How New Technologies are Putting Real Estate At Risk
Institutional Real Estate Inc. Real Assets Adviser Podcast
Technology as a Wrecking Ball for Commercial Real Estate
Shlomo Chopp says technology is acting as a wrecking ball for commercial real estate. Consider how e-commerce killed retail's old model; how remote work has made office space optional; and how even industrial properties and data centers could face rapid obsolescence through tech innovation. Chopp is managing partner at CASE, which specializes in restructuring distressed commercial real estate debt. He has more than 20 years of experience in commercial real estate, including in proptech innovation, along the way building a reputation as a realist in an industry often blinded by optimism. (04/2026)
Buildings as "Cup Holders"
Chopp argues that real estate is fundamentally just a container — a "cup holder" for whatever economic activity happens inside it. The long-term viability of even supposedly safe asset classes like data centers is threatened by rapidly evolving chip technology, power demands, and cooling requirements. Properties carrying 39-year depreciation schedules, he warns, will likely fail to remain economically viable without significant and ongoing capital reinvestment that most operators are neglecting.
Space-Based Data and Connectivity
The conversation contrasted traditional Earth-bound data centers with space-based satellite networks like Elon Musk's Starlink and Jeff Bezos's Blue Origin. These aerospace innovations demonstrate that data storage and transmission do not inherently require a physical building, underscoring how quickly real estate can lose its core utility. Chopp cautioned that real estate professionals too often assume the physical property is the ultimate necessity, when in reality it is just a temporary shelter for the activity it houses.
Retail Disruption Reframed
Pushing back against the common narrative that the US was inherently "over-retailed," Chopp pointed out that gross retail sales and consumer spending have continuously grown. The disruption, he argued, occurred not because there was too much retail, but because the internet introduced a competing fulfillment channel. Automation technologies like Autostore are now forcing physical stores to drastically reconfigure their footprints — a trend Chopp connected to his own patent work and Amazon's deployment of automated retrieval systems in its new-format stores.
Structural Lending Risks
A central theme of the discussion was the dangerous mismatch between the short-term technological commitments of modern tenants and the long-term liabilities taken on by property owners and their lenders. High-leverage CMBS loans at 70–75% LTV with minimal amortization are frequently issued to borrowers who lack the sophistication to strategically reinvest in their assets over time. Chopp warned that lenders need to arbitrarily reduce leverage proceeds — not just to account for falling values, but to ensure they retain enough capital to rescue and reposition properties upon borrower default.
AI and Enterprise Data Risks
Chopp closed with a warning that extends beyond real estate: businesses using consumer-grade AI platforms without enterprise-level data protection are exposing themselves to serious legal and operational risk. He cited a recent court ruling in which a judge determined that business data shared with open AI models was no longer protected by attorney-client privilege during legal discovery. It is a stark example, he noted, of the kind of third- and fourth-degree technological risk that investors and operators are failing to price into their decisions.
TRANSCRIPT:
[Narrator] The following podcast is a production of Institutional Real Estate Incorporated. For the most comprehensive industry news and information, visit our website at irei.com and sign up for our free daily news alerts.
[Mike] Welcome to the program. This is Mike Consol, your host. Several months ago, it was reported that Blackstone, the private equity giant, was reviewing its portfolios to assess AI risk. In other words, it wanted to know how artificial intelligence might be diminishing or putting at risk its investments in various asset classes, especially given that AI is applicable to virtually any line of business. Now, this is but one of many examples of how breakthrough technologies can and have damaged industries. You know, one famous example from quite a number of years ago now is the way digital technology and digital cameras wiped out the photographic film business, or I should say all but wiped it out, including its biggest players, Kodak and Fujifilm. Now, with new technologies promising to come to market faster and more numerously than ever, uh, in part because of AI, entire industries and asset classes are at risk. Now, to discuss this situation with me is a repeat guest, Shlomo Chop. He is managing partner at Case, a specialist in restructuring distressed commercial real estate debt and assets across the capital stack. He has more than 20 years of experience in commercial real estate, including prop tech innovation, distressed workouts dating back to the global financial crisis, and hands-on experience with troubled properties. Uh, he has built a reputation as a clear-eyed realist in an industry often blinded by optimism. He says technology acts as a wrecking ball for the real estate business and other industries. Consider how e-commerce killed retail's old model, how remote work has made office space optional, and even how industrial properties and data centers, two of the hottest property types out there, face rapid obsolescence via power and chip evolution. Shlomo Chop, welcome to the program.
[Shlomo] Thanks, Mike. I appreciate you having me.
[Mike] Let's start with that shocking assertion that industrial space and data centers face obsolescence because of uh the power and chip evolution or revolution. Now, chips, I know, get faster and, you know, uh have more capacity. When you mention power, are you talking about the energy business or are you talking about a different type of power here?
[Shlomo] I think there's how much power a chip may pull, right? I mean, that's power capacity.
[Mike] Well, power with regard to the chips, the power of the chips themselves.
[Shlomo] Yeah, I mean, how much power do you need to power some of these chips? What types of power could you even use? I mean, there's and, you know, there's always an answer for each of these individual items, but when you start tacking a, I don't know, budget to it, you sort of wonder if the, you know, if it's a tail wagging a dog when it comes to the real estate, right? Does the real estate even matter? I mean, there's been some, I mean, not to go down rabbit holes just 10 seconds in, but, you know, there's some, there was some news recently that I saw online somewhere that um, you know, some of the meta data centers are leases with, you know, buyout provisions and and it's just like just there's so many different data points you hear on an ongoing basis. For example, Google, Google having a new compression algorithm relative to some of their chips, um, that makes you question like the things that we're building that officially have a 39-year depreciation schedule, are they even going to last anything close to that? And if it's just another box, then what is it moving forward? And you could argue, for example, that the cooling that you have by the presence of water and that water is a difficult commodity to make available as it affects the communities around the data center, and all these other, you know, yes, we can add power from other sources, maybe some personal say we could maybe bring more nuclear online, but at a certain point it becomes what are we solving for? The property? And the answer is no. The property is actually solving for the data, right? And that's and that's the premise of of of like
[Mike] What do you mean by that? The property is solving for the data?
[Shlomo] So, you know, in real estate, we tend to sometimes fall into the trap that, you know, people need to live somewhere. So therefore, the real estate is the most important thing. No, it's not true. The comfort of the individual is the most important thing, and the best way to for a person to actually live properly is to have his body temperature at the right at the right setting, if you will, and to have a comfortable place to sit down, but it doesn't mean that it has to be in a building. It just happens to be that a building is the way to find shelter, right? So, yeah, so until someone comes up with a better method, it's going to be a building, right? It's the same thing with data centers, right? The data center isn't holding the data. The data needs a place to go. The data center is holding the data, not that the data needs the building, so to speak, right? So if the data...
[Mike] The data is on the servers, right? And the servers are in the building. But if you took the building away, uh you would have, you'd still have the data there. Of course, it would it would be exposed, it would not be safe.
[Shlomo] Exactly. Yeah. It listen, look at Starlink. Where's his data, right? I mean, there's even there's um apparently Bezos, I think may have been quoted. I'm not sure who it is, that um he wants to build data farms in space, right? I mean, there's there's there's
[Mike] So Starlink, Starlink is Elon Musk, but Bezos is building a uh competitive so he's going to compete and put up a bunch of satellites. So it could have been Bezos or or Musk, but the the point is both of these guys are doing industrial scale uh uh space work and data work. Uh it's it's pretty phenomenal. Anyway, I interrupted you. Go ahead, Shlomo.
[Shlomo] No, no, and and that's I mean, the the point, the point about Starlink is that if you go on a flight that has Starlink and compare it to the other internet options that are out there, even yours at home, the speed is is insane. It's it's absolutely quick, right? And when you deal with, you know, even thinking about Bezos putting data centers up in space, those are two examples of things that typically were tackled on Earth in real estate.
[Mike] So so would would Starlink with internet with internet services to the planet, because it it could cover the planet. It does cover the planet. So if they did, if he did do that, uh and I don't know what his long-term plans are, but if he was to do that, then all these other service providers who don't run at incredible speeds, frankly, um, but can can you actually run at that kind of speed when the signal is coming when when the feed is going to and from space?
[Shlomo] I honestly, I've been on flights that have had Starlink and it's been as good or better than files at home. And and I could tell you that I was just, you know, I went away with the family and we went to a we rented a house and the internet was not reliable and I was this close to going to the Best Buy and buying a Starlink set because I had to work. And it's just the the point I'm making is that real estate sometimes falls into the trap of believing that the real estate is the be all end all when in reality, real estate is only a product of what it contains, okay? And so long as it's valuable to the end to the tenant and to the end user, it has a use. But the second it's not valuable, for example, a tenant decides that, hey, my employees could work from home. Well, we saw what happened, right? Whether or not they could work from home or not, but the office became obsolete before it came back, right? And the same thing is with regards to retail. Like there's a lot of retailers.
[Mike] Let me hold you up there. Let me hold you up right there because I we we'll get to that in a minute, but I want to follow the scenario. You remember the cable TV business created tremendous amounts of wealth and was very dominant. Then comes Wi-Fi and streaming. And so now the cable TV business is basically where they're making they're losing subscribers like crazy, and where they're making their money is by charging maybe 100 bucks a month or more for Wi-Fi access, uh providing Wi-Fi. Uh and now that's under threat from Starlink and whatever Bezos, I forget the name of Bezos's Jeff Bezos is is like I said, building a competitive system. I don't recall what the name is, but that's just two guys right there and it there's bound to be more coming along. So basically streaming, Wi-Fi knocks down cable, streaming, Wi-Fi might get knocked down by space-based uh data server internet access and data services and so on. I mean, to your point, how new technology comes along, knocks down cable. New technology comes along, knocks down the one that just knocked down cable, um and so on....
[Shlomo] Yeah. And and you see the challenge over here is and and Bezos's company is Blue Origin, but the the the challenge over here is that let let me dig deeper for a second. I want to go back to my comment of depreciation, okay? I can't begin to tell you how many people I know who have told me they've invested in commercial real estate for the depreciation, okay? And if you're a large institution that's doing that and you somehow need that for your, I don't know, fancy convoluted books that's overseen by six accounting firms, I get it. But if you're a guy that earns, I don't know, let's say you're very wealthy, you make 5 million a year clean and you need some and you need some write offs, right? And aside from the fact that depreciation is somewhat kicking the can because if you want your investment to do well, you're going to recapture that depreciation at the end of the day or whatever, we could not can go down tax law right now and 1031s how that impacts. But let's say you're going and investing for purposes of depreciation. Depreciation is there for a reason. It's not because the IRS badly wants to give real estate people a reduction. It's because the IRS surmises that a building will require reinvestment into it and therefore the building you acquired will go down in value over time, right? And if you're not reinvesting into that building and instead you're taking it as a loss, then frankly, you might be hurting your building. And that's why we see, at least on 10-year loans, just to go in a totally different direction, but nonetheless it's important here. If you if I take a 10-year loan from a lender and the property goes down in value or stays static in value, it treads water, at the end of that 10 years, I likely have a huge capital bill because, oh, that chiller that needed a replacement that we've been patching for a while, it just can't be patched anymore or they don't make the coolant for it anymore and all of a sudden I need to go and buy a new one. We end up therefore where real estate operators take losses, the further actual expense and hope at the end of the day that the value of that property will go up over time and therefore will be able to cover the cost of improving the asset with that additional value. When in fact, now when we see downturns such as what we're going through right now, every lender that's taking back a property, every is a broad term, but for the most part, any lender taking back a property will find themselves having an impact from capital capital work that was not done because people are taking that depreciation. So going back to the depreciation schedule over a period of 39 years or whatever it is, you know have to ask yourself the question, will your building's commercial viability even last that long, right? So historically it was like, yeah, if I build a building, then it could be around for 100 years because bricks, you know, stick around for a very long time. You have more than 100 years, right? We got really old buildings here in New York. But the building is no longer about the bricks. It's about economic viability. And, you know, yesterday was a crypto companies were taking leases and today it's AI companies taking leases and no one's saying that crypto is going anywhere, no one's saying that AI is going anywhere. But it doesn't mean their space requirements in real estate is going to stay the same and data centers is the absolute best example of this because no one because the AI itself is is so in close proximity to the actual business um to AI itself is so close proximity to the actual business of the data center that it's very much tied to technological innovation. So if the AI business changes and the chips involved in the AI business changes, then your building capacity may change. Your building's capability to maintain whatever capacity you have right now may change with the technology as well. Or you may need new buildings or new locations to be able to change for the tenant that you have in place. And that's why I think that when it comes to commercial real estate, we have to view it through a very different lens. Perhaps not residential for now because there hasn't been that much innovation to how we live. Maybe we don't live in pods anymore, right? any maybe yet, maybe we don't live in pods yet. But when it comes to things such as office, such as retail, such as data centers for sure, which is the latest darling, I think there's a lot of exposure to to technological innovations that people are ignoring and they're not pricing the property is the same. I don't care what institution is doing or what reassessment of whatever they have. It's a whole lot of talk that is meant to placate analysts as far as I'm concerned.
[Mike] Yeah, and and uh and it's happening faster than ever. You mentioned e-commerce and brick and mortar retail. You know, e-commerce comes along, vastly overbuilt built retail sector, correct? I mean, the the amount of prop retail properties we had was I think beyond any country anywhere in the world. It was just we were just over retailed. Um, e-commerce kind of right-sized that industry by wiping a lot of it out. And um, forced brick and mortar retail to reduce its footprint for one, and secondly, they they've gone Omni channel. They they've gone to e-commerce and they've gone to their brick and mortar. Uh, but it's a different game now. Uh talk about that a little bit, the whole e-commerce brick and mortar retail uh scenario. Which which by the way, as you know, Shlomo, that to retail today, a lot of people are saying it's a good investment today because because so much of the retail space has been has been taken off the market has just been raised....
[Shlomo] I'm going to totally disagree with your thesis before. I don't think we were over retailed. And my proof is very simple. Have retail, have gross retail sales for the US for the USA gone down? No, they've grown. Um, have the amounts of product we bought, the consumption of the US populace gone down? No, it's grown. So if at any point in time there was sufficient sales to justify all that retail that we had and people were making money in the stores, right? Which they were for the most. Then it's not a question of whether we were over retailed. It's a question of whether we had any competing place for product to be sold and the answer is no. But the second we we got over retailed for one very simple reason because there's another place from which you could buy your product, the internet, right? So the reason we were more per capita, more square foot per capita than anywhere else in the world, really tells only a partial story as far as I'm concerned. And I don't have statistics to back it up like this, but I'll throw some really, really important questions. Number one, do we really know the rest of the world is not under retailed? Do we really know that the rest of the world is as modern as we are to have the levels of consumption that we have? Um, does the savings of the rest of the world equate with the savings of the people in the US? I mean, these are good questions and I don't really know all the answers to, but I could guarantee you that I could ask more questions than someone could come up with answers to the point where they get frustrated about it. Because the answer is is that we have a different society than any other society, just like every other society is very different than ours, right? If you it's you know, if you go to a foreign country and you are anyone of note, you're going to certainly find out how to deal with people in that country so that you don't, you know, have a faux pa where you offend somebody, right? And that's because we are different than they are. It's just our method. So frankly, I would argue and say that e-commerce still being generally unprofitable as a rule. There are some that are profitable, right? If I'm selling Tiffany's online, it's very profitable because yes, I'm spending a little more on shipping, but that's great, right? But there's other products that are just not profitable and I haven't checked, I haven't dug in on Amazon in a while, but I I don't think that they're investing in, you know, retail because the e-commerce is killing it from a profitability perspective, right? The reality is that they're always looking to find extra extra couple dollars for the bottom line. And frankly, I could tell you like I'm sitting in a position where most other people are not sitting, right? I'm seeing things properties that are under stress. I've I'm deep dive, I have a deep dive in on on retail and e-commerce based on my patents and and what I've been working on. Um, I'm very familiar with technology. I started out my career in technology, in prop tech, okay? I my father, my father is a programmer, so I grew up, you know, reading PC magazine, so to speak, right? And I'm not comfortable just sitting around and collecting coupons from my the vast multi-billion dollar portfolio because the reality is that I'm somewhat self-built, right? And I'm always building and I'm growing my company. So I'm I have to pay attention. When an investor asks me a question, I can't give a canned line because I have a bunch of, you know, third-party, you know, money aggregators that are raising money for my funds either way and really I don't have to be that accountable when it comes to question and answer. I could actually and and instead run a fund that straddles the market's ups and downs, but rather I actually have to give a really good answer to an investor when they have a specific question about a specific tenant at a specific property, right? So I'm pretty close to what's going on and I can tell you straight out that there are no really open and shut answers because if there was, there'd be an algorithm for it and we just sit back and watch. But the reality is that we don't have an efficient market. The efficient market theory has been debunked many times and the reason people make money is because people come up with original innovations. And I could tell you straight out right now that I don't buy I don't buy the real estate business as it's formed today. I think it has to change and I think if it doesn't change, it's going to be a slow burn. And if it changes, it's going to be a very quick burn it all down, but it'll get fixed. And no one's ever in the mood of really fixing anything because the people that are in a position to be able to fix it, don't want to fix it. So that's the unfortunate reality of the situation and I know this will get a few people, you know, hey, you're wrong and here's why. That's fine, but I'm pretty certain....
[Mike] Well, how does it need to change?
[Shlomo] I think physical property has to be um the the ownership and investment in physical property has to be very much contingent on your tendency mix within the building and the aggregate tendency mix in the market, right? So for example, when people are all excited that they could lease square footage now to AI companies because they're rapidly expanding, they all have to make one simple bet that this guy's around for the term of the lease. And that's great. That's a micro bet, okay? But that's not a long-term bet because if they vacate in 10 years from now, I know you're good for the next 10 years, but you do have a maturity coming up at that point. Oh, but don't worry, we have all these other tenants that are going to roll at some point in between that we'll replenish and it's not going to be that big of an impact. You're right. You're 100% right. You're managing crisis to crisis, for sure. But fundamentally, fundamentally, you're putting a coupon, a long-term bond on a very unstable industry. Now, you may say that your tenant mix, if you have enough tenants in a building, then you're somewhat, you know, I guess, you know, you've diversified between various types of tenants and various types of companies and that's a fair comment to make and you could say, listen, you know, life is controlled chaos. And I always use the example the arons at the edge of planes. If you look at, you know, the window, if you ever like in economy as a real estate guy, and you look out the window at the edge of the plane, you see I think they're called the arons and they're going up and down and up and down and up and down. They're not standing still because life is full of chaos. You have to you have to react in real time. That's great. But let's be real and this is the this is the key point. If there's anything I've said so far that I'm making a bunch of people hold their nose and get upset about it, great. I agree. I'm overreacting. But here's where I'm not overreacting. 70% LTV, 1.25 coverage ratio. If you looked at it as corporate bonds, we're looking at a 2X coverage or if you're looking at it at at at at somewhat of a lower leverage, right? Or maybe even a higher yield than you're giving in the market. But we're looking about bonds, CMBS bonds going out six and a half, 7% returns. We're looking at 75% LTV, we're looking at IOs, a little bit no IO, no amortization, right? We're looking at situations where you're giving it to borrowers that don't have the capability to operate sophisticated properties. They're not out, they're not proges, they're not blackstone. They're not they're not able to put together a committee to figure out what they're going to do in five years from now, how they're going to improve their assets. Let's let's let me commend Proges as an example, okay? And yes, I know the guys behind some of this, so at the end of the day like it's a compliment to him. But at the end of the day, Proges in the teeth of the frothiest industrial market that's been around for years, what they've been doing is investing in companies to be able to help um add value to their properties by let's say a charging company, right? They'd invest in a charging company to help build them up to put them at the properties. They basically improve their properties to be more functioning like businesses than they are just as, you know, just, hey, I got a space, lease the space 10 years, talk to you in 10 years, have a good day. Know your tenants, understand how to improve their operations so that they actually succeed and they grow, they outpace hopefully inflation so you can make real money. So that when it comes 10 years from now, you could actually go and retenant it at a decent number. So anyone that has an issue with what it is that I'm saying, they're valid until you hit upon the levels of leverage, the low return and the level of risk and underwriting that's that's in place and that's when the whole problem with what I'm saying just falls right apart....
[Mike] So to the person who says, hey, look, they're always going to need a built environment to house people or things, you wouldn't argue that. What you're saying is uh it's it's going to be it's constantly shape shifting and it's going to shape shift uh even more uh with these new technologies that are that are coming to bear. And we're actually looking at real estate falsely in a way, you're saying that we're not we we think it's about the real estate when it's not.
[Shlomo] Yeah, real real estate is, you know, real estate's a cup holder. That's really what it is, right? You're holding something in it. It's your hot coffee, right? That's that's what's in there. That's the thing that you really have the cup holder for. Otherwise, why you need a hole in the middle of my console?
[Mike] Um, what about uh a couple of the big technologies that are rolling out uh now? Well, automation's been around a long time. It's going to a higher and higher level and robotics are coming along, humanoid robots and so on, um are making uh some real quantum leaps. Uh does automation robotics uh how does that uh uh come to bear in in the real estate uh uh, you know, realm? Do you see them as uh kind of changing the game as well? I mean, but with the built environment that hey, the actual real estate is going to change because of these technologies.
[Shlomo] Yeah, I think I think 100% it's changing. Maybe not in a negative way, but it changes things. Like you just you just alluded it to it before. If I have a building and I innovate within that building, I may have to adjust it, right? So for example, if I am a grocer, let's let's take the most simplest thing. If I'm a grocer and I have a huge refrigeration there, I have huge refrigeration, right? And I want to add a whole new line of products that's come to the US, but I need more refrigeration. So I need to expand the building in back, right? Or I got to take some shopping space and get rid of it because I need to expand my refrigeration. It's the same type of thing. Let's take robotics. Some of the robotics have been around forever. It's called ASRS system, automatic, whatever retrieval system. And these were these were in some cases like five stories tall of racking that had this robotic um mechanical system that would pull out a pallet and bring it down to the bottom, right? And they'd have this tall racking. Why? Because, hey, the in height, obviously it costs money to build high, but when you're dealing with something such as a ASRS system, it doesn't have to be like a big office building that every floor is, you know, fully air conditioning or fully insulated or whatever it is, depending on what you're storing there and it doesn't have to be built to as high a standard. But if youre in a warehouse and you build very high, so your FAR or your floor area ratio goes up at a higher at a higher level. So that's been forever. Now we have, for example, a system called Autostore. It's been around also forever, not forever, for a long time. And that's actually what Amazon is using, I believe, in their in their store in Orland Park in Illinois where they're basically copying my invention, which is fine, um at this point. Um, but the point is they're actually building in automated uh robotics into a store, right? They they're actually they're the filings in in Illinois actually show a different type of store. They have a drive-through area and the the whole process is changing internally. So yes, can they could they have retrofitted a uh vacant anchor elsewhere potentially, but it does change the configuration. What it also does is it makes the process, or at least that's Amazon's goal, is to make the shopping process more efficient, right? And so yes, automation is helping. About humanoids, I don't know. I I I mean, I could put on my They'll be building the built environment soon. Yeah, I mean I could put on my best VC hat on and imagine that in the future we all live on pods on Mars. I don't know, right? Like I could I could sort of think about how it could impact the future. But I think I think that's something that you sort of it's a it's an unknown unknown if you will. But as far as I'm concerned, just dealing with what we have today, there are more efficient ways to build office buildings than we built 100 years ago. There's more efficient ways to build, you know, warehouses than we built 100 years ago. Just ceiling heights is one place, loading docks is another another place we could look at it. I mean, let's also think about like, you know, Tesla and, you know, charging stations, right? For some of these the Tesla trucks that's coming out now. So there are so many different things and some of these changes are around the edges, but some of these changes really go to the core of the matter and and you sort of have to ask yourself like, do I need every feature that's built into the building now or do I need another feature and how much is it going to cost me to retrofit it versus a knockdown? So these are these are the questions that frankly, like I don't know the answers to these questions and given the fact that we can't plan ahead of time. And this is another key point, key message I want to get across. Given the fact that we can't plan out ahead of time what's going to happen in real time, right? Think about think about AI, chat GPT, the first chat GPT to the latest one, right? Or any or Claude or the fact that apparently Mythos is would obviously corrupt the entire world, you you therefore have to react in real time. To react in real time means you need a modular environment. The building buildings are not modular environments, okay? So therefore we can't finance them as if they'll be around forever. Or can we? Or do we say you equity, you investor, you should finance your equity as if you'll be around forever, but us lenders that are more conservative, we won't do that. We're just going to finance it over a shorter term, right? It's the same thing if you think about Sam Zell's issue with Wework, right? They basically they're taking on short-term commitments and they're taking on long-term liabilities, assigning long-term leases and they're taking short-term commitments from their from their customers. It's the same type of thing, right? Like you're you're doing a 10-year lease with someone at a very high leverage, but the actual the actual economic value of what they have to to pay your loan with is actually from an underwriting perspective, is deficient, right? And you're assuming everything will be okay, it always has been okay, it probably will be okay. Again, I sound like I don't know, Jackie Mason now, but at the end of the day like this is this is something that that I think people are deluding themselves. It will not be okay. You may not have a high level of delinquencies, you may survive a few of these downturns till you don't.
[Mike] Um no pun intended, but things got a little choppy there with uh the feed. Uh but you cut out little bits uh but it's discernable there, Shlomo. Let me point out um when we were talking about Starlink and then Bezos, yes, Blue Origin is his company, but I believe his network that he's going to use is called Terrawave uh that is going to be in you know, in other words, he's he's given it a separate name than Blue Origin because it's going to be doing a variety of things like sending rockets out there. Well, and putting satellites up for the Terrawave network and so on. Um, so let's get to the bottom line here and I know you've already kind of imparted this in in a variety of different bits and pieces across our conversation, Shlomo, but for the real estate investor out there, um, it sounds like what you're saying is they're not assessing risk um adequately. Uh what would you just tell real estate investors in closing that they need to be uh aware of or they need to be doing right now?
[Shlomo] I think telling them what to do, I don't know that there's a really good answer to that right now. I think you what should should they be looking for within their own portfolios or if they're thinking in terms of divesting or acquiring?... [Shlomo] Um, I don't know that there's anything actionable other than being aware that what you think is credit actually isn't and being aware that there are you know, third or fourth degree implications to what's happening in the market. Um, and there's risks that's being taken that, you know, are an issue. I mean, they really are. I mean, just just think about anyone that's using AI for business that doesn't have enterprise protection like for example that co-pilot provides, right? Like if you're giving your data to Claude across your business because it's it's great and you don't want to spend the extra money. Like yeah, you may be okay. You may be okay until you have an issue when it comes to discovery in a court case and the judge rules like the judge ruled recently that you've exposed your data to the internet, so it's really it's not attorney filing privilege. Have a good day, right? And then all of a sudden you're like, oh, I probably should have thought that. The answer is right now, if the market is changing as quickly as it is, okay? Then you need to realize that your investments are not as safe as you think it is. And the only actionable next step I can I can provide is that lenders as the first stop really think hard about the level of leverage that they're providing because they can continue making loans, but leverage becomes an issue. The problem with all that is is I don't think there's a way to really solve this in the proper manner, meaning, meaning, okay, I want to be conservative. What leverage should I give this guy? Like how do we assess? How do we even assess what the viability of this building is long term? It's absolutely impossible. So then the question so then that means that lenders across the board if tomorrow they decided that this was the world's biggest crisis that they need to solve, then they need to arbitrarily cut proceeds to allow not for the value falling, but for the ability to invest money should they have to take it back to be able to build the property back up to a decent leverage level to a decent exposure level, right? So for example, if I have a property that's worth $100 and I want I make a loan at 50, but I could really make a loan at 70. But I say I'm only making a loan at 50 because if you defaulted and I took it back, I need that extra 20 bucks to be able to put in so I could then sell it on the market to someone to buy it at the 70 number, right? Then it's like, okay, that's sort of makes sense. The problem is because lending has become so circular and intertwined where so many of these loans are made by entities that take money from, from sub lenders or warehouse lenders or bondholders who are getting that money that they're giving to you back from other loans that are being refinanced, that it's just the system breaks.
[Mike] Lenders and investors beware. Shlomo, thank you for coming on the program.