Welcome to The Note

I got into this business in 2003 selling software to real estate finance brokerages. That means I spent too much time sitting in offices watching rolodexes spin, fax machines whirl, and office managers’ dirty looks.

It also means that I saw how deals got done in vivid color.

Then, in 2010, when the sky fell and borrowers thought lenders would just dump assets, I started helping borrowers deal with the reality that lenders may have a backbone and assisted them to structure reasonable deals. I’ve been doing some version of that ever since, and as I look up at my whiteboard, I see over twenty workouts across banks, syndicates, and CMBS.

Straight talk.

Commercial real estate finance is a black box. I’ll tell you that there are huge discounts to be had, but I bet you are looking around and wondering why you’re not seeing it.

Everyone agrees there is distress, but nobody agrees on how much, where it sits, or how to capitalize on it. We are conditioned for it to look like it did in the 80’s or at worst, in 2010. An investor recently suggested that he wanted to turn his cash several times a year, but in today’s’ market, capital alone is a commodity.

Every two to four weeks you’ll get a Note from me. Sometimes I’ll address a deal in the news where the reporting is dangerously inaccurate. Other times, I’ll address a popular loan clause that likely costed someone their house and their lender a massive loss. Sometimes it’ll be something so counterintuitive that at first glance your reaction will be disbelief, and that’s where things will get pretty fun.

Most of what I write, and frankly much of my learnings, come from real deals we touch, rather than from a forecast. Forecasts are useful, but often just to bet against.

Data is opaque, so unless you have a seat at the table, which we do, and also can read the room, which I can, the data will lead you in directions that will leave you dizzy and confused. Therein is the opportunity.

The loans that matter most are the ones in limbo because their outcomes are what you don’t see coming. They have been extended but are unsustainable, or are current but are walking death. Enough of these loans, and the shock is most likely to move the market.

Here is what is in it for you.

Most assets are lost long before the workout.

The multi-billion dollar servicing industry spends their days making sure borrowers stick to terms they often never fully understood. When things go sideways, the poorly-drafted intricacies rule the day. As Kevin O’Leary says, “Can you hear it?” It’s the sound of a huge sucking hole with a gravitational pull that is uniquely qualified to do only one thing — ingest good people’s hard earned fortune.

Expect specifics.

If a Note is useful, send it to someone. If you think I am wrong, write back and tell me why. Best case, you teach me something. Worst case, you give me next issue’s topic.