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join our private Facebook Group to discuss this podcast, suggest topics and learn with our growing community. Steve: Welcome to The NewRetirement Podcast. Today we’re going to be talking with Chris Tokarski and Kurt Altvater who work in commercial real estate. We’re going to be diving into the following topics. First, how COVID-19 is impacting one of the biggest asset classes out there, commercial real estate, and the credit markets they are part of. Second real estate investing for individuals. How does it work and is it still a good idea? Then third, if we have time, we’ll touch on mountain biking since that’s how we all know each other. Steve: So Chris is a managing director at ACORE Capital and chairman of the Investment Committee there, and he’s helped originate hundreds of billions of dollars of commercial real estate loans. Kurt is on the brokerage side, and he’s an SVP at CBRE, and he’s helped originate over $20 billion in commercial real estate loans over his career. I know them as my mountain biking buddies, but apparently they are also some of the top real estate minds in the US commercial real estate. Steve: So I thought it’d be great to get them on the podcast to talk about kind of what they’re seeing with the COVID pandemic and how it’s affecting their markets, commercial real estate and the credit markets and what they think the future holds. We’re coming to you from Mill Valley, California, but via Zoom due to the current social distancing effort. Kurt and Chris, welcome to our show. It’s great to have you join us. So usually you guys say hello. We’ll edit this part out. Chris: Thanks for having us, Steve. We’re happy to be here. Kurt: Absolutely. Steve: So, just real quick, I’ve always wanted to talk about kind of real estate as an investment class and I was hoping to do it with a more positive circumstance, because I think it is a really interesting asset class and full disclosure, I’ve invested alongside Chris in a couple real estate deals and we’ll talk a little bit more about. Can you, Chris just give us a quick overview of kind of what you do day to day in your firm, but also how you invest as an individual into this asset class? Chris: Sure, as a firm, ACORE Capital is a large lender generally focused, the predominance of our portfolio is in the bridge lending space, which we do everything from ground up construction loans to assets that are in need of light or heavy renovations, and we also do some stabilized lending and a smaller piece of our book is for fixed rate permanent loans. Generally, the deal sizes that we work on are 30 million and up. Chris: So they’re generally bigger assets, more institutional type sponsors and we are very active in the space and today, we’re still closing loans on the deals that we have signed up and we’re looking at some new opportunities, but it’s just really difficult today to price risk and to know where to even quote loans, given what’s going on in the markets. Then on the personal side, I’ve invested in commercial real estate really for the last 25 or 30 years, both as a limited partner in other people’s transactions. Then from time to time, I’ve put together real estate investments as the main general partner and brought in other investor alongside me. Steve: Awesome, thanks. We’ll dive into kind of the mechanics of that and the pros and cons of real estate as an asset class for individuals a little bit later in this. Kurt, I wanted to get a quick intro from you as well kind of like what you do and your team does on a day to day basis and your place in the commercial real estate ecosystem. Kurt: Oh, thanks, Steve. I’m in a very unique segment of the business in which I and my team act as advisors to lenders on commercial real estate loans, and it’s generally related to the secondary market. People like Chris, along with bankers of all stripes, including major national banks, international banks, insurance companies, and what we call loosely as non bank lenders and represent a market of about $3.5 trillion of real estate debt. On occasion, they have a need to buy or sell their loans, and it runs the gamut. Kurt: Recently, we’ve been selling mostly performing loans, loans that would trade at right around 100 cents on the dollar. Then in times like this that we’re heading into, and after the great financial recession of 2008. We help people sell distress loans, loans that might be on the verge of default or in default and of all asset classes. Steve: Got it. So you’re trading between lender then? Kurt: We’re an advisor. So we evaluate, underwrite loans for sale, and then we make a market and we’ll sell those to Chris, and other folks like Chris, and determine what is the market price and market price for trading alone. Steve: Got it. Thanks. Appreciate it. All right, so we’re going to take a deep dive into real estate in a second. But before we get there, just we are all living under this current pandemic. So I wanted to talk about COVID what’s happening and how it’s affecting the markets. Before we dive into that, a little first hand knowledge from Chris who’s actually recovering from having COVID. I thought Chris, could you kind of just tell us how you got it and how it impacted you and quick take on it. Chris: How I got it, I’m not really sure. I was on a ski trip with nine other friends and eight of the nine of us came down with the virus after we returned. I’d say, of that group, I was probably the least impacted, I had aches for about three days and then a sinus infection, lost my smell and taste but other than that was not really impacted by it. My family didn’t, no one has shown any signs and I didn’t know enough at the time to stay away from them. So once we were three or four days in, we just decided to run with it and see what happened, but none of my family was impacted. Chris: I was super lucky in that I worked every day from home but was not sick enough to stay in bed all day. The rest of the guys that I went with were knocked out for good periods of time, but no one went to the hospital. So all in all, I think we came out on the positive side of it and we were in a helicopter skiing up in British Columbia. So we were breathing on each other for three straight days, which is a good way to spread the virus. I would stay away from helicopter trips. Steve: Yeah, pro tip, will remember that. Then how about for the other guys that had it? Do they know if they’ve gotten anyone else sick or did they feel like it’s been pretty contained? Chris: As far as I know, they have not, none of their family members have gotten it, but I’m not 100% certain. I haven’t checked with all of them, but have not heard from them that it did get spread through their families. So I assume they didn’t. Steve: Yeah, I remember. I think you had it what, like two weeks ago, roughly. At that time, I think you were saying, oh, yeah, it looks like there’s 30 cases in Marin County, of which you guys would have been a third of them at that point, the known cases. Chris: The first day we found out about the one individual that had it, there was nine cases in Marin and I think eight of us live in Marin in San Francisco and we weren’t on that list. So we were definitely early and would have doubled the list if the tests were available. We were tested and the results came back. I think the results coming back on these tests were taking five to eight days after you got tested, and it took a couple days to get the test. So you’re almost through your period of even being able to contaminate someone else by the time you get your test results back. Steve: It’s crazy. Well, California, I know that a lot of people are looking at well, actually the Bay Area and many people are looking at what’s happening here. We did, I was looking at dates. We went to lockdown, I think March 17. New York City didn’t go till March 22, but effectively like San Francisco, the tech companies, they went to lock down like a week before the official lockdown and went to social distancing and it hopefully works here and suppresses the number of cases and the number of deaths. I know people are, we’re what, three weeks into this now and looking at another month. Steve: Hopefully it does work here and we avoid the fate of places like New York and probably New Orleans that are going to get harder hit by this. So, Kurt, I wanted to kind of like, when we were riding that day you were talking about your view on COVID and the impact to the market. Of course, your real estate market and just want to kind of get your thoughts on what you’re seeing out there now. Kurt: Oh, thanks, Steve. I’m certainly no experts on COVID-19 or epidemiologists, but I will tell you some of the conventional thinking that I’m hearing and seeing around it, and I should say optimistically and I’d prefer to be optimistic than pessimistic. Many of the folks I’m reading and hearing and talking to are all hoping and expecting that this is going to be a brutal event and that much of it will be contained within the second quarter. The thought that we might start to rebound a bit in the third quarter crawling perhaps and then the fourth quarter back on our feet is the snare that I’m kind of going with this point. I don’t know what you think about that or Chris, but that’s the strategy thesis I’m sticking with. Steve: Yeah. Well, Chris would love to get your thoughts on what your firm is thinking about how this unfolds, at a very high level for the overall economy and how that flows to commercial real estate, which is a big part of many businesses. Offices and retail stores and apartment buildings and stuff like that, and hotels. Chris: While want to remain optimistic, I think that it’s going to be worse than everybody thinks. Unfortunately, I think as long as we, the real damage is not going to be done in the month of April, or March as far as the economy goes. It’s really going to be the follow on that comes out of this and given the amount of unemployment and the decrease in spending, I think people want to believe it’s all going to bounce back quickly but I think we want to be optimistic, but I think we believe it’s going to take longer than anyone thinks. Chris: This is going to be tougher than the last recession, because just the number of dollars and that are not going to be spent and the number of people that are going to come out of this in tough shape. Most retailers if you go across the product types, retail is already on the brink. So there’s a lot of retailers that this probably is the death knell for them and some of them are going to be smaller retailers, but a lot of the larger guys were all on the ropes already anyway. Chris: So when you shut down a Sears or JC Penney which there are a lot of them are shutting anyway, now they’re all shut. Does it make sense to even open some of those back up again, we look at the big guys. Really, I think across the industry of retail, you’re going to see a tremendous amount of carnage. I think the same thing, when you look at office space, there’s debates over whether people are going to change the way they use office space. Most of my friends, I think, you too included we all can’t wait to get back to the office. The idea of working out of our homes sounded great until you had to do it for a month. Chris: What’s not going to change is that a lot of companies that were either leanly funded or needed their next capital raise or just need to cut back are going to cut back on employees and if you cut back on employees, you cut back on office space and need. So I think there’s going to be pressure on office rents. If you look at multifamily, I think it’s, industrial probably goes through fairly unscathed, other than the lack of development that’s going to happen. Chris: There was a big push into industrial because of how well the economy was doing but I think industrials comes out the most unscathed through this, but it’ll definitely have an impact there as well. Multifamily, probably second, people still need to live somewhere, they need to pay rent. This will take some heat out of what was an overheated market, but it will still fare pretty well. The sector that’s going to get hit the hardest is hotels and what are we doing on a day to day basis and what are we thinking about. Chris: Our phone is ringing off the hook with every hotel borrower that we have, and we have a tremendous number of hotels across our portfolio and people are shutting, the call is either we want to shut tomorrow, or we want to go to skeleton crew and keep one floor open and when you look at that and the number of people, one of our bars today went from 1,000 or 1,100 employees to 100 employees, laid off 1,000 people and they will hire them back as soon as they reopen, but they can’t afford to keep those people on payroll. Chris: There’s nothing coming in and it’s not just the debt service that they owe on their loan, which is what we’re concerned with trying to collect, but they have other costs, taxes, insurance, security, heat, they’ve got to pay and it’s very expensive to run these properties when there’s no one in the building paying them any money. So when you look at how all of this trickles through those assets, and then into the economy and the employees, while the government’s throwing a tremendous amount of stimulus out there, I don’t think it’s going to be enough and I think it’s going to be uglier than any of us are calculating and it’s going to be longer before, there will be a point in time I think where we get a bounce but it’s not going to be a bounce back to anywhere near the level that we were operating in our economy. Steve: You guys are doing a good job of summarizing it. Kurt, you shared with me this Oaktree Capital, Howard Marks’ memo and he was kind of saying the positive and the negative case. On the positive side, I think people are like, okay, we’ll kind of keep the economy on life support for a couple months. We’ll get through this, cases and debts subside and then we put everybody back to work and we’re right back to where we were. It’s like a V shaped recovery in the equity markets and credit markets are all good and hotels are full and everything else. Steve: Then there’s the downside, which is, okay, this is so much more disruptive than we thought, all these people lose their jobs. It lasts longer than we think and then they find different jobs or people don’t come flooding back into hotels, into restaurants, into airplanes, in cruise ships and there’s just a longer term lower run rate for the economy. Chris, when you look forward when you’re forecasting, how are you thinking about this? Do you have a few different scenarios? Steve: So just one quick comment here. I was looking for SaaS companies as a service. The venture guys earlier stage companies, the venture guys were like, well, listen, we have the blizzard scenario, we have the winter scenario and then we have the Ice Age scenario. So it was like not great, pretty bad and then terrible. When you guys think about it, how do you forecast it? Chris: Yeah, I think it’s not going to be, we’re definitely looking at each, we look at each one of our loan positions and try to decide, we’re really trying to sort the piles into what’s going to require the most focus and the most time and being in the debt space, frankly, we’re really a level removed, or at least we have a layer of protection because our borrowers are the ones that are going to feel it first. Most of our borrowers because they’re larger deals and bigger borrowers, they’re better capitalized. Chris: They have money in their bank accounts, they sit on some liquidity for events like this, but I think this is going to stress anybody, even people who are sitting on tons of capital are going to have to protect multiple assets. You just don’t have a choice if you own real estate. Apartments, as I said, are going to pay rent. Hotels are not, retailers are not paying rent. I think there’s going to be a lot of threats to not pay rent, but ultimately, I would expect 70 or 80% of the office tenants to pay rent, but there’s 20% that aren’t going to pay because they can’t, and their businesses aren’t working. Chris: So, when you look at retail not paying, a percentage of office not paying, I think, ultimately the government’s causing problems whether it’s the state or the federal government telling people not to make the rent payments and you’re not going to be evicted. I think there’s some moral hazard that’s being created because people have to eventually pay the rent. So telling them not to pay, for people that can they should be paying the rent. Chris: So some of the buildings that I own, we had a bunch of people come in and say, oh, they’re affected by COVID. They don’t want to pay the rent and you say, okay, well provide the documentation that shows you been affected by COVID and they mail in their check. So I think that there’s bad actors out there that are trying to take advantage of the situation and ultimately, people have leases, and they’re going to have to pay if they have the money. Chris: I think the real problem is going to be there’s some of them that don’t have the money and that’s really what’s going to create the problems. I don’t know which one of those winter scenarios it’s actually going to be, but we have a little bit of a layer of protection in our business. We also have the ability as a lender to work with the borrowers and help share some of the pain and we’re not going to give away anything, we’re not going to not collect the interest on our loans. Chris: For borrowers that have capital and are willing to support their projects, we’re going to be willing to work with them and defer interest perhaps or come up with a scenario Know where we’re protected but it’s going to cost everybody money. I don’t think there’s going to be many free lunches in this. Steve: Right. There’s going to be loan workouts, right? When people are defaulting you just have lots of people doing it at once. Kurt, what are you seeing on your side in your business? Kurt: Well, let me just say that we’ve been very actively talking to all the market participants that we can over the last three weeks, both buyers and sellers and originators, of debt. Again, broadly speaking, it’s simply too early to tell where things shake out and no one has a crystal ball here and people have lots of hunches. So we’re hearing lots of things and every deal in real estate is a separate case study and it’s very dangerous to make broad assumptions because you need to look specifically at that property, at property type, market location and a number of factors including the sponsorship that Chris mentioned, and how the outcome might play out. Kurt: I would say broadly, I’ve heard people like Chris mentioned for industrial, I think that there could be very little nominal change in values from March 1 to what we think in the future and that might be zero percent change in value. Maybe it could even go up and then I’ve heard, in the worst case, I’ve heard people talk about values, 35%, declines in values. Now, certain retail properties could be worse than that, but broadly speaking, most of the loans that are made in commercial real estate are 65 to 75% loan to value based on value prior to COVID-19. Kurt: It looks like the lenders are going to be well secured and that they could be some more challenges with large format retail, but we think that most people are going to come out of this, but it’s really going to depend on a case by case basis. Steve: Right. So just to be clear, for most of our audience understands this, so if a hotel is worth 100 million dollars, then they are borrowing and they want to finance it, they’re putting up $35 million of cash or somebody is, and then they’re borrowing 65 million. So if the value gets written down by 35%, the asset is still, they haven’t borrowed the full value of the asset essentially, is that correct? Kurt: Exactly. So worst case scenario, we think a lot of properties will be, but not exceed 100% LTV. Steve: So Kurt, one of the things you shared on our ride was that even though we’re seeing a bunch of basically this market dislocation, that there are buyers out there that have been accumulating cash, anticipating that there might be a downturn and there might be better deals out there. Can you comment on that a little bit? Kurt: Well, there are. There are funds that specifically go after distressed debt. There are people who buy performing loans, there’s people who buy distressed loans and like Oaktree and Howard Marks just raised a fund this past week. There are a number of other funds, some have been existence and waiting for a downturn anticipating it for a long time and now it’s here and others are raising funds right now with a strategy to buy distressed assets, including distressed debt at a discount to value and that may be directly buying property or in this case, buying loans with the intent that they might modify and restructure those loans and get paid in above market risk adjusted return. Kurt: So instead of getting, say paid 5%, which might have been the rate for the loan last month, they might want to get 10 or 15 or even 20% return and expect that they will get repaid but get repaid at effectively a higher interest rate by buying a loan at a discount. Steve: Got it. Do you have any ballpark sense for how much money has been raised recently to buy distressed debt? Kurt: Within the last three weeks, I don’t. All that I’ve really read specifically about is the new fund from Oaktree, which was a billion, but I know there are other people specifically raising money around it. Chris might have an idea. Chris: I don’t know. There’s a bunch of people out trying to put together funds and raise capital. I think it’s been a while since we’ve seen this stress. So there’s a lot of people who are trying to figure out how to take advantage of the situation. I think the reality, one thing to keep in mind, Steve, with regard to your question, it really when the capital that’s on the sidelines that’s looking for distress, doesn’t prop values at the levels they were. Chris: It’s not like values fall 2% and people step in and buy them. This capital that we’re talking about comes in and it’s looking to earn high returns. So when you have distressed values, you have a distressed that you and then you go to this type of capital and say, do you want to buy this loan or this building, or whatever you’re trying to sell, doesn’t matter what sector you’re in. The price is a lot lower. The returns are looking for are mid teens to 20s, typically for any type of opportunistic, real estate money. Chris: The other issue that we really have it’s a lot of it’s just liquidity. It’s really, if you look at the run on what’s happening and why values are falling, if you look at the public sector and the rates, the read stocks, the mortgage rates are way off. Some of them are down 75%, 50 to 75%, and it’s because of the way they’re financed. A lot of these vehicles are set up where they have lines that they borrow off of, where when there’s a credit event and the properties become worth less money, they are required to pay down their lender. Chris: So as a result of that, it’s no different than borrowing money against your stock. When your stock price falls, you get a margin call from your broker dealer and you got to pay it down. Well, the same thing occurs in the commercial real estate space for lenders, where you have a mortgage, and you pledge the mortgages to align lender and as long as there’s no credit events, you don’t get called but a credit event, in the instance here, let’s talk about hotels. Chris: We had hotels that were operating and generating a lot of cash flow, and now they’re shut and we don’t know when they’re going to reopen again. Well, that gives the lender an opportunity to call and say, hey, I lent you 75% of what that mortgage value was but I’m not comfortable anymore. I want you to pay me down to 50%. So take your hundred million dollar example where the lender lent them $75 million, and they borrowed 75% of that 75 million and now they have to make a capital call that’s equal to 25% of that $75 million. Chris: Most people didn’t just borrow on one loan. So now take that across 10 hotels, and then six retail centers, and then you add it all up. So what’s putting stress on all the public rates is the fact that all of them have borrowed a lot of money on these lines and now we have this unprecedented situation where, unlike past recessionary environments where they came about over the course of many months, even a year, it’s a slow and the hotels would get hit first and they’d get hit a little bit. Chris: The hotels never went to zero cash flow, they never went to empty. The retail didn’t have all the tenants stop paying rent on the same day, at the same time that the hotels went empty. By the way, now your office buildings, a bunch of tenants are going to stop paying because these other businesses are in trouble or they can’t afford to. So we’re kind of in an unprecedented time and what it’s really causing is a liquidity run, where everyone needs liquidity and there’s nowhere to turn to get it. Steve: So one analogy I’ve heard is that it’s like a hurricane is hitting the whole world at once. It’s kind of taking out, that if a hurricane hits Miami, it shuts down Miami, but the rest of the country is working. So now we’ve got everything shut down across everywhere. So back to your rate example, so that these guys have positions in all these real estate, essentially, holdings are capturing the cash flows. Now those things are getting repriced, loans are getting called. Are you saying the rates have to put up cash into the properties? Chris: There’s really two types of rates, there’s mortgage rates and there’s real estate rates and the real estate rates are the owners of the buildings. Those rates don’t have a different, they have their own discrete issues and that’s pretty simple. The world prices the public markets overnight really quickly. So if people think rents are down on office buildings, office rates get hit. They’re not the ones getting the margin calls, the mortgage rates are the ones that are getting the margin call. Chris: So the rates are down because people think office buildings are down in the economies often, those buildings aren’t worth what they used to be and the share price starts to tumble. Where the mortgage rates are rates that actually own the mortgages, and they are the ones that are getting called for capital, but let’s go back to the real estate rates again. Now they may not have the capital call but what their problem is they also have debt and mortgages that they need to pay. Chris: Sometimes they borrow unsecured, sometimes it’s secured. Secured would be a mortgage unsecured would just be borrowing as a corporate level. That same office rate probably as we talked about earlier, 25% of the Rent probably isn’t going to come in this month, the retail rate, maybe only 25% of their tenants pay. The hotel rate, none of those are paying. So now you have all these public companies that own real estate that last month they were making money, but now they’re no longer making money. Steve: Got it. So the real estate rates are suffering from, I’m going to have lower cash flows coming in. So therefore I’ve lower dividends, but I’m not necessarily getting killed, the mortgage rates, they’re actually having to put up more capital to get their loans situation and their LTVs improved. So who’s providing the capital? Chris: No one, that’s the problem. So that’s why all the share prices are way down. So what that starts to create the distress that Kurt was talking about earlier, and that’s why Kurt’s starting to get phone calls, which is that mortgage that is going to call somebody like Kurt and say Kurt, I need to raise some cash. Can you sell these three loans for me? Can you sell this portfolio of loans for me, and the rates are going to sell what they think they can get liquidity in the quickest, the fastest. Chris: So they’re going to most likely try to sell their best assets first, because that will generate the highest prices and that process is just starting, but over time, that process is going to accelerate. Steve: Got it. Is there anything that can slow, I know the government’s trying to slow this down by injecting capital and buying assets out there. So how do you think this unfolds, Chris? Chris: As I said earlier, I think it’s going to be ugly. If we don’t get a quick rebound, which I don’t think we’re going to get then the banks that are lending on these assets are going to require 10% paid on this month, 10% paid on next month, 10% paid on the following month and where’s that money going to come from? So I think you’re just at the starting points because the banks are right now still just trying to get their arms around the situation and what do they have. Chris: In the commercial real estate space, they really haven’t been that aggressive on margin calls yet, because they haven’t figured out how to value the assets. No one really knows what to do. We know the margin calls are coming and if people don’t get back out into the economy and start spending money, then every month the banks are going to get scared, and every month it goes on, they’re going to get more scared, and they’re going to continue to make these people pay down the loans. So it’s going to be a continuation. Kurt: Yeah, I just want to clarify, we’ve been talking about mortgage rates and what we’ll call our leverage lenders who make loans and then leverage them with warehouse lines and repo lines. That segment of the commercial real estate market is broadly speaking 5% of The market. 50% of commercial real estate is financed by banks in general and then we have insurance companies, we have GCS, and we have commercial mortgage backed securities. Kurt: Then we have these non bank lenders, which includes more rates, but they are the most vulnerable, as Chris has pointed out, because they make loans, and then they borrow against those loans to get leveraged returns and they tend to be among the group of lenders that make more aggressive loans, riskier loans, and so they’re the first ones to get hit. In general, again, broadly speaking, we think that the banks are pretty well positioned going into this as are the life companies and that more of the risk is with a group of lenders that would be considered non bank lenders and CMBs and that combined, those two groups might represent 10 to 15% of the commercial mortgage market. Steve: Chris, let me know if you disagree. Chris: No, I agree and it was but I would also point out that when you talk about the banks and them being stout with capital, the problems that the banks are going to face is they also make, depends on the bank and depends on who they’re lending to, but they also made loans, most of the big banks have a fair number of loans on hotels, and they’re not going to get payments on those hotel loans, or they’re unlikely to over time, depending on how long this goes. Chris: So they can defer interest for a few months and if you look at Freddie Mac and Fannie Mae, I think that’s the direction they’re heading on, Freddie and Fannie loans, the agency loans, basically it sounds like they’re going to give three months of forbearance, which will help out the multifamily sector and the multifamily sector is largely financed by those two institutions. Chris: So I think that asset class is going to fare pretty well but the banks also remember, have a lot of credit card debt, and all different types of consumer debt and those loans are not going to pay either. The number of people that are going to start to default on those types of assets, and the consumer loans is also not insignificant. So I think the banks are set up, and their bank, their balance sheets are very well capitalized. I think we’re going to see an unprecedented level of non payments or defaults across every sector of credit. Chris: So when you start thinking about how many people that have credit cards are not going to make their payments sometime in the next 120 days, how many people have a mortgage if they’re not going to make the payment on a next 120 days. The government’s come up with a couple of programs that are going to help for a short period here, but if we’re all in our houses in 60 days or 90 days and they haven’t come up with a vaccine, then there’s a lot of people that aren’t going to leave even if we asked them to. Chris: A lot of people are scared and they should be, but I don’t know what the level of commerce is going to develop and how quick but if people don’t get out there and spend money, there’s going to be defaults across every sector of debt and it’s going to be at levels that we have never experienced before, because we’ve never shut down the economy the way we have this time. Steve: Right. So I have this massive, we’ve suspended things. We’re hoping we can get people back to work in a couple months. If so, maybe we get through this, okay. If it takes a lot longer, then that’s where this problem could cascade a little bit or in a huge way. Chris: Steve, let me ask you a question. How many people do you think when we say get back to work, how many people are not going to have work to get back to if this goes on for 60 days, and that’s the percentage of the economy, I think for a lot of people it will go back to normal, but there’s a ton of people that that job is not going to be there to go back to. Even when you go back, take the hotel bar that laid off 1,000 people out of 1,100 employees, when he hires back, he’s not hearing back all 1,000 people because that hotel business, all the four bookings were canceled, all the group business has been canceled. Chris: He may hire back half of that staff and it’s going to take two, three years before he’s back to the original staff. That’s just one hotel. There’s going to be other businesses, whether they’re using office space or retail space, that those jobs are not going to exist to come back to. So there’s no way in my mind that we come back to normal anytime in the next two years, three years. I think it’s going to take four years, probably best case to get back to where we were before this happened. Chris: Any of those people that are displaced, most of them are making some kind of debt payment to somebody or make some rent payments to somebody and that’s what’s going to trickle through and that’s why it’s not going to be as positive as I think a lot of people think. I hope it is, but I think realistically, the holes bigger than anyone’s- Steve: Yeah, than people are anticipating. I really appreciate your perspective on this though and I think that what you’re talking about like yeah, you’re right, these hotels have emptied out, planes are empty and how do we get that restarted and rebook all these things. You think about like South by Southwest, all these big conferences got shut down overnight, every sporting event, all that stuff, kind of get people back there. On the plus side, I will say it’s been amazing to watch how companies have adapted. Steve: I was on the phone with a firm we’re doing some business with. It has 30 to 40,000 employees and in a week, they got the entire staff productive at home and another one of our customers they have 1,500 same thing. They had basically got everyone in a week working remotely. So parts of the economy are doing this, but there’s definitely parts where, what’s it going to look like? What are those people going to do? Can we suck them back into other avenues of work? We’ll see. I mean a question I have for you guys is same thing. Steve: So suddenly everyone’s like, okay, guess what, we’re all going to work out of our houses. Every office is empty or many are, Kurt, I don’t know what percent. How does that look when this goes back? I mean people do want to go back to offices, many of them but many of them might be like, well, now I can work out of my house and instead of working in downtown New York City, I can work in the middle of Montana with good bandwidth and do I go back to my high rise and what does that look like? Kurt: I’ll take a stab at that, Steve. We were talking about this on our bike ride the other day and we’re all using technology in different ways than we might have been using it a month ago, working from home, learning how to use Zoom, leveraging the internet to buy things and to get services, food delivered to our homes. I think it will have a long change, it will take time, but we’re going to be using real estate differently and maybe largely a lot less. As Chris pointed out, like there’s already hearing people discussing using Zoom instead of doing certain business travel. Kurt: Then we’re talking about people working from home, and you can see a decrease in demand for office space. This stuff doesn’t happen overnight, because firms have long-term leases, but over time, you could see the demand for office space decrease. Now that’s something that’s been discussed at length. We’ve also talked about retail, people take advantage of technology and buying more and more online, particularly when they’re under shelter in place orders and that can only help the retailers who have large platforms online at their detriment to the brick and mortar retail. Chris: I’m a little bit more positive on the outlook for office in that I do think people, a lot of my friends and particularly you’re talking about New York City, if you don’t go to Montana and you own a one bedroom apartment in New York, everyone I’ve talked to in New York wants to get out of their apartment to go back to their office. I do think everyone’s figured out how to work from home and I can see people working at home one day a week or two days a week, but also as an employer, and we’ve got 90 employees, I know with 100% certainty, when I call and I can hear kids in the background and distractions you call and you can tell that people are outside, they’re not even at their desk, that as an employer, I want my people in the office most of the time. Chris: We’re relatively flexible as an employer and let people work from home one day a week or if they need it or if it comes up but there is a lot to be said for interacting with the people in the office, being part of that crowd, and I think that there will be an effect. I think it’s, the demand for office space go down by 10%, as a result of the way people change. I know Kurt’s firm over the last couple of years, they reconfigured everybody and now they have shared desk space. Kurt you might want touch on that, and they’ve adapted to it, but I’d still know that Kurt goes to the office most days when COVID is not here. Chris: So I think there will be a decrease for demand, but it’s not going to be there’s no longer a use for office buildings. I think there’s probably a 10% contraction associated with the way people work in firms with flexibility, not needing all the office space they used to have but that would be my guess, as 10% of it goes. I think there may be another 10% of the space that’s not needed because companies go away, file bankruptcy, disappear. So that’s when you start to compound it, I think is where you’re going to really have the problems. Steve: Right. Kurt any comment on how you see capacity and demand for office space? Kurt: Well, I’ve read a lot of studies, including some published by our firm, and based on a number of surveys, it depends, of course, company by company, but generally 20% of the people in an office environment are not in the office on any given day. They could be sick, they could be on vacation, they could be at meetings, they could be at a conference or maybe they’re working remotely. So many people think and whether tenants are moving and we’ve seen this happen over the last five years, tenants are moving into smaller space and they’re often decreasing their space needs by 20 to 30%. Kurt: Part of it is reducing the square footage per employee, but it’s also allowing for a more flexible environment, both internally and the flexibility to work outside the office. So we think that trend is going to continue as more and more leases expire and people renew leases in smaller spaces. Steve: Got it. We’ll eventually see how this unfolds. Okay, so I do want to move on to just real estate as an investment for individuals, but just to wrap up here in the impact in the credit market. So it sounds like, Chris, per your comment, so just to summarize. One, we’re likely to see a general contraction and demand for hotels and office space and whatnot coming out of this even in a good case. Steve: So, therefore, our rates will be lower and then there’s also people that have been buying, sorry, there are leveraged loans out there and if margin calls are being made, then the owners of those assets are going to be selling some assets to pay and pay off their margin call on other assets and that’s what’s going to potentially create lower prices that could cascade through but also potentially buying opportunities for the distressed debt buyers like Oaktree and whatnot that are out there. Do I have that right? Chris, any other comment on how this unfolds in the credit market and what that looks like over the next one to two years? Chris: No, I think that’s right and I think it’ll take six months to a year to play through on the credit side. That’s really a level removed from owning the real estate itself, which is, I think, where we’re headed next. Steve: Yep. Okay. Next topic, real estate as an investment. So just a quick backdrop. Chris, does some of this on the side, and I have full disclosure, co investor with him. For instance, I invested in a Salt Lake City strip mall with him a few years ago, and it worked out really well. It was my first foray into doing this and we bought the asset, fixed it up, leased part of it to like a Starbucks and different kinds of shops and collected the cash flows and then ultimately got sold and generated great returns and had the asset behind it. Steve: So I’ve seen the good side of this thing, but Chris, I would just love your take and how you’ve been, because you’ve been doing this for a long time, how you do this and how you view this asset class, in light of what’s happening today. Chris: The beauty of commercial real estate is if you don’t over leverage it, and you’re a long term investor, you don’t really know what it’s worth. So if I look at my stock portfolio, which is tiny because I mostly own real estate, I can every 15 minutes, change my emotions based on what’s going on, on the screen. The good news about real estate is you kind of know in this environment, it’s worth less, but you don’t know how much less and it doesn’t really matter because it’s not as liquid, you could sell the building, but you’re not going to. Chris: So it’s just you sleep a lot better at night, I think and just, it gives you less anxiety to invest in real estate. It also as an asset class, it offers some tax advantages with the ability to depreciate the asset, so it offset some of your income. Then the asset class also offers the ability when you sell to do a 1031 exchange and not be taxed on gains from a sale or for a time being you move those gains into the next asset, and eventually you can 1031 forever, but if you ever do not 1031 then you wind up paying the capital gains tax. Chris: So from an asset class, I love it as an investment strategy, predominantly because I think it has tax advantages. Then secondarily, if you do it right, they paid dividends and unlike most of the stocks, or even the stocks that do pay dividends, the dividends are typically pretty low. Two, three, four percent. It’s rare that you can get something to pay an eight, nine or 10% dividend, but with real estate, if you do it properly or you can find the right investments, you can get yourself into an eight, nine, 10 percent dividend that has some tax shelter. Chris: If you’re getting an eight, nine, 10 percent current return, and then you sell it the asset for more than you bought it for you can wind up easily putting together 15, 16, 17% IRR deals by investing in the asset class. It’s more complicated. It’s not accessible for every single investor, but if you can find your way into the asset class, I highly recommend it. Steve: From our experience, and I think you’ve done like 30 to 40 of these kinds of investments. Probably more, versus I’ve done a couple. Again, I’m not promoting this, I’m just saying that this is my experience. It was pretty cool the way it worked, and getting higher interest and having a pretty stable asset was awesome. How do you think it holds up? I know one of the big things for you was, you’ve been doing this for 20 plus years. So you’ve invested across the business cycles and interest rate changes, and therefore you have a pretty diversified portfolio. Do you think that your portfolio is going to weather this storm pretty well? Chris: Yeah, I do. Absolutely. Again, if you wanted to sell it today, it’s not worth what it was yesterday, but it won’t matter because I’m not going to sell it today and 10% of our multifamily tenants won’t pay rent this month, but we’ll eventually get half of them to pay that rent back. Maybe we lose a little bit of rent and lose a couple tenants, but six months from now, we’ll be back to get a new tenant in there and we’ll be back to our normal cash flow. So if you think about apartments, it’s pretty solid, stable investment. Chris: I don’t own any hotels, because if I owned hotels, I would have had a different answer for that question. Hotel as an asset class, it’s a great investment when you invest in the down part of the cycle and a terrible investment at the top of the cycle and given the bull run we just had, we’re at the top of the cycle, it’s over. We’re trending down, but it’s going to create an incredible opportunity to buy hotels over the next 24 months, because you’re going to buy them at the low end of the cycle, and then they’re the quickest to rebound. Chris: So not every real estate investment is a good investment. I have a lot of friends that ask me, well, should I just invest in real estate. It’s really money is made in real estate, typically on the purchase. So if you buy it at the right price, it’s a good investment. If you pay too much, it’s a bad investment. So part of the advantage that I’ve had in my career is that, as a lender, I go to work every day and I evaluate real estate, make loans, and I look at 10 or 15 deals a day, different property types, different parts of the country. Chris: So over for doing that 2530 years now, I’ve seen almost everything across the different markets, across the different property types. So the key in real estate is investing and buying at the right price and I don’t know how many times I’ve gotten phone calls from friends that don’t know anything about real estate that say, I got this great deal. I said, well, why is it great? They had a broker that marketed it to 600 people and they were the best bid. Chris: I’m like, well, that’s not a great deal. You beat 600 people. Do you know who that broker is? They market that so heavily that if you won, you basically paid more than 599 other people. So that’s not what I’m talking about real estate being a great investment. It really is having the knowledge or working with people that have knowledge and access and relationships and finding ways to buy assets at an attractive level. It’s difficult to do. Chris: You don’t just show up and say I want to buy a piece of property and then buy it. You have to bid on 100 assets to buy one if you’re going to get a good deal and you have to have the discipline to be picky and to wait for the deal that actually looks really attractive. So it’s a long answer, but I think it’s the right answer, which is that, if you really look at real estate, the key factor for anyone that’s listening and thinking about investing in real estate and they’re looking at someone’s deals, I think the key points that I would focus you in on is, look at who’s buying the asset, how much of their own money that they’re putting in, whether it’s them, their family or their close friends, and then look at the fee structure and how much they’re charging back in fees. Chris: The most common thing I see is you’ll have a real estate syndicator that’s putting together an investment and they say, oh, I’m investing $250,000. If you look closely, and you read through the fees, they’re going to make $350,000 in fees in the first year and a half, and they put 250 in. Well, that’s not an investment I would make. You want to invest with people who have their own skin in the game, and it’s material, and they’re disciplined in their approach and they know what they’re doing and they somehow got to the asset, not by being the highest bidder in a well marketed environment. Those are the key things I think to look for. Kurt: I just want to add, based on my experience and working with lots of borrowers as a lender and also as an advisor to lenders and looking at each borrower’s career in investing in real estate, it varies. Some people do specialize in one property type. Others have diversified portfolios. So I think there are some lessons learned. Like Chris said, you want to buy at the right time and of course, you want to buy low and perhaps you never want to sell or you want to sell high. Kurt: The other thing I’ve seen time and time again, is there’s people who routinely buy and they’re taking an income averaging approach, just like in the stock market, to buy into real estate and like Chris, they’re not putting all their eggs in one basket or one stock, or one group of stocks. They have a very diversified portfolio. So there’s some parallels with the stock market, investing in terms of success in real estate. To Chris’s other point, again, time and time again, buying with modest or reasonable leverage, not high leverage, because when events occur, like what we’re having right now that you have a buffer, because you’ve modestly leveraged. Steve: Got it. Yeah, that’s a great point. When people are investing in anything, like in our business, it’s essentially, to get to a successful like our business retirement, to get to a successful retirement, what you need to do is save money invested over like a 20 year time horizon, just dollar cost average, forget what the markets doing. Just keep buying, buying, buying. The market does go up into the right over time, but it has these dislocations on a regular basis and you have to be buying when it’s also down as well, because that’s part of getting the right price. Steve: Then you also have to decumulate it over a long period of time as well. So you’re not selling at all during the ups or typically downs. The problem with retail investors is if they actually look at their returns, it essentially lags everything, even almost savings account. I think the average retail investor, it’s like under 2% rate of return long term. It’s because they can’t manage their behavior. They buy when things are rallying and everything gets excited and then they sell at times like this when people freak out, and they sell at the bottom and therefore it kills their returns. Steve: So you do have to be disciplined about it. So Chris, I had a question for you. So I think this asset class is pretty interesting and the only reason I’m in it is because I know you, right? I think that’s probably true for many people. It’s hard to get into it. There have been lots of companies that have taken a pass at like, hey, let’s create crowdsourcing for investing in real estate. I don’t really know if any of them have killed it or done really well at this and I wanted to get your color commentary on why you think that is and will that happen? Chris: I’m interested in the space and just starting to follow it. I think that I’ve followed it a little bit over the years and there was a lot of players that came into the crowdfunding space early on and what turned me away from it was, I saw a lot of the entrance being people that were technology related and attracted by the internet, not getting into the real estate space, because they were experts in real estate. Chris: So I chose for probably, I don’t know, the last five, seven years, really to avoid it, because I felt like spending any time was going to, in that, was probably going to backfire, because there were too many people in the industry that were not experts in the asset class. They were technology experts. So my feeling was that they were going to take down whatever, if you did the best job in the world, it wouldn’t matter because when the deals started blowing up, and people started having problems, the baby would get thrown out with the bathwater and the whole sector of crowdfunding and real estate would take a hit. Chris: Now a number of parties have gone away, there are still people in the space. I know that people have been successful in raising capital on that front and I really just haven’t had the time over the last couple of years, although I would like to, to spend the couple hours it takes to go in and look at the deals, and given I look at real estate every day all day, I can take a couple of hours and look at it and figure out whether I think it makes sense or not. Chris: It’s something I do want to look into, and see where the space has evolved to. In a perfect world, it should work, but the problem is, when you take real estate, for a lot of people, it’s a fee driven business and people that put real estate investments together are typically trying to do it for fees and when people can raise capital easily, and charge fees on that capital and they’re not using any of their own money in the deal, it creates a problem because they have no skin the game. They collect fees. Chris: They’re incentivized to do the deals, not to make sure that they’re good investments. So I think that some of the crowd platforms are probably doing a good job and then there’s others that are probably not, but I haven’t had the time to dissect them and look at them but it’s definitely something to pay attention to. I think that you could say the same thing about any investment. If you’re going to invest with somebody, invest alongside someone who has skin in the game and has a lot to lose if the investment doesn’t work out, versus someone that’s just charging fees. Kurt: Just to pile on to Chris’s point, crowdsourcing is a very interesting way to raise capital, but in some ways, I feel like we’ve seen this movie before, and maybe to date myself, this occurred in the 80s, with real estate syndications. A lot of it was tax driven and it blew up in the recession of the early 90s. Back to the points that Chris made, there are people with not enough skin in the game, raising money, buying deals, essentially that put fees in their pockets. Kurt: The syndicators is kind of a heads I win, tails you lose for the investors that the syndicators are making money regardless of whether investors are making money and that blew up then in the 90s and it came back again with different vehicles and in the 2000s and here it comes again with crowdfunding. So the point that Chris makes is a valid one, know who you’re investing with and know that they have skin in the game and ultimately, I think that’s the best solution. Steve: Yeah, I think you’re raising a great point. So, I don’t know Chris, if you have a comment on this, but is there a way to fix the kind of, I guess it’s the principal agent problem that is happening here where people that are, there’s brokers that just want to get the deal done. It’s like you’re buying a real estate. The real estate agent doesn’t really care that you necessarily get the right price if you’re the buyer or the seller. They mostly care that the deal gets done, because if they make 5% on your house selling at 500,000 versus 450, it’s almost the same to them. Do you think that there’s a way to align the companies that are trying to enable crowdsourcing or crowdfunding with the investors and the sellers? Chris: I think the right way is for the crowdfunding sources to keep their fees minimal and anyone that’s putting together a real estate deal. It does take time and effort and energy, and they’re entitled to get some fees. I think it’s a balance to keep those fees at a level that are fair and reasonable and they should make their money off the real estate, which means they should be co investing in each one of the deals. I know some of the platforms are set up differently. I don’t know if any of them are co investing in each and every deal they do and I don’t mean one or 2% I mean five or 10 or 15% of the equity. Chris: So if those firms were aligning their interest by putting up five or 10 or 15% of the equity to buy the building that they’re then syndicating over the internet, they’re unlikely to be buying dumb deals, because they have to put their money up. If they can go on the internet and all the money shows up and they get to charge fees, there’s no incentive to invest with those folks. There’s a total misalignment of interests. Real estate’s like any other business, you can make any assumptions you want and it’ll look great. Chris: The reality is that I think the average person is not educated enough to understand the assumptions that drive real estate transaction. An average person doesn’t know whether you should grow rents at 2% 3% 4% or 5% but if you compound rent growth, at three or four or 5%, for 10 years, every deal looks great. I think we’re in an experience right now, which is a perfect example. If you compounded rent growth positive for multiple years in a row, you didn’t account for the fact that there was a virus that was going to hit and you’re going to have negative rent growth for three years. Chris: So all the returns that looked rosy and were projected, are not going to show up, they’re not real. Those growth assumptions using modeling out a real estate return are going to be more conservative and more realistic if the person that’s modeling it has their own money in the deal. Steve: Got it. So right now you’re you’re still going to be investing in real estate deals yourself for through this or how are you approaching it? Because now, you mentioned moral hazard before, right? You have a situation where mortgage forbearance and rent forbearance, people don’t have to pay for some period of time. How do you factor that into how you look at deals? Chris: Well, when you’re evaluating, I talk about the money’s made on the purchase when you’re evaluating that asset, you have to look at who the tenants are and you need to underwrite it appropriately. So, these are the times when I think are really the downturns is the best time to investors. Assets have not really adjusted yet, but they’re in the process of adjusting and in a hot market, which we just ended real abruptly, by the end of that market cycle that we had been in for so long, you had to make very, very aggressive assumptions to buy any building. Chris: As a result, it wasn’t really investing in very much. As this downturn occurs, what’s going to happen is a bunch of people will get blown up and disappear and the ability to underwrite more prudently and with more conservative assumptions to ensure that you’re going to get the returns that you’re projecting is now in our favor as an investor. So I will be looking for things and hopefully we’ll find things. Chris: It usually takes a while. We’re too early in the carnage but we’ll start looking for opportunities and if something pops up and we can underwrite it conservatively, based on the information in front of us, I mean, the hard part right now it’d be to decide what to do with rents at all, until we get some clarity on when this virus is going to end and what the results of it are going to be and how bad the economy is going to be, where unemployment is going to be. It’s really hard to figure out the assumptions. Chris: If someone was desperate, and needed to unload an asset, and you could underwrite it with very low rent growth for the next five or 10 years and make a solid return doing that, I would definitely invest in that. The opportunities aren’t there yet, but I think they’re coming. Steve: Got it. So you’re going to be basically, for yourself personally and for your business, you’re out there looking for opportunities, but you’re going to be much more selective and watching how this unfolds over the next one, two, three years. Chris: Yeah, and I think really the investment is really closely over the next year and I think by the time we get, over the next year, I think we’re going to find the bottom or damn close to it, and at least you’ll be able to have some sense for the bottom. I think right now it’s just discovery. We’re looking at transactions on both fronts, both personally and on the mortgage side, but it’s really hard to know what to do right this second. There’s going to be very few transactions I think that happens and that’s typical, frankly, for any downturn. Chris: You go through a freeze where the only people that sell are completely desperate and the only people buying are completely opportunistic, and anybody that can wait to transact waits. So the transaction volumes just go to a standstill virtually, and then, we talked about the Ice Age earlier. Then you’ll start to see some transactions and then the ice starts to melt and then there’s more and then you’re eventually on your way to recovery, but usually there’s a six month freeze. I’m making up the six months, but there’s very little, I think there’s going to be very little transacting other than people that absolutely have to transact. Kurt: Exactly. I can go back to the 2008, 2009 cycle that for much of 2009, transactionality was down dramatically and it wasn’t until we reached 12 months and we found, just as Chris pointed out, we had highly motivated or maybe desperate sellers and opportunistic buyers that kind of set the bottom and then we didn’t really see traction until 2010 and more liquidity came in the market after we found the bottom and prices went up from there. Kurt: So it’s quite conceivable that this could take six or 12 months to find the bottom and then it will take even one two or three years for the market to then return to those levels, that it was in prior. Steve: So if you’re an investor, you want to sit tight a little bit, find those good opportunities. I know for Chris and me, like when I co invested when you’re in the Salt Lake City deal, I think it was 2009. It was like in the midst of the last down cycle and I remember you saying, essentially, this is a screaming deal. So it’s worth doing and it did turn out to be great but everything’s like Warren Buffett, you buy when there’s blood in the streets. That’s when you get incredible deals, but most people don’t have the intestinal fortitude to get their money out there when things look really bleak, which it seems like we’re heading towards. Steve: I don’t think we’ve actually hit necessarily capitulation yet. I think the stock market is down 35%, potentially, if you look at earlier bad scenarios, it could keep going lower. I’ve been investing on the way down, dollar cost averaging on the way down, but who knows? We don’t know where this could go from here. Kurt: Yeah, I think the advice I give people right now is to save your capital, line up your capital and look for operating partners. Keep your eyes open for opportunities, but having capital and having the right operating partner, as Chris mentioned, is going to be key to finding that opportunity that may be six or 12 or more months down the road from now. Chris: Make sure that operating partner is going to invest alongside you with a meaningful amount of capital, well in excess of whatever fees they’re charging. Steve: Yeah, great input. All right. So, this has been fantastic. Appreciate all your guys’ input on this. As we wrap up any, I think you guys have shared a lot of lessons that you’ve picked up over the course of your career. Any final thoughts that you’d share with our audience who are like 50 to 65 year old folks that are mass affluent and thinking about retirement, how to pay for it and generating income. Any insights? Chris: Yeah, I think the reality is if you’re not a real estate investor, I would argue with Kurt, I think, if you’re a real estate expert, then staying local and in your market that makes a lot of sense. I think, if you’re not, and you’re going to invest with other people, and you’re going to invest with an operating partner, I’d invest with people you know. I wouldn’t be so concerned if it’s in your backyard or not, as long as you know the operating partner, they know what they’re doing, and they’re investing significantly into the deal. Chris: I think you hamstring yourself by only looking locally and I think the art of real estate investing is getting access to deals. So if you’ve never done deals or you don’t have access to them, you’re not going to get access overnight. You’re not going to get that knowledge overnight. So I think it’s important to find somebody who can help you get into those deals and that knows what they’re doing and is willing to co invest alongside of you. Or you can just go buy a one or two bedroom or three bedroom, or one, two or three unit apartment building and that’s really getting a job. Chris: That’s the other thing. I think that people don’t realize when they think about getting into real estate, if you buy a two unit or three unit or four unit, now you have four tenants that call you every week, they want you to do something for them. So I think, when you’re looking at real estate deals, you got to decide how much you want to be a passive investor or an active investor and reflecting on Steve’s comment on the age of the investor, I don’t think you want to start a real estate career where you’re managing your own real estate in your 60s. I think you want to enjoy your retirement and collect checks from somebody and allow somebody else to do the work for you. Steve: Yeah, I think that’s a great comment. There’s groups like BiggerPockets out there that they do help people figure out how to do this yourself, but it is a job. I have some friends that are like, oh, I’m buying a fourplex or duplex and fixing it up and then charging rents and then yeah, then they’re in the business of supporting those tenants and maintaining the houses, and then they’re starting to buy more of these and it can become a job, versus what I did or I’ve done with Chris. Steve: Again, I’m not trying to push this, but it was more like, hey, identified a property, usually a bigger set of hotel and, sorry, apartment building or mobile homes or strip mall, buy the whole thing, get a professional property manager, they’re managing everything. They’re taking their cost out, and then just sending checks and that’s like a much simpler, from an investing perspective it’s much simpler. Now you’re not getting all the returns you’d get if you manage it yourself, but you’re also saving yourself a lot of headaches. Steve: Then the challenge is, how do you get access to that kind of investment and can you handle a risk, because there’s definitely risk as a lot of commercial real estate investors about to find out that goes along with this, because it’s a concentrated asset, but it can be a great asset class as well if it’s producing a 10, 12% rates of return and you’re just kind of sitting there passively capturing the cash flows from that. So thanks, Chris and Kurt for being on our show. Steve: Thanks Davorin Robison for being our sound engineer. Anyone listening thanks for listening. Hopefully, you found this useful. Our goal at NewRetirement is to help anyone plan and manage their retirement so they can make the most of their money in time and if you’ve made it this far, I encourage you to do a couple things. So one is, we actually have a private Facebook group where people talk about ideas like this. We’re also out on Twitter @NewRetirement. Steve: You can check out our site at newretirement.com and obviously our planning tool where you can build your own plan for free or take advantage of our more premium tools that are out there that are available on a subscription basis, and personal support as well. Finally, we’re trying to build the audience for this podcast. So if you could leave us a review on iTunes or Stitcher, anywhere, we’d appreciate it. We read them and then try to adjust those based on the feedback. Steve: Thanks again and hopefully people are bearing, doing okay with this pandemic and being stuck at home and for the background noise that’s happened, apologies in advance. We’re all recording this from our houses and we’re dealing obviously with families and so forth, are here as well. All right. Thank you.