Money Rehab with Nicole Lapin - Could Empty Office Buildings Tank the Economy?

Episode Date: June 20, 2023

With rising interest rates and work-from-home policies, commercial real estate is on life support. To dig into the resulting consequences, Nicole calls up commercial real estate mogul Jeff Zell. Nicole and Jeff talk about how commercial real estate got to this precarious place, what will happen next, and the surprising domino effect this will have on regional banks.

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that

I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details.

I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. A few weeks ago, I had one of my favorite financial advisors, Josh Brown, on the show to decode some financial jargon. But because we are mega economy nerds, we ended up talking about the macro economy again because mega nerds. In that chat, we ended up talking about the macro economy, again, because mega nerds. In that chat, we briefly, briefly talked about how commercial real estate is on life support. But make no mistake, just because we briefly, briefly touched on it doesn't mean it's not a big deal. It actually is a really big deal. So to give it the proper deep dive, I called up my

friend Jeff Zell. Jeff will introduce himself in a minute, but to put it simply, he is a commercial real estate mogul. The term mogul gives me the ick after it's been overused for years and years, but to be real, Jeff is a mogul. His company, JM Zell Partners, has a long list of commercial real estate success stories, the Association of American Medical Colleges, the Washington Post headquarters, and one of my personal favorites, Shakespeare Theatre Company and Harmon Center for the Arts in DC. We chatted about how commercial real estate got into this precarious place in the first place, what will happen next, and the surprising domino effect that it will have on regional banks. Here's our reality check on commercial real estate. Jeff Zell. Yes. Welcome to Money Rehab. Thank you. Thank you for having me.

How many years have we known each other? Probably now. 150? Yeah, it's so much so that I know more about you than probably your parents. It's dangerous. It is dangerous. We've known each other for, I think, 20 years at this point. I've never had you on any of the shows. You are such a big real estate deal, but you rarely do interviews. So thank you for doing this one. Yeah, this is the first one I've done probably in 20 years.

So there you go. I've been asked numerous times. And I finally wore you down. Listen, I don't want to give you more of an ego than you already have, but give us a sense of how many big commercial real estate deals you've done in the billions of dollars. Just give listeners a sense of what a big deal you are. Yeah, I think over my career, which is about right now about 40 years, probably we've done between $25 and $30 billion worth of transactions and they range in all types of commercial real estate classes. So done a lot. And I guess two years ago, we did the biggest deal in the United States and in Massachusetts for a headquarters

for Sanofi and a new lab site there in Cambridge. And okay, okay. So you're a big commercial real estate deal. And you definitely have your finger on the pulse of what's happening there. You and I recently met up. And you scared me, honestly, you're like commercial real estate is going to be fucked. So it's not about if it will happen. My son claims that I'm the one that says we're falling off a cliff and we're ready to air more. So it's dialed in. And the big issue of commercial real estate is the capacity of lending on mortgages for projects throughout the United States. The problem we have is we have real estate values of most projects are in an elevator shaft and they're going down so rapidly. And banks use valuation for lending

criteria. And a lot of the banks are going to get stuck with the loans that they have on a lot of properties. And they don't have the reserves that are large enough to cover their losses. So you're going to see a huge collapse in the smaller banks. The bigger banks will try and absorb it. The feds will ask the bigger banks to put more reserves, which means there'll be less lending. This becomes basically a very hard problem to stop, and it won't stop probably for three to five years. Okay. So there's a lot of really scary stuff you just said. Let's back it up for a second. And how did we get into that elevator shaft? It's a confluence of recent events, right? Pandemic, interest rates.

Can you explain the current landscape and how we got here? Yeah, it's the pandemic, interest rates. And the other thing is utilization of office space. The technology sector having the ability to do things without being in the office. Kind of fast forward us 10 to 15 years ahead. So what people were using typical offices for aren't required anymore, at least to the extent that they're that they used to be. And a lot of the work can be done from home that created a loss of use, especially amongst the generation that's

more in tune to software. That's why you got hit in San Francisco first was because of the online aspect of all those companies don't really need office space. And simultaneously with that, we have a doubling of interest rates that occurred in the last 12 months. You know, we went from roughly 3% on commercial real estate loans to now we're over 6%. So let's be really clear about who's struggling here. And it could be a combination. Buyers, owners, banks, renters, owners and banks, the renters and buyers can take advantage of the situation because they're the ones paying in the capital. Renters can demand good deals. That's really what's going on here. And that is created continually creating a loss of

value for anybody holding a commercial office building anywhere in the country. In the latest Fed meeting, of course, the decision was to hold interest rates steady. How does the commercial real estate market react to that news? Is that helpful? It's like a small speed bump. We stopped, looked at it, and then we just blew right through it. It's not going to help. Again, we're now trolling past 6%. The biggest problem we have right now is due to the Feds are really part of the problem. Because of us slowing down our spending rate because of the debt ceiling issue on the Hill here in Washington, then they passed that bill. The feds are going into the market for about a trillion dollars of debt that they need to get quickly because the U.S. Treasury's coffers were at the lowest level they've been at in years. So they have to replenish. When they do that, the feds have to go

in and borrow about a trillion dollars is the number I'm hearing. The word on the street is they're going to pay in excess of 6% for that money. And the problem with that is a year ago, they paid 0.01% for that. So there is that I can't even exponentially tell you what the cost difference is, but they're going to suck all the liquidity out of the market, because I'd rather take a 6% loan from the US Treasury than invest in a real estate deal. So that means real estate deals are going to get pushed up in their interest rate return. So they're going to be pushed to 8%, 9% if, in fact, anybody's willing to lend. And then they're going

to lend them less than they think they can because the value of the property is diminished. So there you go. And how does that trickle down? How is the regular person affected by these commercial real estate trends? First of all, the commercial real estate companies that are in business are going to lose a lot of employees. Number one, all the services provided to the buildings are going to cease to exist. I'm in a building that went into bankruptcy just recently, and I can't find toilet paper in the bathroom or, you know, people aren't cleaning my office anymore. And because they're going to the lender or the bank to pay for all these services and it's just become ridiculous with what's going on. This is going to happen throughout the country.

It's going to affect a lot of people because there's a lot of people that were providing services in these buildings. going to affect a lot of people because there's a lot of people that were providing services in these buildings. And because of the work from home phenomenon, you know, some commercial buildings are being converted into residential, which on paper feels like a smart move because a lot of these cities went bank it with commercial buildings in New York and San Francisco, as you mentioned, having housing shortages, but it's not that simple. No, and most of the commercial office buildings are not. The configuration of the buildings, if you talk to architectural firms, only about 20% or 25% of the older stock residential can even be converted. The rest of it just doesn't work. It's an interesting idea, but we're seeing buildings in some major cities where if they're 25, 30 years old,

they're basically being scraped to the ground and basically knocked down and they'll build a new building in its place. So that building basically is being acquired for land value only. They're not paying anything for the assets. So that diminishes your value to zero. And these are pretty, these buildings were really the buildings that people were occupying 90% five years ago. So they've gone from what I'll call, say, $600, $700, $800 in value down to $200 in the last 12 months a foot. And can it get worse? Yes, it can get worse. Do you think it will? I think it will. I think we're only in the second inning of a nine-inning game, right? So we got seven more to go. I think there are two or three more that are going to be pretty devastating to people because I think it's going to take into

account some of the public companies that are out here, which is the real estate and investment trust market. I believe, you know, if I go back to when the REITs had the same problem in the 70s and 80s and they had to work through all all this. They were over debted and didn't have enough equity to save their portfolio. I think what you're seeing right now is the same thing. They made a commitment to the capital markets that they'd always try and be at 50% equity, 50% debt. But when these buildings start to tail off and go from a certain valuation to 40 or 30% of the value, you're going to breach that 50-50 rule that the REITs kind of held as safe.

That was what they believed they needed to make sure people wouldn't see them go out of business like they did in the 70s and 80s. Just really quickly, so the REITs, real estate investment trusts, are basically what anyone can buy and sell like stocks. Correct. You can go, you can go on your brokerage, you can find a REITs, real estate investment trusts, are basically what anyone can buy and sell like stocks. You can go, you can go on your brokerage, you can find a REIT, you can invest in it. You don't own the actual real estate, but you have exposure to real estate.

That's right. They were typically decent investments because they give you a high dividend return because REITs have basically have a percentage of their net operating income that they distribute. And it's based on the quality of the asset. But it's kind of like a bank stock where you lend out money and you have residual value and there's a payout value. So a lot of them try to be the better ones are in the 4% or 5%. But what's happening is their stock is trading down. They're having to pay higher returns to get people to stay in. But again, that's the elevator. The more you pay

out when you're collecting less, at some point you run out of cash to pay. And I think if you look at the REITs over the last six months, you'll see a lot of them are down by 50% from where they were a year ago. It's been pretty devastating for them. And then they can't raise new capital because they can't pay the returns that are necessary back to their investors. So, again, we're getting into a position where all this stuff is in motion. And it's just it's quite interesting how nobody's kind of woken up to the to the falling crash that's already underway. It's just amazing. I find it interesting. Well, that's why we're doing this right now. Right. What's going to happen in the next 30 days? Somebody's going to wake up and they're going to see the stock market and all this stuff go into the seats. And, you

know, there'll be then a buying opportunity for people who have money, maybe. But OK. Yes. For people that have money. Right. I don't know how baseball works. So I'm not even going to pretend to continue that analogy at all. But I was talking recently to one of my favorite Wall Street guys, Josh Brown, who said that real estate people have adopted this mantra, survive till 25, meaning commercial real estate is going to have a really hard time for the next few years, but some better news should come out by 2025, and everybody just needs to hold on till then. Do you think that's true?

I think he's right to a certain degree. The thing he hasn't dialed in is what are the lenders going to do to let you survive? He's under the assumption like in the 2000 2008, there was a lot of workouts where the lenders let the developers stay in here and try and rebuild their tenant base. But lately, if you go back and back to 1990, which I lived through, and that's when I started my company, it was like getting hit by bombs as I tried to start my business. But it turned into the best thing I ever did because people turned to me to help do their workouts for them all over the country. But what's going to happen, that's when the RTC came back. And I think there's going to have to be a government intervention like that, because there's just there's a one point seven trillion dollars worth

of loans coming in between now and Josh's date. That is a ton and I'll call it a shit ton of problems that are heading our way. That's a lot of money. And now we have the Fed that jumped ahead of the commercial real estate people by drawing, they drew on a trillion dollars ahead of us. And now the government's going to come back and force the banks to put in 10 or 20% more reserves against their losses. All that says is we're shutting down the whole pipeline of how we save this stuff. So the question is, will they let you survive to 25? Or are you going to be put in a grave and told to just see you later? We're just going to take that. And the people that sell first and liquidate early lenders are the ones

that get the most money. The people that get creamed are the ones that say, well, it's going to come back in a year. Those guys usually get hit worse than the guys that go out early. So I think you're going to see a lot of banks aggressively try and liquidate as fast as they can their bad loans, which they're going to have a ton of. And so surviving the 25, let's say who? The developers? No, they're going to die. Lots of them. The banks? The guys that go early may have a chance. The guys that wait are going to just get rolled. So there's a timing effect as to who gets hit and who owns the building. Most of the developer equity is gone in a lot of the office product as we see it today.

So I think it's a place where you don't want to actually invest money for a while because, as I said, we're in the second inning of a game which has nine innings. So we're at the beginning and I think we're going to see a lot more pain. So let's clarify that because I think it's an important point. The reserves for losses, that takes out money from lending elsewhere. So there's quantitative easing. That's when you and I met back around the last recession, which was where rates went to zero. There's like easy money. And then the opposite of that is quantitative tightening. Right. Right. So when that happens, the Fed borrowing lessons, borrowing by others. So that is a huge trickle down. Right. Absolutely. Can you talk me through that? The background goes back to what I kind of mentioned earlier is the federal government has basically emptied their reserve coffers while we were debating the debt ceiling.

We had almost hit the debt ceiling. So they were taking all the cash reserves that they had on the Hill and they were paying them out slowly so that they didn't hit that debt limit. Once the bill got signed, our reserves were at the lowest level for years, as I was saying before. And so what's happening now is the Fed's got to go into the market and borrow about a trillion dollars to restock those coffers. Well, they're the preferred borrower by most people in the world because their credit's going to be the highest, especially internally or in the rest of the world. And so they're going out for the trillion ahead of real estate people and ahead of corporations and

software companies and any other public companies are looking to raise debt. And what's scared everybody is they're saying that they're going out now. So you're going to see quantitative tightening now. It's happened. It's happening right now. And when they go into the market, you're going to see the feds pay a little over 6% for their money. That says that if I'm lending to a regular corporation, you're probably in the 9 to 10 zone. And if you're a real estate company that's impaired or having issues, you're looking at 12 to 14%. These are companies that were built on 3% payments for their debt. So you're looking, in some cases, at four times the amount of payment, and they just can't do it.

So that's why you're seeing companies like Brookfield, Vernado, Boston Properties, throwing their properties. Even Goldman Sachs has had to take big reserves just in the last couple of weeks against real estate losses. They're all saying we can't handle this and it's only gonna get worse. So why are we continually to pay when we can walk away from this? So they're starting to walk away from this stuff and that's where the issue is gonna get worse. So why are we continually to pay when we can walk away from this? So they're starting

to walk away from this stuff. And that's where the issue is going to get worse. How does it get worse? The lenders end up having to try and sell these properties at bargain basement prices, which devalues all the other properties that's out here. This is just, you know, if a property up the street has to be auctioned, the one three blocks away that's half empty, whatever you think it's worth, they're going to use that auction as the valuation criteria against the one up the street. Now, they'll look at the percentage least, but they're also looking at what it costs and then that operating income side. Now, Also looking at what it costs and then that operating income side.

Now, what I was also saying, well, $1.7 trillion being replaced in three years of debt, that's all cheap debt going to expensive debt. That's just a mountain of money that we're talking about. So I just think until this stabilizes and we get stabilized by finding uses of the property, and I'm not really sure that housing is the overall solution. But I do have a group of people that I represent that are changing the world relative to acquisition. And I'll bring it in and I'll just make it simple. Not-for-profit institutions, universities, associations that have raised tremendous amounts of capital within their 501c3 umbrella are tax exempt.

Those people have raised a lot of money. Now, two things for them that nobody else has seen recently. One is they have cash to buy the impaired properties and utilize for their own use. Example, I just brought the University of Southern California into Washington, DC, where they bought an impaired property at a discount from the lender to start a new campus. They had the money to just pay for it because they're looking at it as a business investment

and they're looking at it for future growth of their company, but they had the capital to do the deal. On top of that, they're exempt from real estate taxes on the property, which saved them tens of millions of dollars going forward. Those are smart buys by not-for-profits. Those guys have the money. Now, the third piece to that is if they borrow money and they're a 501c3, they get to borrow at a tax-exempt rate because you can actually get taxes and bonds issued. Those guys pay typically 30%, 40% less than what is current market rate interest.

So if it's at 9%, they may be able to borrow at 4% or 5% depending on the quality of the paper. That hasn't been relevant because prior to a year ago, interest rates were so low, it wasn't necessary to do tax exempt issuances because you weren't saving any money. Now they're back. That's a whole market that nobody's paying attention to right now that is starting to escalate. And I have a lot of not-for-profits now that are running around the country looking to buy things because they have two advantages, property tax exemption, and they can borrow money at a tax exempt interest rate, which are going to be phenomenal

for these not-for-profits. Hold on to your wallets. Money Rehab will be right back. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I

got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bank Corp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft

limits apply. Boosts are available to eligible Chime members enrolled in Spot me and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. And now for some more money rehab. How bad are we talking about here? Like, is this a 2008 situation, but instead of residential real estate, we're talking commercial real estate? Let's talk commercial wood first, okay? I think it's like 1990, which is a very long time ago for you. You'll have to look it up because you probably didn't live through it, but that- No, I did. I was six.

Yeah, there you go. So the resolution trust and how the government dealt with it. But remember something. When you look at the overall economy, commercial real estate is a hard asset. And the overall financial aspect of this country has grown exponentially on less than hard assets of real estate. So real estate is a smaller proportion share of the overall economy as we see it today. Well, that sector will go down and we'll take potentially some of the banking sector with it, but I don't think it's anywhere near big enough to collapse the entire system. So it's going to be isolated because it's a lot smaller than the hole that we have. But it is going to be painful for people to borrow money.

And it's going to cause us some concern for people that are debt driven, where they have to have money from loans to see their business. Now, residential is a whole different world. Residential is kind of the best part of the world here. It's kind of interesting. When you invest in residential real estate, I'm talking buying a townhouse, buying a condominium, buying a single family house. As a consumer like yourself or like me, it's one of the few investments where you can borrow money that has a federal government backed security that lessens your interest rate. So when people

talk about mortgages, and mortgages now say are 6%, let's just say for a moment, commercial loans are more than that. So the advantage goes to small borrowers if you can get a traditional loan, because you're getting a federally backed loan, and you're just an individual, where if you're a business, that's a whole different story. You're not going to get that type of money. So if you want to invest money in real estate, single family houses are still, I think, the best, best investment for people that want to get into the real estate market. And because interest rates are moving so high, people that have to sell because they can't

afford to hang on, they have a loan coming due and they can't afford to hang on. They have a loan coming due and they can't afford to refinance. Those are the opportunities you're going to pay. You're going to pay a little more cash, but the price will go down and you'll get a good return for people wanting that. There'll be renters. There's going to be a lot more renters entering the market than owners going forward. So that's a good thing. Yeah. I mean, look, it's a whole different ball of wax, but I'm glad it's not as doomsday as 08, even though you are saying it is pretty doomsday. You kind of glossed over the fact that with all of the Meshuggah's commercial real estate, it will take regional banks with it. So talk to me about that. Like we saw SBB, obviously we saw First Republic. Do you think

there's more pain to come? There's a lot. There there's a lot more yeah i i think you'll lose half the banks that are usually regional or smaller the local community banks and i think the loans half like half of all of them half of all of them no joke half of all of them i think they're going to end up being merged up and repackaged but i think if they they're not going to be able to get rid of their and repackage. But I think they're not going to be able to get rid of the debt that they're going to be required to deal with. And their reserves just won't be there. And people on the equity side won't invest money in them. If you recall, I mean, when those banks failed, remember, the depositors got their money back, but the people that invested in the banks got nothing. So I think people are looking very carefully at what smaller banks, community

and regionals, what reserves they have, how exposed they are in this commercial real estate market. And I'm telling you, most of them are sitting on a pile of commercial real estate loans, a pile of them. So that's part of an issue that we're going to have to deal with. But the bigger banks, even the Fed, when we saw the failures recently, there was a host of four or five of the large banks that banded together to say that they would pick up and deal with the banks that had gone down. And I think you're going to see the Fed pushing the larger banks to try and help the smaller banks to stay in business by taking some of the loans off their books. But they're going to have to get paid for it. And I think the feds are going to have to work out a deal where they're going to have to provide some of that equity to those banks to help them buy those loans down.

So I think that's what you're going to see. And that's what happened in 1990. So would you go as far as saying, don't put your money in regional banks? Yeah, I wouldn't buy their stocks. I think every day you wake up looking to see who's going to go next. There's been a calm before the storm right now. Ever since the first wave came in, it's been kind of quiet. But I think as we head towards the middle of summer, you're going

to see a lot more defaults on commercial real estate loans by developers. And I think the lenders are going to start taking inventory at a rate that they just it's just going to be the floodgates. I said, I think that everybody's already fallen off the cliff. They just haven't hit the they just haven't hit the ground yet. I think we're just we're in suspended animation for the moment. But there's a ton of buildings going down and the banks are going to go with them. And then how does that hurt the individual investor? Well, if you own shares in the banks, you're done. You're not going to get your money back.

Individual investors, people that were living off the commercial real estate business are going to have to find new jobs. I think there's way too many commercial office brokers. I think you're looking at providing services to office buildings, engineering services, oversight, service cleaning, all those people are going to take a hit. And then we're going to have to figure out what to do with the properties. I was just going to say, there's a lot of buildings in a lot of places. That's a lot of space. What happens to that? We're going to have to come up with some ideas. You know, we're still cycling through dealing with regional malls and turning into housing

communities, rezoning and planning. I think the zoning areas are going to have to be a little more forgiving. In other words, what was zoned office, if somebody wants to do residential or reconvert it, they're going to have to allow them. So I think in the municipalities, you know, this is another piece that you got to look at. If all these buildings go down, the property taxes are based on valuation to these cities that help pay for roads, schools, running of the cities. That number is going to start to fall very quickly as well. And so a lot of the major cities are going to have a hard time paying their bills for services of these cities because the values are going to diminish, say, by 50 percent across the board. The only thing that's holding them up is

the residential world is not falling. So it's slightly just backtracking. They're healthy adjustments, 15, 20% in value. That's good. And those will come back. And the supply of housing over the last five years has been a shortage. So it wasn't overbuilt. And there's a whole new investment category is there are now single family rental communities. And those are being owned by Blackstone and others that are Brookfield that are buying them as communities, as investments, because they look at people renting houses as a good thing. Remember, there's the advantage of renting versus owning. is owning for a lot of people, the depreciation, the tax deductions afforded to a rental community, the owners gets passed on to the renter. There are some interest expense and other property taxes can be deducted by the owned properties, but there's much more value to be given to the renters by the owners in a rental community. So I think we're good on the residential side. And I think people with money can make money in it. The commercial real estate sector, both the office

and some impaired retail areas, I just think you need to take a step back and watch it and not get involved. I think if you're not in it, you're a lucky person. What do you think about what Elon Musk is doing in San Francisco and just not paying rent. Yeah, nice guy, not paying rent. Wow, that's completely nuts. I mean, come on. He has a contract. They signed a lease. They should pay the rent.

There is absolutely no reason why he can justify not paying rent. As a negotiation tactic? That could be. But at the end of the day, there's a potential that if he doesn't fulfill his contract, that he's going to be liable. If he gets lost, the building gets lost to the lender, the developers are going to have a claim against Elon Musk for putting him in that position. I don't think he gets out of this unscathed. I think this is a dangerous thing that he's done because if he gets away with it, just think about this. Everybody could say,

I'm just not going to pay rent. That's a bad you have a contract you gotta you gotta abide by if you want to renegotiate it renegotiate it but uh to hold back payment is a bad idea because these deals are credit deals his deal was a credit deal um it was you know it was done pre him acquiring the company but the prior group uh signed onto as a corporate obligation that gets transferred. That money's owed. So unless he bankrupts his entire company, unless he bankrupts Ditter and takes it into Chapter 11, you can't shed the lease. He's got to comply. And by the way, he's not going to find anybody to sublease his space. That's the problem. There's nobody to offload this. Again, I started my business in

the middle of this train wreck in 1990, and it took five, six years to get out of it. So I think Josh is right. Survive to 2025, but I don't know who's surviving. I just don't. There are categories of people in this mess. And yes, some will, but the developers, no way. They just don't have enough equity to survive to 25. They're just not. They have nothing to contribute to the future running of the property. But you will. Oh, I love it. They call me to figure out how to undo these messes.

They're a lot of fun. Oh, no, I love it. It's my favorite part of the business. It's how I started. And it's crazy that as I reach the twilight aspect of my career, although I'm going nowhere, it's fun to see it again. I'm excited. I just think it's going to be amazing.

I think there's going to be a lot of money made if you know what you're doing. The problem is for 30, 40 years, nobody was schooled on how to deal with pragmatic real estate problems as they occurred. The business was a finance deal. It was money in, money out, trade properties, trade interest, trade this and that. This is where you have to dig in on the actual real estate and figure out what's good, what's bad. How do we do each property one at a time? And there's not a lot of people around left in the United States that know how

to do this. This is not a corporate issue. This is a localized, what do we do to save this property? And so I love this part of it. It's my favorite. It's your moment. Yeah, it is. It's your big moment. You've been working your whole life for this moment. Yeah. It's a redo. When I first started, I didn't have the money to do this. Now I have the money to do this. So it's good. It's all good. I get to see it again. We end all episodes by giving listeners a tip they can take straight to the bank. What's one piece of advice to people who have a the lease, there are tremendous amounts of concessions you can get from the developer slash lender because the lender's got to agree to it. You can lower your rent, tenant improvement dollars. You can get free rent.

There's a lot of things you can get. But you've got to make sure you get them because if the people you're negotiating with aren't around, they're going to leave you and say, we're not going to give that to you the way you negotiated. So I think it's just really important for people to understand that you got tremendous leverage. But part two, and my partner just asked me today, like, let's just move and get all this money for moving into this space. If you can move into space that is built where you don't have to spend a lot of money to move into, then it works. The problem is a lot of this space is not meant to be moved into. And the cost now to build it out for your use has tripled over the last six years. So whatever money you're going to get, you're going to end up giving it to a construction company on the rebuild. It doesn't work unless you find space you can

actually move into. So two lessons was make sure the people that you negotiate with guarantee you that payment of what it is to extend your cash flow. And number two is make sure you understand if you're going to move, it's going to cost you a lot of money to move. That could be the safe, by the way, that could be the saving grace is some of these deals and buildings, because people can't relocate without spending a lot of money. Right. So you're all about being aggressive. No, I don't understand. Impossible. You wrote the book on it, the best book that hasn't been published, but I get to get an insight into it. So that's awesome. Thank you. So it sounds like be aggressive if you're in a commercial deal. Don't go to the point of the Elon Musk no return situation, but be aggressive in the

negotiation the right way. Don't just go off and not pay rent. But what are the things you should be asking for? Well, one of the things is a lot of these lenders and owners don't have cash. So to ask for cash for extending your lease or providing more term or paying rent. So you've got two elements. The best thing is free rent. They could do free rent because that's just a rent holiday in the future. So if you sign on for three years, they give you six months more free rent and you spread it. Then you don't have to worry about getting paid. They don't worry about

having to give you the money because they're just not getting in rent. Or I'm doing a deal now where the free rent is extended over six years. I think we're paying 37 and a half or 40 percent of the rent for that long term. That's wild because if you understand, that means you're paying half price for five years on a 10 year deal or eight year deal. So that's where you're going to go. Because there is no cash. And then you have to make sure the other side, the lender agrees that you can do that because you don't want them to reject your lease and create a problem to ask you to leave your space because then you're going to end up paying money to have it redone. So you can be conservatively aggressive, be smart, you know, don't go too far. As you said, you got to be able to collect what you bargain for. So that's the key. And use a professional people to do it,

because a lot of people think they have it and then they don't have it when they they wake up. So that's the key. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in

yourself, which is the most important investment you can make.