you know,

100, 200 different companies in a warehouse doing different things, but they're relatively doing similar aspect of warehousing. That's kind of where the appraisals will come in and let you know, you know, how you need a specific buyer to buy a wedding venue versus a warehouse. Sure. So to me, my perception would be that that's a fairly high risk if I was, if I was invest, if I was the guy investing in that compared to a warehouse, because first of all, you just told me that demand for warehouses is pretty high. And you can have more than one type of person

warehousing or type of business warehousing, therefore reducing the risk a little bit more, too. So in case one fails, the other one. Yeah, it also makes it possibly, it mitigates our risk as a bank and so we can get more entrepreneur spirit out there because we have a 40% guarantee. You know, 40% of that loan is going to be backed by the SBA. So that brings down our risk almost in half right there. Nice. What is the eligibility to do that? So basically, you know, you have to be a for-profit company in the United States. You can't be a nonprofit. You have to have people in net worth as a buyer of less than 15 million. You know, so that's still a good amount. You can do a lot with it, but you're also not, you know, very wealthy and very well off to where you have the means to do it yourself.

Right. You know, have to have an average net income in your company of less than $5 million. after federal tax for two years before. So that kind of, the SBA categorizes a small business of anything under $5 million of net profit or net income. And it really helps the smaller guys kind of get into it. And it makes the field more fair. Well, let's face it, we're a capitalistic country. So this is my thing.

I like it. Yeah. Good. Is there anything that you think would be uses for a loan besides what you just told me about is a wedding venue? Great idea. Anything else that that is used for? Just start getting people to visualize.

Like I have a young group that we've had on the podcast actually, and they have a food truck. And I think they would have, you know, I think they have a lot of options. They have a lot of people that drive up and love their food. when does that turn into brick and mortar for that? They want to start their restaurant, but they don't have the funds for that down payment. Now we can start looking at, you know, smaller restaurant setups. Maybe there's a space where there's a bigger restaurant in a strip mall.

So whereas you can operate out of the restaurant space and then still have that investment side of having some of the other units rented out to other businesses, which also helps drive traffic to the restaurant and to the other businesses. Right. The biggest thing, you know, with the 504 program is you have to occupy just 51% of the space at least. You know, that's a requirement. So it takes out the people that are coming in just to be investors because they wouldn't qualify for this program. Right.

So you have to have an operating entity in it and you have to kind of be very involved with it. Yeah, you want us to be successful. Exactly. And more heads is better than, you know, than one, right? who can't use the SBA program. Yeah, so, you know, things that anybody with over that 50 million tangible net worth or has more than $5.5 million with the SBA ready or things that you can't use it are for working capital or inventory. You know, you can't get an SBA loan just to buy a bunch of inventory or have a line of credit.

You can't use the loan to consolidate your existing debt or to buy speculative or investment real estate because they want it to be used to drive, you know, businesses and entrepreneurs. and to increase small business out there. Interesting. What would be, I always like to hear these stories, no names necessary, but what was one of your craziest loans that was, you know, good outcome or one of your silliest? Or, I mean, people do all kinds of businesses. They could have a tent-onning business that they set up only in the Mall of America

parking lot. don't know. What would be some funny or interesting businesses that you've done loans for? Yeah, a super, you know, interesting one recently are those adventure parks that you're seen out there. You know, there's a lot of space for kids and they have giant trampolines and giant, you know, playgrounds and a bunch of games inside. And they all have that prop tech technology where you pay a monthly subscription, you know, you have a wristband, you scan it in. They, they know that it's you and your subscription is valid and you have free reign for the building. and so their overhead is low.

But it's just kind of, it's an interesting concept to use a space to build basically a giant indoor gym and gymnasium for kids and kids parties to have. Oh, yeah, that works. Any like, you know, snake breeding industries or anything weird like that? Yeah, you know, we tend to stay away from a lot of the more interesting stuff because usually you want to have a proven background in a proven industry, so that those things make it a lot more risky.

But I'm always open for years, so if you have an idea. I don't have, I don't like snakes, so I just had to say that like it is. Well, thank you so much. It was definitely a pleasure to hear more about what you do. I did my homework, so I was ready to go to learn more about commercial properties. It's really a huge area of areas, people looking at. getting loans and expanding their businesses. And I think that you'd be a terrific person to work with.

So thank you so much. It was really, it was a joy to work with you. Yeah, thank you. Yeah. And we barely scratched the service of what commercial real estate is. So if anybody has any more questions, my email address is on the bottom. So reach out, send me an email. We can get in contact and chat more about it.

Wonderful. Also, if you're looking to buy or sell real estate, the Flamingo Group, which is our real estate team, would love to work with you or at least have a conversation. Today is a great day to connect with me or with my husband, Dan, and All Things Flamingo is our way of reaching out and talking more about real estate and all the different areas of real estate. So thank you. We have a terrific group of people that we get to work with, both on the commercial side and residential.

And thanks again, Jeff. It was a pleasure. Thanks, Beth. It was awesome.