#37 - Jeff Krasnoff: Private Real Estate Investing

30:47So we see that. GFC, we sort of still had the playbook from the S &L crisis. It's almost Like, OK, first thing you do is the government is the government's got to get involved. They're the only catalyst that's going to help bridge the bid-ask spread between the guys that need to sell but are going to go out of business if they do versus not. And so a lot of lessons learned there. That was a little bit painful, maybe not as much because we sort of had the playbook from the S &L crisis. But we latched on to the government. We became partners with both U.S. Treasury and the FDIC, which again, part of that playbook is now coming to fruition again today as we're back doing stuff with the FDIC again, because we've got probably a banking crisis in my mind anyway.

31:48on a comparative basis when you look at some of these past cycles. Then COVID, clearly a lot to be learned in COVID. There you're hearing sob stories. I mean, that was really an amazing time because we've never seen anything quite like that before. But within a short period of time, we have about$125 billion of loans that we oversee today with our team. And we had$26 billion of loans roll in the door where it was either a hotel or a shopping center that borrower just couldn't make the payments because they weren't getting any cash flow. You know, hotels. Nobody underwrites cash flows going to zero.

32:48Right. Nobody underwrites it. So it was unexpected. But not only was that unexpected, it was a health crisis. So, you know, so we're trying trying our best, you know, to figure out how can we how can we do this, you know, compassionately at the same time. So this compassionate capitalism, I don't know who termed that term. you know we sort of learned how to how we could do that unfortunately you know the way a lot of this stuff was set up we had in many cases reserves you know for other reasons that we were able to retask you know to keep keep these uh assets afloat and if they needed more that they needed more time or whatever you know we would try to work stuff out with with the borrowers and you know we did we did plow through that retail came back very strong the hotels i mean when they start talking about things like revenge travel, I guess, you know, the hotels have done well.

33:44You can look at the, you know, the card swipes for the TSA and, you know, people travel it again. And maybe that'll tail off a little bit. It doesn't mean that every single asset is doing well, but, you know, it's a much different, you know, time today. And we had to sort of navigate through that. So, you know, that kind of fits into the painful process. But, you know, at the end of the day, it felt pretty good. I mean, most people did what we asked of them. We did as much as we could. So it wasn't like one of these things where it was it was financially generated. It was it was, you know, health crisis oriented and you're trying to do your part.

34:26Not everybody would agree with that, but, you know, we certainly tried our best. So, you know, to, and, you know, where we are today, we're learning some more stuff, right? You know, this is, it's an interesting time today. I'm sure we'll probably get to that at some point here. Yeah. We just had the fastest interest rate increases in 40 years and there's the repercussions of that are still flowing through. Yeah. Yeah. So yeah, about that. There are a lot of repercussions in terms of where we are today. While the rest of the world is not in a recession, commercial real estate is to a large degree.

35:10And who would have thunk it? Probably the biggest leader in all of that. I mean, we'll put office aside for one second, is multifamily, multifamily rental. You had a period there where the government was giving out money, free money to the world. And as a result, You know, borrowing costs were so low that, you know, folks were very active buying three and four cap, you know, properties, you know, based on existing. And, you know, and you have a rising cost environment at the same time, taxes and insurance. Insurance has gone through the roof. And now you've got your interest costs going up by 500 basis points.

36:04if you're a floating rate and you don't have a cap or anything like that. And we've seen a lot of folks make it so far until their caps expire. And once their caps expire, the cost of carrying those assets is so high that it's actually causing distress. It's probably counterintuitive, but the fact that you've got distress for multifamily out there. And we don't have enough housing in this country. So it'll eventually get straightened out because the fundamentals are pretty good. But you've also got, I think, at the same time, and again, these are generalizations, you had to look at each asset on its own.

36:52At the same time, you've got multifamily assets that are coming online, whether they're apartments or single-family rental or whatever. And that absorption still has kind of taken place at the same time. So rents can't go up until that's absorbed. Once rates can go back up, you probably could see some of these assets potentially getting refinanced, whatever the case might be. But it's also an interesting opportunity because if you're going to look at the need for living, that sort of doesn't necessarily, if you need a place to live, the alternative is going to be, well, maybe I don't rent the apartment, but I move in with mom and dad, or I move in with my in-laws, or my in-laws move in with me.

37:44That's not a good thing necessarily. You got to really like your in-laws. Got to love your kids. But again, the demand is there. Supply, long-term is short. So there's an opportunity there. I think if you just look at it on its own, but each asset's individual. I wouldn't say that you got to look at each asset and each opportunity for what it's worth. But that's kind of been one of the drivers of when you look at what's happened with interest rates. With office, that's a whole nother... We could spend a lot of time on it. We'll get into that. But circling back to lessons over previous crises, what I think is pretty fascinating is you just walk through six major crises in the last 35, 40 years, and those may last multiple years.

38:39And so that's actually quite a lot. I think these things happen more frequently than people realize. So that's observation number one. And observation number two is that they're all pretty different for one another. The SNL crisis and GFC were somewhat related, but on the surface, these are pretty different types of shocks that have surprised investors. And it makes you think that what's the next one and when does it happen? What does it look like? And if history is a guide, it's probably unpredictable and maybe very different from what we've seen in the past. So it is really important to keep risk control in mind and try to be in a strong financial position so you can take advantage of those opportunities.

39:22Yes. I mean, definitely. We're not done with this one, right? Yeah. I think this one's still got, I still got maybe, you know, 18 months to two years, you know, to play out just because of at the speed at which it's going, a big issue is really the banks at this stage of the game. If you look at the commercial real estate debt that's outstanding out there today, it's somewhere between$5.5 and$6 trillion total. So it's a big universe of credit that's out there. That's on a$20 plus trillion total capitalization of the entire industry. But if you look at the stuff that is levered and at what percentage it's levered, it's an issue which somehow has got to, in each time over the last decade or so, it's been mentioned, but it hasn't really cleared itself up.

40:23And it really sort of needs to clear itself up for a lot of these institutions. Otherwise, they're going to be insolvent. I mean, we've already seen three of the five biggest bank failures ever in the last year or so, or I guess it was 23. It's been a little bit quiet, but the FDIC is kind of moving around a lot more behind the scenes. There really were no bank failures for some period of time, even though this was a brewing problem. And even though, as part of the Dodd-Frank regulations were lessened for, I guess, the banks that were under$100 billion, I think. I don't recall the exact level.

41:07And now they sit with a number of cases. I think the FDIC itself uses a three times tangible book equity invested in commercial real estate assets or loans. We're at a point where there's almost 2 ,000 banks that are over that number, which is three times that level that we saw in the GFC. So we look at GFC and what it took there in order to get assets cleared. And, you know, and again, we could kind of talk about, you know, some of the tools to get us there. But that's, you know, that's huge. And then just the number of banks that are over five times or six times is staggering. I mean, they're so, and if you adjust to where fair value is for these underlying assets today, you have a lot of insolvent institutions.

42:10So a number of them are out there. They're trying to be more aggressive and trying to figure out what to do. They're looking to lessen exposure right now. Right now, we're seeing banks basically, they're selling some of their best loans because that's a way for them to free up capital. But it also means they're concentrated in more loans that are problematic. so that all has to you know happen one way shape manner or form and while it does well that while that's going on it's also on the other side of the coin it's also a good thing for for you know the securitization market uh which was kind of down and out when rates went as they started going up i think you know last year it was a really a paltry amount that actually got you know you used the capital markets.

43:05Now the banks, because of their position today, they're sidelined. So that's one of the things that we have to see play out. And the other thing we have to see play out is the lending to borrowers. This excludes the big banks. The big money center banks, they're fine. 5 % of their book, maybe 4 % or 5 % of their book might be in commercial real estate lending and the regionals might be 30 to 40%, depending upon which one. So it's an interesting time. It will be interesting to see how this all plays out, but we suspect that there'll be some opportunity. I only mentioned it because it was in the press, the FDIC took over a signature your bank back in back in 23 a long time ago uh and they when they did they ended up with 30 billion dollars of loans without a home so they they put them up for sale uh and one bank 30 billion biggest deal i've ever seen before was maybe three billion this was one deal You know, and we took we took a run with Blackstone and CPP, Canadian Pension Fund, as our partner to buy about 17 billion dollars of loans that that the FDIC had seized.

44:46You know, there you don't have bid ask issues. Right. You know, government's going to sell. They're going to sell. and you may have to do a lot of work to figure it out. But nonetheless, if that is an indicator of what else is out there, I would say we may be in a position, as you sort of kind of compared and talked about the different, what are we going to remember the different cycles by? This one clearly, I think, has got banks. It's not an S &L. It's probably more banks. That doesn't mean that there aren't others that have lent into the market that have issues. Non-bank financials, REITs, and so on and so forth that may be paralyzed right now.

45:35But there's a lot yet to unfold, we think, in this current environment that we're in. Yeah, I feel like many investors are a little surprised that when you move interest rates that much that fast, that more damage wasn't caused. And I think what you're describing is the damage is there, but it takes time for it to surface because the longer rates stay high and don't drop back down to near where they were before, the more pain is felt. And that just takes time for it to percolate through the system. And what you're describing is by looking kind of under the hood that there are these ongoing issues that will likely come to the surface at some point in the future.

46:19And you just want to be ready to potentially take advantage of that. Yeah. And I think, again, this is maybe a Main Street and Wall Street kind of issue, too. I'm sure his pal was raising interest rates. I know pretty much, I'm sure he was communicated with or some way that the information was sort of passed along, look what you're doing to commercial real estate. And you kind of look at it and go, well, it's not residential real estate. So people got to have homes and all this. And by the way, the GFC was residential. If you remember, it was led by residential. It probably took about a year or two after that, the commercial was really.

47:00But if you look at it, you could understand by saying, well, let's see, it's commercial real estate. Who owns commercial real estate? Oh, these big institutions, these rich guys with the yachts and the whole bit. So from a political perspective, we'll fix that later. So it's not the most important thing. As an agenda item, just because of the banking system, I think it's going to have to, you know, get, you know, garner more attention. And I'm sure it is. I mean, you know, just, just from what I know, I mean, we are partners, we're partners in the signature deal with, with the FDIC and, you know, they've been, you know, really active there, by the way, great partner, great to, great to work with, you know, as, as was U.S.

47:45Treasury when, when we did that going, going way back. But usually it's the government that's got to pull out the paddles because they're really the only entity big enough when you end up with these kinds of major cyclical or secular, however you would look at it, changes. So what I'd like to do is split up the conversation from this point forward between property and debt because Rialto invests in both. You buy real estate properties and you also are one of the largest private lenders in the country. Would you just, from a high level, talk about these two business lines and how you generally think about each?

48:29I mean, we can start with properties real quickly. I mean, that's really sort of kind of how we got our start at Lenar, right? We were dealing with commercial real estate properties. We were a developer and manager and owner, they kind of gave us the background and the understanding and the confidence so that when we're sitting across the table on the debt side, just the connection between the two, when we're sitting across the table and the borrower says, I can't do this. I'm going to throw the keys over to the other side of the table, to our side of the table. We would go, well, okay, if that's really what you want to do.

49:10I mean, we always prefer that borrower, if they borrowed the money, get an opportunity to pay it back and, you know, much rather, much rather, let's say, have that. And, you know, we have a strong economy to do that in. And we're kind of informed, you know, it's sort of a, it's sort of sick, you know, there's sort of a cycle there where it kind of, that our information and what we're looking at on the debt side helps us on the property side and vice versa. You know, what we do on the property side helps us on that side. And so that's why it's a good fit for us. And again, it also has to do with the, I mentioned the word pivot, you're going up and down the capital stack, right?

50:00So you're looking at the equity or are you looking at the first mortgage loan or are you looking at something, or are you looking at a mezzanine or preferred equity, whatever the case might be. For the most part, we prefer when we're looking at debt that it's some kind of a first mortgage because that allows us the appropriate amount of control to collect what needs to be collected. That includes in commercial mortgage-backed securities. Commercial mortgage-backed securities are basically securities that are backed by the cash flows from underlying loans. So you want those loans to continue to pay and to pay off.

50:46And that component of it is something that I wanted to make sure that I mentioned because it's really all interconnected with the underlying, what's the underlying asset look like? What's the cash flow look like? And our thoughts are informed by our knowledge and our expertise on the property side. I think if you look at dollars invested, we've invested more on the debt side than we have on the property side overall. And that's where I think, because at least I believe we have a distinct advantage, particularly being able to look at larger transactions or portfolios and so on. And in the commercial mortgage-backed arena, it's a relatively small group of buyers of the bonds because most of the sellers, when they pool their loans together, want to ensure that when the bonds are sold that the buyer of the most junior piece, who gets to control the loans and the collection of the loans, that group that does that, it's really important for the loan sellers to know that we've been through our diligence.

52:08We have adjusted whatever the underlying loans are so that we like the pool and that we get the deal done and get it done in time so they're not stuck with the assets on their books. So it's almost a symbiotic relationship. We're not the only one that does it, but it's a relatively small group of maybe, at any one particular time, there's maybe four or five buyers out there. And you know, why aren't there more? Because it really, it's time intensive and the sellers need to ensure that at the end of the day, you're going to get a deal closed. So you're kind of working together. On the debt side, we think right now is an interesting point in time because with the banks being sidelined, things improve, rates come down, transactional activity.

53:04I mean, that's the biggest driver right now. Transactional activity is so low because the bid-ask spreads on a lot of these assets are so wide. We see some movement there and there's more loans to finance. The banks, not all of them, but a lot of the banks are sitting on the sidelines. So there's a real opportunity there with interest rates higher. We don't think, I mean, again, we're not market timers and we don't know where interest rates are going, but it doesn't seem like interest rates are going back to zero. Are short-term rates going to go to two and a half? one and a half, three and a half, they're not coming back to zero.

53:48When they do start moving in the volume of assets that have been sort of this pent up demand begin to move or loans get paid off, we think it's going to be a great opportunity on the lending side. That, the banks, the bank divestitures, so on, at least in the short run here, we're probably going to see more on that side or our pivot is going to be more on the debt side than the property side. I would also say a couple of years ago that maybe a year and a half, two years ago, it was probably the opposite. Coming out of COVID or during COVID, there was better opportunities with the lower interest rate, there were better opportunities on the property side.

54:40So just the mere fact that we're in both businesses, it allows us to kind of, as I said, move up and down the capitalist back, either as a lender or if it makes sense and there's a better risk-adjusted return, down the underlying asset. And if we look at it from the investor's perspective and we look at both debt and property. How much of the total return do you think comes from variables within your control versus those outside of your control? How do you think about that? Well, we wish we had control of them all, but we don't. Of course. So, you know, you've got things like interest rates, you've got stuff happening globally, which, you know, depending upon what day it is, can be somewhat scary when you think about them, right?

55:33You know, and a lot of the times we sort of ignore it, but I would say in a perfect world and ideally, right, we'll either we can control it enough that we feel comfortable or we don't do the deal. You know, we're right now, you know, I mentioned, you know, for instance, the and I don't mean this in a negative way at all. It's just we didn't feel that we could control. And we looked at when we looked at the signature portfolio, for instance. Right. This is all public information, by the way. There was a large percent of multifamily loans, but there were also a large percentage of multifamily loans that came with, in some cases, a little bit more esoteric rent controls, I guess I would call it, which were all for affordable housing and the whole bit.

56:26but we didn't understand it as well. And we didn't think we could necessarily control what the ultimate outcome would be on many of these. Now, you can price that, right? So it's a lot cheaper, but there was a decision that we made just to bid on the market rate assets because we felt that follows more normal... You don't necessarily have a regulator or determining what your outcome might be. Got no problem with regulators. As I said, we've been partnering with some in the past. But I think from a, depending upon what it is, we can have more influence or less. I would say a significant majority of it has to be controllable.

57:20I mean, anytime you go into litigation or whatever, or you're foreclosing on someone, anything can happen, but you kind of know what the odds are. We're staying very close to shore. Let's put it that way. And this goes back to sort of the risk management aspect of what we were talking about. We want to be in a safe position, but we also want to use the advantages that we have to pick the right spots to spend our time in terms of what you know, what's a worthwhile investment and where we can get the kind of returns that, you know, we hope to get for our investors, for our partners. And then I suppose part of it is also part of the risk management component in terms of the things you can't control.

58:12You may be able to hedge. So for example, you don't know where interest rates are going, so you can do longer term financing. You're not sure which way the economy is going to go so you can buy at a discount to have a margin of safety and so on. So why don't we dig into the property markets, which is very interesting at this time. You alluded to this earlier, but there are wide divergences across sectors. Industrial is enjoying secular tailwinds while office and retail have faced secular headwinds. Would you share your high-level perspectives about these areas and any others you find interesting right now?

58:50Yeah, I think we sort of talked about office, unless you want to put that in a category of it by itself. I mean, it's interesting. Office did really well through and until COVID because longer term leases, right? The leases weren't burning off. I think we were looking at our portfolio at the time. I think maybe there was 1 % of the portfolio that had any kind of default on payment. At that point in time, I think for the industry, it's multiples of that today. And some of it's still got to shake out because as those long-term leases turn, and a lot of companies are taking less space, even if they are leasing, they're taking less space.

59:40And depending upon where you are, you might be at a point where you're bumping along the bottom. But I think there's still more news that needs to come out. It doesn't necessarily mean it's not sort of already baked in. Surprisingly, there is interest in leasing. It may not be leasing as much. So you're going to have an obsolescence issue. It'll get worked through over time, most likely. Just like we saw, we'll talk about retail in a second. Here you've got these longer term leases. People are taking 20%, 30%, 40 % less space. Some are taking even less than that because their employees are actually working from home.

1:00:27They don't need to have them anywhere. But I think we're sort of getting to that just in general. And you got to look at every asset on its own. But I think we're sort of getting, and I think it's our belief, just from what we see every day, that it does look like we're starting to at least scrape. I think the knife is still falling, but I think we're beginning to scrape it a bit off the bottom. Because you've had a reset. And so what you're saying is it's kind of settling into its natural resting point. Well, it isn't quite there yet because the capital isn't all there, right? And the sellers don't want to sell or they're in the banks.

1:01:11So you got to get assets to clear. And that's still a challenge. This is in general. And we're really talking about the obsolete. And the obsolete stuff may have to get plowed under. But if you look at the top quarter or third of the market, there's a future there. There's no question. Some of it, there's a present there. If you look at some of your best assets in the Plaza District in New York, for instance, and I mean, we know because we just leased space, you know, in the GM building and it was eye popping for me, you know, the rents are going up. But I'm sitting here in Miami and sitting behind me is in the building we're in right now.

1:01:56The demand for space I never thought I would see, you know, rents over$100 a square foot. And, you know, there isn't that much space. There's more space that's going to be coming, but it's going to take a while for that to happen. So, you know, the Southeast and New York probably have done a little bit better just in generalization. San Francisco and Washington, D.C., not so much, right? There's really a lot of stuff that's got to really start clearing and you need more price discovery here to really understand. There is some, you're seeing some deals get done. And when people start to see deals get done, they think that we're getting close and they don't want to miss the opportunity.

1:02:47But you really got to know what you're looking at. And you really got to have the expertise to know which are the winners and which aren't. We see it clearly as an opportunity and it will be an opportunity. The better assets will get leased and will either do fine or get refinanced or get sold. And the ones that are in that bottom tier or whatever, they may not all make it. They're certainly not all going to convert to residential. I think that's going to be the exception because it's really expensive to do that. And in some cases, you may have to get somebody to write you a check in order to do that.

1:03:28So I think a lot of that will be up to some municipalities in terms of trying to save their downtown areas and things like that. But again, it's distress. So it's got our certainly we're spending a lot of time on that component. I think that retail take out the second tier malls and third tier malls. Forget the third tier malls, but they got the second tier malls for a second. The Fortress Malls seem to have been doing pretty good, I think. And if you follow some of the public REITs, whether it's Simon or Mesa Reacher or whatever, they've had some pretty good sales and have done pretty well. The community centers and the power centers and the food and drug and so on have done extremely well.

1:04:27and barring the consumers a bit stretched right now, that's kind of happening at the same time. But in general, we have way too much retail, way too much retail. And a lot of that sort of has washed through the system over the last 10 years. And we see it in the portfolio. Again, we manage$125 billion of loans that we oversee that are in commercial mortgage-backed securities. These are typically stabilized assets when they go in. And we've seen a lot of strength in that. And in a number of cases, when one retailer goes out of business and decides to shut its space, there's usually one or two or three sometimes behind that that want to get that box, which is not something we were seeing.

1:05:21certainly not seeing it during COVID, but even pre-COVID, you know, we weren't seeing that. It takes time for that to happen. That will be part of the story with office, we think. But, you know, there has been pretty good strength just in general. Again, it's S-F-I-S, and I have to keep saying that. I get a caveat that because someone's going to come back at me and say, but you said, you said this. So multi, I think we talked about multi is the demand is there. There's a little bit of not a little bit, but there's probably one of the biggest supplies yet to, you know, to sort of, you know, get absorbed.

1:06:06And that's going to have some probably, damping, in fact, on rising rates, rising apartment rents, but people need to live somewhere. And again, not necessarily with other family members or other members of other people's family. So you've got that. Hotels, I think, we've sort of mentioned that. That came back really, really strong. There's still some issues with some of your tertiary markets. There are some issues there, but it really depends on where, what, and how. The leisure component is done really well. The older big box stuff needs a lot of money. The franchisors want the owners to put a lot of capital in, and a lot of times the numbers don't make sense and won't work out.

1:06:59So we're seeing, at least again, this is anecdotal based upon our own portfolio in terms of I mean, by what I mean by our own portfolio, we're talking about the underlying loans in these securitizations. And in some cases, we're talking about loans that we've made, transitional loans that we've made, first mortgage loans to investors and borrowers. How about industrial? Are we still in the early innings of that boom? I think it's later. I think it's later. I don't have a specific, and it's not a double header, I don't think yet. But it's been a good counter to retail, right? Because particularly the last mile stuff, getting deliveries and so on.

1:07:52But it's had some incredible staying power over the last, actually the last couple of years probably that, you know, that we've seen. The other big one that, you know, I think was a big disappointment was that there was, you know, post-COVID, there was a rush to, you know, on the, you know, medical oriented, you know, investments, you know, life sciences. A lot of the life science spec stuff is still spec stuff. It's not leasing up. So I think that that's one place where people ran in. I think a lot of people are running in right now to data centers, artificial intelligence coming. By the way, and that's thinking long-term on office and so on, you got to think a little bit about what's going to happen with AI, what's going to happen with office jobs.

1:08:44Are you going to need anybody? Literally, you're going to need space for them. And fortunately for some components like multifamily, you got to have a place to live. So there are trends in all of them. We have not been that active on the buy side, on the property side, but we are seeing a good number of multifamily and in a lot of case, hotel assets that have done really well that are looking to refinance and likely will get refinanced across the country. Why don't we transition to the debt side of your business? Investing in property as a whole, you mentioned, has been challenged. However, real estate lending may be attractive.

1:09:35People don't want to sell at the price they've got. You've got that bid ask. That's why you're down 40, 50 % just in terms of volume versus prior to 23. We talked about property being challenged, but real estate lending, many argue, looks relatively attractive looking ahead because you mentioned earlier, many of the traditional lenders like the regional banks have stepped away and interest rates are much higher now than they've been for a long time. So would you share your general perspectives about lending today? Yeah, I mean, we're pretty bullish on it, you know, at this stage of the game. You know, I would say the one item that's sort of missing is this interplay between the distress and you have the distress side, and then you also have the bank side, right?

1:10:31You know, and I guess they're sort of about the same. But banks, as I said, aren't necessarily dealing with their distress on the loan side. They're trying to hold out and they're trying to keep the fires burning by selling their best assets. Eventually, those are going to need to be refinanced. And so we see a growing opportunity there on the finance side, particularly, I'm talking about direct lending to borrowers, because the banks are going to be sidelined for some period of time. So higher interest rates, further up the capital stack, safer place, getting paid more. So you're actually getting paid more for taking less risk.

1:11:20Now, you know, and if you look at it, you're buying the underlying asset, if you're buying less than what you're making, making a loan and you're further up in the capital stack. It's sort of like doesn't compute otherwise. So I mean, it's interesting because, you know, I can remember a lot of conversations going back over the last, you know, 15 years or so of, you know, of folks saying, well, why do you want to be in real estate debt? That's really risky. I said, that's risky. Okay, well, anything can be risky, but is it more risky than owning the underlying asset which you are really the first lost piece for at the end of the day.

1:12:02If it goes down in value, it's all coming out of your pocket. You may have what you think is more upside in it, but that's not the case. The other thing as far as we, which is critically part of the lending business is the commercial mortgage-backed securities business, CMBS. That's just, you know, instead of loans, it's you're talking about securities, but securities that are backed by the loans. So that in and of itself is also a very good place to, you know, we think is going to be a great opportunity because, again, banks are on the sidelines. Who and how is that going to be picked up? If we're not a bank, we're not getting deposits and so on and so forth that are going to fuel that.

1:12:54So how does that process work? And I think that you're going to need to have a vibrant lending market that's going to involve folks that are not your traditional lenders. And obviously, we'll raise our hand as part of that. We have been. We've been doing that. I think we're going to end up doing more as we go forward, just because it's a good dynamic from a lending perspective. We just need more. I mean, I think the market needs more transaction volume. More stuff has to start trading. The bid-ask spreads need to get to a point where then the floodgates will open. On the CNBS front right now, this year is already busier than it was last year.

1:13:50I mean, I think we already might be at, just in terms of number of deals that we've done or that we've seen, is just significantly higher than it was the year before. So we're already getting that volume to come through the marketplace. and you are getting a higher, you're getting a higher coupon, you know, from the underlying loan that you're making. And even if you're buying the securities that these loans are collateral for, we're finding that, you know, we're getting double digit, you know, kind of cash on cash, you know, just going in. And, you know, that gives us also the ability, you know, know, just sort of pick and choose the assets we want in those securitizations.

1:14:40So it's at a good place right now. And no matter which way we go, if there's no distress and the banks don't sell their distressed assets at, you know, at 40 or 50 or 60 cents on the dollar and things come back and the opportunity is wide open on the new lending side. Yeah. It seems like you've had a pretty interesting intersection of factors. So you You have the many of the regional banks have stepped away. And so there's a shortage of supply for of lenders. Yields are relatively high, which makes lending more attractive than when they're lower. And also, we're sort of late in the economic cycle.

1:15:22We talked about the real estate cycle, but the economic cycle, it's late cycle. So it seems that in that type of environment, it may make more sense to be a lender than an equity owner. And so you put all that together and I could see why you would feel that lending in this market is more attractive than potentially owning equity outside of the stress. I think you encapsulated it very well, much better than I did. Well, Jeff, you've been very generous with your time. You've given us a lot of insights, which I appreciate. I just wanted to see if you had any final insights about real estate investing that you'd like to share.

1:15:58No, look, it's been fun. It's an interesting business. You do get to see a lot of different components of not just real estate, but of the economy of the country and so on. And it involves a lot of different disciplines. We're sort of excited about where we are right now and are optimistic that over the next few years we'll see some more interesting transactions. That's for sure. I appreciate it, Jeff. Alex, thank you very much. This really is, I can't believe how much time went by so quickly. Thanks for listening. We hope you enjoyed this episode. Please visit our website at insightfulinvestor.org to access past shows and learn more about our podcast.

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