April 13, 2026
The Truth About Debt in Commercial Real Estate (Why Low Leverage Wins)
In this episode of Commercial Real Estate Secrets, we break down the real truth about debt in commercial real estate, why some of the most experienced investors are shifting to low leverage (or no leverage at all), and what the market has taught them—especially after surviving downturns like 2008.
What You’ll Learn in This Episode:
- Why high leverage can destroy deals during vacancies and downturns
- The hidden risks of floating rate debt and over-optimistic underwriting
- How a low debt strategy protects investors
- Why many syndicators today are struggling with compressed returns
- What’s changed from the early 2000s to today’s hyper-competitive CRE market
- How to think about risk, cash flow, and long-term wealth preservation
Looking to buy commercial or industrial property in Denver or anywhere in Colorado?
In today’s market, debt structure, underwriting, and deal fundamentals play a bigger role than ever in long-term performance. Understanding how leverage impacts risk, cash flow, and downside protection is critical before making an acquisition.
Before you commit to a deal, take a closer look at how the property, financing, and strategy all work together.
👉 See how to approach your next acquisition:
https://warehousehotline.com/buy-commercial-property-denver/
Follow Commercial Real Estate Secrets for more insights on investing, leasing, and building long-term wealth in CRE.
From the CRE Secrets Archives: This episode has been lightly edited to remove time-sensitive references and keep the discussion evergreen.
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00:00:00,080 --> 00:00:06,040
So you as a syndicator have a
strategy that protects you if
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00:00:06,040 --> 00:00:08,160
and when you do have the
vacancy.
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00:00:08,400 --> 00:00:10,760
And I'm talking about in regards
to debt.
4
00:00:11,120 --> 00:00:15,920
Can you share with us your debt
strategy and your syndication
5
00:00:15,920 --> 00:00:20,120
strategy in general?
Yes, we have 70 active
6
00:00:20,120 --> 00:00:24,760
investors.
And in 2008, when the downturn
7
00:00:25,000 --> 00:00:29,080
was dramatically horrible, we
had 50 buildings at that time,
8
00:00:29,120 --> 00:00:31,840
all with that.
And I went through some very
9
00:00:31,840 --> 00:00:35,800
major dark times because tenants
left and we had a bunch of
10
00:00:35,800 --> 00:00:39,400
vacancies.
And I learned that banks have no
11
00:00:39,400 --> 00:00:41,760
sense of humor.
Workout departments suck.
12
00:00:42,440 --> 00:00:48,080
And I decided that I didn't want
to be in a position ever again
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00:00:48,640 --> 00:00:52,480
where I was beholden to a
lender, where we owed so much
14
00:00:52,480 --> 00:00:56,360
money that if anything went
wrong, it would cause trouble.
15
00:00:56,960 --> 00:00:59,320
So I went to my group of
investors, and I said, hey,
16
00:00:59,320 --> 00:01:03,680
everybody, how do you like the
idea of doing either very low
17
00:01:03,680 --> 00:01:08,840
debt, 30% maximum LTV or zero
debt?
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00:01:09,600 --> 00:01:11,640
And a bunch of people said,
that's ridiculous.
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00:01:11,640 --> 00:01:14,880
Real estate's a leveraged
business, why would you do that?
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00:01:15,240 --> 00:01:17,160
And other people said, you know
what?
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00:01:17,880 --> 00:01:24,120
Yeah, yeah, I would do that.
So I assembled this group of 70
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00:01:24,120 --> 00:01:27,920
of us who are really comfortable
with little or no debt.
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00:01:28,040 --> 00:01:30,840
And it's not for everybody, you
know.
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00:01:30,840 --> 00:01:34,960
When my father's playbook, when
he reads to me the playbook,
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00:01:35,640 --> 00:01:38,600
these are double digit returns
with no competition when they
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00:01:38,600 --> 00:01:41,320
were buying.
And OK, competition is not a big
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00:01:41,320 --> 00:01:45,960
deal, but double digit returns
make sense when returns are 6
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00:01:45,960 --> 00:01:50,440
percent, 7%.
How do you syndicate a deal and
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00:01:50,440 --> 00:01:54,480
make it make sense for yourself
as the syndicator and your
30
00:01:54,480 --> 00:01:57,280
partners?
All right, you just asked the
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00:01:57,280 --> 00:01:59,920
best question that anybody has
ever asked me.
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00:02:00,240 --> 00:02:05,400
It is the number one question
and there is no good answer.
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00:02:05,480 --> 00:02:09,199
That's why it's such a good
question in today's world.
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00:02:09,400 --> 00:02:13,440
Well, first of all, when your
dad was syndicating, nobody had
35
00:02:13,440 --> 00:02:16,520
ever heard of industrial.
I used to go to parties and
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00:02:16,520 --> 00:02:19,560
people would say, hey, this is a
great wedding, what do you do
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00:02:19,560 --> 00:02:21,200
for a living?
And I'd say I'm in industrial
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00:02:21,200 --> 00:02:23,080
real estate.
And they'd say, what's that,
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00:02:24,160 --> 00:02:26,120
right.
Nobody even knew what it was.
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00:02:26,840 --> 00:02:32,520
So back then, because I did my
first syndication, which was
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00:02:32,520 --> 00:02:37,320
1989, and we still own that
building.
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00:02:38,400 --> 00:02:40,360
It's called we're like you.
We have, we have buildings we've
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00:02:40,360 --> 00:02:45,360
had for a long, long time.
And back then, I could buy a
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00:02:45,360 --> 00:02:51,200
deal for $35 a foot and I could
get a 10% return all day.
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00:02:52,240 --> 00:02:54,080
And if it wasn't 10, we didn't
do it.
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00:02:55,360 --> 00:02:59,680
What's happened since then is
there?
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00:02:59,960 --> 00:03:04,360
The world has become smaller
because of social media,
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00:03:04,360 --> 00:03:08,800
primarily.
And everybody and their father
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00:03:08,800 --> 00:03:13,160
and their cousin and their uncle
are now syndicators.
50
00:03:13,720 --> 00:03:16,080
And you know how many
multifamily syndicators there
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00:03:16,080 --> 00:03:19,160
are in this world?
Thousands of them.
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00:03:19,320 --> 00:03:24,120
There are thousands of them.
I'm guessing there's 3000 multi
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00:03:24,120 --> 00:03:28,320
family syndicators who have more
than $50 million of properties.
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00:03:29,560 --> 00:03:34,320
And the reason that the rates
have gone down, the returns have
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00:03:34,320 --> 00:03:39,920
gone down, is because it's
become an efficient business.
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00:03:39,920 --> 00:03:43,440
When your dad and I were doing
it in the early days, it was
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00:03:43,440 --> 00:03:45,920
inefficient.
There was no Internet.
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00:03:46,760 --> 00:03:49,800
There was no public listing
system.
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00:03:49,800 --> 00:03:53,040
We would just stumble into a
deal and nobody knew what
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00:03:53,040 --> 00:03:54,880
anything was worth except for
us.
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00:03:56,160 --> 00:03:59,200
And we said to people, if we
can't get a 10% return, we don't
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00:03:59,200 --> 00:04:01,800
want to buy the building.
And now with all these
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00:04:01,800 --> 00:04:06,520
syndicators out there, the
reason that there are 6% returns
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00:04:06,560 --> 00:04:10,680
that are getting done is because
these multifamily people,
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00:04:11,640 --> 00:04:14,600
there's so many of them and
they're selling so hard.
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00:04:15,360 --> 00:04:17,320
You should be a passive
investor.
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00:04:17,320 --> 00:04:19,040
You should be a passive
investor.
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00:04:19,240 --> 00:04:21,320
Let me teach you about passive
investing.
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00:04:21,920 --> 00:04:25,080
And they're all selling these
courses to investors.
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00:04:25,520 --> 00:04:31,440
And they've convinced the
investors that a 6% yield is a
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00:04:31,440 --> 00:04:34,720
good idea.
And investors have bought in.
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00:04:35,000 --> 00:04:39,440
They said, well, if 3000 people
say that that's a good deal, it
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00:04:39,440 --> 00:04:44,240
must be a good deal.
But it's not, it's not a good
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00:04:44,240 --> 00:04:50,680
deal, 6% deals, not a good deal
because if it's based on a cap
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00:04:50,680 --> 00:04:55,480
rate and you're buying
something, it's a cap rate of 6.
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00:04:56,080 --> 00:05:00,480
Realistically, you're only
giving your investors 5.2 or 5.3
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00:05:00,480 --> 00:05:04,080
because there are expenses and
reserves that people don't
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00:05:04,080 --> 00:05:06,440
remember to include in their
numbers.
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00:05:07,080 --> 00:05:12,520
And so unfortunately, there's
what I would call over optimism
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00:05:14,160 --> 00:05:17,440
and people believe that they're
going to buy these deals in a
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00:05:17,440 --> 00:05:22,120
six cap and make all this money.
And they were borrowing up until
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00:05:22,120 --> 00:05:25,880
recently at 3 and 4% with
floating debt even less.
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00:05:26,680 --> 00:05:30,200
And that's what happened is that
the whole market became so
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00:05:30,200 --> 00:05:33,480
efficient and so well known.
You can turn, you can if you
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00:05:33,480 --> 00:05:37,240
wanted to go find podcasts about
multifamily real estate
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00:05:37,240 --> 00:05:41,120
investing.
There are 300 podcasts on that
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00:05:41,120 --> 00:05:46,000
subject and they're all talking
about why 6% is the market.
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00:05:46,440 --> 00:05:49,120
And yeah, we know we can only
get 5.
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00:05:49,680 --> 00:05:57,640
And if the cap rates continue to
go up as they have, because when
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00:05:57,640 --> 00:06:00,520
interest rates go up, the cap
rates have to go up.
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00:06:00,920 --> 00:06:04,680
People who have bought
properties for a six cap are now
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00:06:04,680 --> 00:06:10,400
underwater because selling them
for A7 cap is necessary in order
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00:06:10,400 --> 00:06:13,840
for people to pay their debt.
So it's really screwy.
94
00:06:13,840 --> 00:06:19,640
And so for me, the answer to the
question is everything's upside
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00:06:19,640 --> 00:06:23,920
down and it's very hard to buy
properties because greed has
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00:06:23,920 --> 00:06:27,640
come into play in industrial and
people have seen that industrial
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00:06:27,640 --> 00:06:31,000
has gone so far so fast.
You know that industrial rents.
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00:06:31,440 --> 00:06:35,400
I just did a deal near Toronto
as a broker for Chicago tenant
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00:06:36,800 --> 00:06:44,080
and they were paying a Toronto
based family $5 a foot net and
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00:06:44,080 --> 00:06:48,680
the lease was five years old and
coming up this year and they got
101
00:06:48,680 --> 00:06:54,440
$9 net, which is if you think
about it an 80% increase, it's
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00:06:54,680 --> 00:06:59,560
an 80% increase.
It makes no sense, right, right.
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00:06:59,960 --> 00:07:02,920
OK.
I wouldn't buy a building if I
104
00:07:02,920 --> 00:07:08,600
had to count on a 6% cash flow
continuing and I didn't think
105
00:07:08,600 --> 00:07:11,040
there was any major upside.
Well, that's why I'm having
106
00:07:11,040 --> 00:07:13,560
trouble buying because I don't
think there is any major upside.
107
00:07:13,800 --> 00:07:16,320
I might be way wrong.
Maybe buildings that today are
108
00:07:16,320 --> 00:07:19,120
150 are going to be worth 250 in
10 years.
109
00:07:20,080 --> 00:07:23,840
But it's very possible that if
there's a downturn, $150.00
110
00:07:23,840 --> 00:07:26,280
property today could be worth
120 tomorrow.
111
00:07:26,280 --> 00:07:29,480
And that may be one of the
reasons that you're scared of
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00:07:29,480 --> 00:07:31,760
doing a syndication, because I
am.
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00:07:33,360 --> 00:07:38,520
Right, because unlike the
multifamily syndicators of 2022
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00:07:38,520 --> 00:07:43,160
with their variable loans in at
2.6%, it's actually not an
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00:07:43,160 --> 00:07:46,800
option to not win on behalf of
your partners.
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00:07:47,280 --> 00:07:51,640
Leads me to my next question.
Can you tell us about your due
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00:07:51,640 --> 00:07:55,480
diligence process and how you
make sure that you are ironclad
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00:07:55,480 --> 00:07:59,880
for your partners on every deal?
Yeah.
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00:07:59,960 --> 00:08:03,360
So we would look at every single
element of a building
120
00:08:03,360 --> 00:08:07,880
physically, but that's not all.
You look at the roof, the HVAC,
121
00:08:08,560 --> 00:08:13,440
the doors, the floors, the
walls, the parking lot, the
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00:08:14,040 --> 00:08:19,240
sprinkler system, the fire exit
safety plan, which the city can
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00:08:19,240 --> 00:08:21,800
come in and make you redo the
whole thing at their whim.
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00:08:22,600 --> 00:08:28,160
All that, but also real estate
taxes, what they are, what
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00:08:28,160 --> 00:08:29,920
they're going to be after the
purchase.
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00:08:29,920 --> 00:08:33,120
That's huge.
Another one that people don't
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00:08:33,120 --> 00:08:37,200
think of too frequently is the
zoning.
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00:08:37,919 --> 00:08:41,760
The zoning has to be right, and
we've actually run into
129
00:08:41,760 --> 00:08:46,840
situations where the zoning is
not right where you wouldn't
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00:08:46,840 --> 00:08:48,320
have known it.
Looking at an industrial
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00:08:48,320 --> 00:08:50,600
building, you would think that
it was zoned perfectly well for
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00:08:50,600 --> 00:08:53,600
industrial, but actually 1
Village rezoned everything
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00:08:53,600 --> 00:08:56,920
retail 'cause they had a vision
about 10 years ago that they
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00:08:56,920 --> 00:08:58,640
were going to build this
shopping area.
135
00:08:59,840 --> 00:09:02,920
So if we were to buy the
building and our tenant left, we
136
00:09:02,920 --> 00:09:05,040
couldn't fill it with an
industrial tenant without
137
00:09:05,040 --> 00:09:07,840
getting the zoning changed.
Who would have ever thought of
138
00:09:07,840 --> 00:09:11,600
that?
Somebody who lost their head on
139
00:09:11,600 --> 00:09:14,120
it before, right?
Yes, yes.
140
00:09:14,520 --> 00:09:15,840
Right.
And here's a, here's another big
141
00:09:15,840 --> 00:09:20,040
one.
Duck turning radius.
142
00:09:21,520 --> 00:09:24,040
We looked at a couple buildings
that we were going to buy in a
143
00:09:24,040 --> 00:09:28,040
package.
There were 33 buildings and one
144
00:09:28,040 --> 00:09:32,760
of the buildings, 40,000 feet,
had loading docks on the side
145
00:09:32,920 --> 00:09:36,640
and you had to drive past
parking like up the middle of a
146
00:09:36,640 --> 00:09:40,880
parking aisle and then pass the
cars and then back in the dock.
147
00:09:42,440 --> 00:09:45,200
But the aisle was only 60 feet
wide.
148
00:09:45,400 --> 00:09:49,160
Not the aisle, the parking lot.
Because you need 20 feet for a
149
00:09:49,160 --> 00:09:51,280
space.
You need 24 for an aisle and you
150
00:09:51,280 --> 00:09:54,960
need 24 for a space.
So you need 64 feet.
151
00:09:55,160 --> 00:09:59,480
It was only 60 and the docks
were in the back of the building
152
00:09:59,480 --> 00:10:03,760
facing the side.
So if you pull the truck up the
153
00:10:03,760 --> 00:10:08,120
middle of all the cars, the
aisle, that 24 foot aisle, the
154
00:10:08,120 --> 00:10:12,600
truck has to then make a little
veer off to the left or to the
155
00:10:12,600 --> 00:10:17,080
right and then it has to back
into the dock 60 feet.
156
00:10:17,880 --> 00:10:22,080
Even with no cars back, there
isn't enough for them to be able
157
00:10:22,080 --> 00:10:25,320
to back the truck in.
So if you buy a 40,000 foot
158
00:10:25,320 --> 00:10:27,400
building and you can't use the
truck docks because the
159
00:10:27,400 --> 00:10:30,600
maneuvering room is inadequate,
it's worthless.
160
00:10:31,280 --> 00:10:35,160
Worthless.
So knowing all those things, if
161
00:10:35,160 --> 00:10:38,160
you make the mistake, you pay
the price.
162
00:10:38,440 --> 00:10:40,800
Trust me, I look at some of
these buildings and scratch my
163
00:10:40,800 --> 00:10:44,080
head for that exact reason.
Access, right?
164
00:10:44,080 --> 00:10:45,680
The whole point is to get a
truck in.
165
00:10:45,680 --> 00:10:48,920
If you can't get a truck in, you
can't get product in.
166
00:10:49,400 --> 00:10:52,000
What's the point of having, like
you said, 40,000 feet?
167
00:10:52,080 --> 00:10:54,080
It's sad.
It's so sad when they ruin the
168
00:10:54,080 --> 00:10:56,560
warehouses.
Like that and ceiling height,
169
00:10:56,960 --> 00:10:58,280
right?
Ceiling heights an issue.
170
00:10:58,560 --> 00:11:00,120
And the sprinkler.
Do you know that you could have
171
00:11:00,120 --> 00:11:03,240
a 20 foot ceiling and only be
able to stack up to 12 feet in
172
00:11:03,240 --> 00:11:07,120
certain municipalities?
Yes, I've gotten those.
173
00:11:07,240 --> 00:11:11,200
Letters, Yeah, you think, well,
hey, I've got 20 feet.
174
00:11:11,200 --> 00:11:15,320
I can stack up to 19 feet, but
because of the sprinkler system
175
00:11:15,440 --> 00:11:18,680
density, the village doesn't
think it's safe to stack up to
176
00:11:18,680 --> 00:11:21,680
19 feet, and they say you're
limited to 12 unless you want to
177
00:11:21,680 --> 00:11:24,800
redo your sprinkler system,
which costs, by the way, $8 a
178
00:11:24,800 --> 00:11:26,000
square foot to do today.
00:00:00,080 --> 00:00:06,040
So you as a syndicator have a
strategy that protects you if
2
00:00:06,040 --> 00:00:08,160
and when you do have the
vacancy.
3
00:00:08,400 --> 00:00:10,760
And I'm talking about in regards
to debt.
4
00:00:11,120 --> 00:00:15,920
Can you share with us your debt
strategy and your syndication
5
00:00:15,920 --> 00:00:20,120
strategy in general?
Yes, we have 70 active
6
00:00:20,120 --> 00:00:24,760
investors.
And in 2008, when the downturn
7
00:00:25,000 --> 00:00:29,080
was dramatically horrible, we
had 50 buildings at that time,
8
00:00:29,120 --> 00:00:31,840
all with that.
And I went through some very
9
00:00:31,840 --> 00:00:35,800
major dark times because tenants
left and we had a bunch of
10
00:00:35,800 --> 00:00:39,400
vacancies.
And I learned that banks have no
11
00:00:39,400 --> 00:00:41,760
sense of humor.
Workout departments suck.
12
00:00:42,440 --> 00:00:48,080
And I decided that I didn't want
to be in a position ever again
13
00:00:48,640 --> 00:00:52,480
where I was beholden to a
lender, where we owed so much
14
00:00:52,480 --> 00:00:56,360
money that if anything went
wrong, it would cause trouble.
15
00:00:56,960 --> 00:00:59,320
So I went to my group of
investors, and I said, hey,
16
00:00:59,320 --> 00:01:03,680
everybody, how do you like the
idea of doing either very low
17
00:01:03,680 --> 00:01:08,840
debt, 30% maximum LTV or zero
debt?
18
00:01:09,600 --> 00:01:11,640
And a bunch of people said,
that's ridiculous.
19
00:01:11,640 --> 00:01:14,880
Real estate's a leveraged
business, why would you do that?
20
00:01:15,240 --> 00:01:17,160
And other people said, you know
what?
21
00:01:17,880 --> 00:01:24,120
Yeah, yeah, I would do that.
So I assembled this group of 70
22
00:01:24,120 --> 00:01:27,920
of us who are really comfortable
with little or no debt.
23
00:01:28,040 --> 00:01:30,840
And it's not for everybody, you
know.
24
00:01:30,840 --> 00:01:34,960
When my father's playbook, when
he reads to me the playbook,
25
00:01:35,640 --> 00:01:38,600
these are double digit returns
with no competition when they
26
00:01:38,600 --> 00:01:41,320
were buying.
And OK, competition is not a big
27
00:01:41,320 --> 00:01:45,960
deal, but double digit returns
make sense when returns are 6
28
00:01:45,960 --> 00:01:50,440
percent, 7%.
How do you syndicate a deal and
29
00:01:50,440 --> 00:01:54,480
make it make sense for yourself
as the syndicator and your
30
00:01:54,480 --> 00:01:57,280
partners?
All right, you just asked the
31
00:01:57,280 --> 00:01:59,920
best question that anybody has
ever asked me.
32
00:02:00,240 --> 00:02:05,400
It is the number one question
and there is no good answer.
33
00:02:05,480 --> 00:02:09,199
That's why it's such a good
question in today's world.
34
00:02:09,400 --> 00:02:13,440
Well, first of all, when your
dad was syndicating, nobody had
35
00:02:13,440 --> 00:02:16,520
ever heard of industrial.
I used to go to parties and
36
00:02:16,520 --> 00:02:19,560
people would say, hey, this is a
great wedding, what do you do
37
00:02:19,560 --> 00:02:21,200
for a living?
And I'd say I'm in industrial
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00:02:21,200 --> 00:02:23,080
real estate.
And they'd say, what's that,
39
00:02:24,160 --> 00:02:26,120
right.
Nobody even knew what it was.
40
00:02:26,840 --> 00:02:32,520
So back then, because I did my
first syndication, which was
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00:02:32,520 --> 00:02:37,320
1989, and we still own that
building.
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00:02:38,400 --> 00:02:40,360
It's called we're like you.
We have, we have buildings we've
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00:02:40,360 --> 00:02:45,360
had for a long, long time.
And back then, I could buy a
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00:02:45,360 --> 00:02:51,200
deal for $35 a foot and I could
get a 10% return all day.
45
00:02:52,240 --> 00:02:54,080
And if it wasn't 10, we didn't
do it.
46
00:02:55,360 --> 00:02:59,680
What's happened since then is
there?
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00:02:59,960 --> 00:03:04,360
The world has become smaller
because of social media,
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00:03:04,360 --> 00:03:08,800
primarily.
And everybody and their father
49
00:03:08,800 --> 00:03:13,160
and their cousin and their uncle
are now syndicators.
50
00:03:13,720 --> 00:03:16,080
And you know how many
multifamily syndicators there
51
00:03:16,080 --> 00:03:19,160
are in this world?
Thousands of them.
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00:03:19,320 --> 00:03:24,120
There are thousands of them.
I'm guessing there's 3000 multi
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00:03:24,120 --> 00:03:28,320
family syndicators who have more
than $50 million of properties.
54
00:03:29,560 --> 00:03:34,320
And the reason that the rates
have gone down, the returns have
55
00:03:34,320 --> 00:03:39,920
gone down, is because it's
become an efficient business.
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00:03:39,920 --> 00:03:43,440
When your dad and I were doing
it in the early days, it was
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00:03:43,440 --> 00:03:45,920
inefficient.
There was no Internet.
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00:03:46,760 --> 00:03:49,800
There was no public listing
system.
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00:03:49,800 --> 00:03:53,040
We would just stumble into a
deal and nobody knew what
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00:03:53,040 --> 00:03:54,880
anything was worth except for
us.
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00:03:56,160 --> 00:03:59,200
And we said to people, if we
can't get a 10% return, we don't
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00:03:59,200 --> 00:04:01,800
want to buy the building.
And now with all these
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00:04:01,800 --> 00:04:06,520
syndicators out there, the
reason that there are 6% returns
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00:04:06,560 --> 00:04:10,680
that are getting done is because
these multifamily people,
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00:04:11,640 --> 00:04:14,600
there's so many of them and
they're selling so hard.
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00:04:15,360 --> 00:04:17,320
You should be a passive
investor.
67
00:04:17,320 --> 00:04:19,040
You should be a passive
investor.
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00:04:19,240 --> 00:04:21,320
Let me teach you about passive
investing.
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00:04:21,920 --> 00:04:25,080
And they're all selling these
courses to investors.
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00:04:25,520 --> 00:04:31,440
And they've convinced the
investors that a 6% yield is a
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00:04:31,440 --> 00:04:34,720
good idea.
And investors have bought in.
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00:04:35,000 --> 00:04:39,440
They said, well, if 3000 people
say that that's a good deal, it
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00:04:39,440 --> 00:04:44,240
must be a good deal.
But it's not, it's not a good
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00:04:44,240 --> 00:04:50,680
deal, 6% deals, not a good deal
because if it's based on a cap
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00:04:50,680 --> 00:04:55,480
rate and you're buying
something, it's a cap rate of 6.
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00:04:56,080 --> 00:05:00,480
Realistically, you're only
giving your investors 5.2 or 5.3
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00:05:00,480 --> 00:05:04,080
because there are expenses and
reserves that people don't
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00:05:04,080 --> 00:05:06,440
remember to include in their
numbers.
79
00:05:07,080 --> 00:05:12,520
And so unfortunately, there's
what I would call over optimism
80
00:05:14,160 --> 00:05:17,440
and people believe that they're
going to buy these deals in a
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00:05:17,440 --> 00:05:22,120
six cap and make all this money.
And they were borrowing up until
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00:05:22,120 --> 00:05:25,880
recently at 3 and 4% with
floating debt even less.
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00:05:26,680 --> 00:05:30,200
And that's what happened is that
the whole market became so
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00:05:30,200 --> 00:05:33,480
efficient and so well known.
You can turn, you can if you
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00:05:33,480 --> 00:05:37,240
wanted to go find podcasts about
multifamily real estate
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00:05:37,240 --> 00:05:41,120
investing.
There are 300 podcasts on that
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00:05:41,120 --> 00:05:46,000
subject and they're all talking
about why 6% is the market.
88
00:05:46,440 --> 00:05:49,120
And yeah, we know we can only
get 5.
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00:05:49,680 --> 00:05:57,640
And if the cap rates continue to
go up as they have, because when
90
00:05:57,640 --> 00:06:00,520
interest rates go up, the cap
rates have to go up.
91
00:06:00,920 --> 00:06:04,680
People who have bought
properties for a six cap are now
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00:06:04,680 --> 00:06:10,400
underwater because selling them
for A7 cap is necessary in order
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00:06:10,400 --> 00:06:13,840
for people to pay their debt.
So it's really screwy.
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00:06:13,840 --> 00:06:19,640
And so for me, the answer to the
question is everything's upside
95
00:06:19,640 --> 00:06:23,920
down and it's very hard to buy
properties because greed has
96
00:06:23,920 --> 00:06:27,640
come into play in industrial and
people have seen that industrial
97
00:06:27,640 --> 00:06:31,000
has gone so far so fast.
You know that industrial rents.
98
00:06:31,440 --> 00:06:35,400
I just did a deal near Toronto
as a broker for Chicago tenant
99
00:06:36,800 --> 00:06:44,080
and they were paying a Toronto
based family $5 a foot net and
100
00:06:44,080 --> 00:06:48,680
the lease was five years old and
coming up this year and they got
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00:06:48,680 --> 00:06:54,440
$9 net, which is if you think
about it an 80% increase, it's
102
00:06:54,680 --> 00:06:59,560
an 80% increase.
It makes no sense, right, right.
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00:06:59,960 --> 00:07:02,920
OK.
I wouldn't buy a building if I
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00:07:02,920 --> 00:07:08,600
had to count on a 6% cash flow
continuing and I didn't think
105
00:07:08,600 --> 00:07:11,040
there was any major upside.
Well, that's why I'm having
106
00:07:11,040 --> 00:07:13,560
trouble buying because I don't
think there is any major upside.
107
00:07:13,800 --> 00:07:16,320
I might be way wrong.
Maybe buildings that today are
108
00:07:16,320 --> 00:07:19,120
150 are going to be worth 250 in
10 years.
109
00:07:20,080 --> 00:07:23,840
But it's very possible that if
there's a downturn, $150.00
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00:07:23,840 --> 00:07:26,280
property today could be worth
120 tomorrow.
111
00:07:26,280 --> 00:07:29,480
And that may be one of the
reasons that you're scared of
112
00:07:29,480 --> 00:07:31,760
doing a syndication, because I
am.
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00:07:33,360 --> 00:07:38,520
Right, because unlike the
multifamily syndicators of 2022
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00:07:38,520 --> 00:07:43,160
with their variable loans in at
2.6%, it's actually not an
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00:07:43,160 --> 00:07:46,800
option to not win on behalf of
your partners.
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00:07:47,280 --> 00:07:51,640
Leads me to my next question.
Can you tell us about your due
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00:07:51,640 --> 00:07:55,480
diligence process and how you
make sure that you are ironclad
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00:07:55,480 --> 00:07:59,880
for your partners on every deal?
Yeah.
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00:07:59,960 --> 00:08:03,360
So we would look at every single
element of a building
120
00:08:03,360 --> 00:08:07,880
physically, but that's not all.
You look at the roof, the HVAC,
121
00:08:08,560 --> 00:08:13,440
the doors, the floors, the
walls, the parking lot, the
122
00:08:14,040 --> 00:08:19,240
sprinkler system, the fire exit
safety plan, which the city can
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00:08:19,240 --> 00:08:21,800
come in and make you redo the
whole thing at their whim.
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00:08:22,600 --> 00:08:28,160
All that, but also real estate
taxes, what they are, what
125
00:08:28,160 --> 00:08:29,920
they're going to be after the
purchase.
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00:08:29,920 --> 00:08:33,120
That's huge.
Another one that people don't
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00:08:33,120 --> 00:08:37,200
think of too frequently is the
zoning.
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00:08:37,919 --> 00:08:41,760
The zoning has to be right, and
we've actually run into
129
00:08:41,760 --> 00:08:46,840
situations where the zoning is
not right where you wouldn't
130
00:08:46,840 --> 00:08:48,320
have known it.
Looking at an industrial
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00:08:48,320 --> 00:08:50,600
building, you would think that
it was zoned perfectly well for
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00:08:50,600 --> 00:08:53,600
industrial, but actually 1
Village rezoned everything
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00:08:53,600 --> 00:08:56,920
retail 'cause they had a vision
about 10 years ago that they
134
00:08:56,920 --> 00:08:58,640
were going to build this
shopping area.
135
00:08:59,840 --> 00:09:02,920
So if we were to buy the
building and our tenant left, we
136
00:09:02,920 --> 00:09:05,040
couldn't fill it with an
industrial tenant without
137
00:09:05,040 --> 00:09:07,840
getting the zoning changed.
Who would have ever thought of
138
00:09:07,840 --> 00:09:11,600
that?
Somebody who lost their head on
139
00:09:11,600 --> 00:09:14,120
it before, right?
Yes, yes.
140
00:09:14,520 --> 00:09:15,840
Right.
And here's a, here's another big
141
00:09:15,840 --> 00:09:20,040
one.
Duck turning radius.
142
00:09:21,520 --> 00:09:24,040
We looked at a couple buildings
that we were going to buy in a
143
00:09:24,040 --> 00:09:28,040
package.
There were 33 buildings and one
144
00:09:28,040 --> 00:09:32,760
of the buildings, 40,000 feet,
had loading docks on the side
145
00:09:32,920 --> 00:09:36,640
and you had to drive past
parking like up the middle of a
146
00:09:36,640 --> 00:09:40,880
parking aisle and then pass the
cars and then back in the dock.
147
00:09:42,440 --> 00:09:45,200
But the aisle was only 60 feet
wide.
148
00:09:45,400 --> 00:09:49,160
Not the aisle, the parking lot.
Because you need 20 feet for a
149
00:09:49,160 --> 00:09:51,280
space.
You need 24 for an aisle and you
150
00:09:51,280 --> 00:09:54,960
need 24 for a space.
So you need 64 feet.
151
00:09:55,160 --> 00:09:59,480
It was only 60 and the docks
were in the back of the building
152
00:09:59,480 --> 00:10:03,760
facing the side.
So if you pull the truck up the
153
00:10:03,760 --> 00:10:08,120
middle of all the cars, the
aisle, that 24 foot aisle, the
154
00:10:08,120 --> 00:10:12,600
truck has to then make a little
veer off to the left or to the
155
00:10:12,600 --> 00:10:17,080
right and then it has to back
into the dock 60 feet.
156
00:10:17,880 --> 00:10:22,080
Even with no cars back, there
isn't enough for them to be able
157
00:10:22,080 --> 00:10:25,320
to back the truck in.
So if you buy a 40,000 foot
158
00:10:25,320 --> 00:10:27,400
building and you can't use the
truck docks because the
159
00:10:27,400 --> 00:10:30,600
maneuvering room is inadequate,
it's worthless.
160
00:10:31,280 --> 00:10:35,160
Worthless.
So knowing all those things, if
161
00:10:35,160 --> 00:10:38,160
you make the mistake, you pay
the price.
162
00:10:38,440 --> 00:10:40,800
Trust me, I look at some of
these buildings and scratch my
163
00:10:40,800 --> 00:10:44,080
head for that exact reason.
Access, right?
164
00:10:44,080 --> 00:10:45,680
The whole point is to get a
truck in.
165
00:10:45,680 --> 00:10:48,920
If you can't get a truck in, you
can't get product in.
166
00:10:49,400 --> 00:10:52,000
What's the point of having, like
you said, 40,000 feet?
167
00:10:52,080 --> 00:10:54,080
It's sad.
It's so sad when they ruin the
168
00:10:54,080 --> 00:10:56,560
warehouses.
Like that and ceiling height,
169
00:10:56,960 --> 00:10:58,280
right?
Ceiling heights an issue.
170
00:10:58,560 --> 00:11:00,120
And the sprinkler.
Do you know that you could have
171
00:11:00,120 --> 00:11:03,240
a 20 foot ceiling and only be
able to stack up to 12 feet in
172
00:11:03,240 --> 00:11:07,120
certain municipalities?
Yes, I've gotten those.
173
00:11:07,240 --> 00:11:11,200
Letters, Yeah, you think, well,
hey, I've got 20 feet.
174
00:11:11,200 --> 00:11:15,320
I can stack up to 19 feet, but
because of the sprinkler system
175
00:11:15,440 --> 00:11:18,680
density, the village doesn't
think it's safe to stack up to
176
00:11:18,680 --> 00:11:21,680
19 feet, and they say you're
limited to 12 unless you want to
177
00:11:21,680 --> 00:11:24,800
redo your sprinkler system,
which costs, by the way, $8 a
178
00:11:24,800 --> 00:11:26,000
square foot to do today.
