The Next Real Estate Boom Is Taking Shape

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Some of the best real estate investments in history were made when the headlines were overwhelmingly negative.

When financing dries up, lenders become restrictive, sellers become motivated, and uncertainty keeps many investors on the sidelines, opportunities begin to emerge for those willing to look beyond today’s fear.

That is precisely where we find ourselves today.

Commercial real estate has endured one of the most challenging environments in decades. Rising interest rates, tighter credit conditions, and a wave of new supply have placed significant pressure on many markets.

Yet while these challenges have created distress, they have also created something investors haven’t seen in years: the ability to buy quality assets at substantial discounts to replacement cost and prior valuations.

The question is not whether opportunities exist. The question is where they exist and how to identify them.

This week, I sat down with real estate investor and entrepreneur Victor Menasce to discuss what he’s seeing across the commercial real estate landscape.

We talk about why some multifamily properties are trading 30-40% below peak values, how oversupply is impacting certain markets, and why investors who understand local supply-and-demand dynamics may be positioned to benefit from the current dislocation.

Victor also makes an important point that often gets lost in national discussions. Real estate is not one market. Every city, neighborhood, and asset class has its own story.

While some areas remain challenged, others continue to benefit from powerful long-term drivers, including population growth, immigration, healthcare demand, and housing affordability trends.

Today’s environment resembles the periods that have historically produced exceptional long-term returns. Institutional investors, family offices, and large private capital pools are increasingly stepping into distressed situations, not because they believe conditions are perfect, but because they recognize that buying quality assets during periods of pessimism has often been a winning strategy.

Of course, success still requires discipline. Financing matters. Market selection matters. Understanding future supply matters. But for investors willing to do the work, today’s market may ultimately be remembered less for the distress it created and more for the opportunities it presented.

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Transcript

Disclaimer: This transcript was generated by AI and may not be 100% accurate. If you notice any errors or corrections, please email us at [email protected].

Welcome everybody. This is Buck Joffrey with The Wealth Formula podcast. Today, uh, I wanna talk to you about something we talk a fair amount about, but with somebody who, um, you know, who’s got a lot of knowledge in the space. You know, let me just start out by saying something you already know if you listen to me.

The best real estate investments in history were made when headlines were overwhelmingly negative, right? Financing dries up, lenders become more restrictive, sellers become motivated, and uncertainty keeps many investors on the sidelines. That’s where opportunities begin to emerge for those willing to look beyond today’s fear and out into the future, even if that’s just a couple years.

I mean, that’s what you’re supposed to do as an investor, right? You’re supposed to not do what, you know, what the climate looks like today. You’re not supposed to follow that. You’re supposed to buy something based on how you think there’s a change in, uh, in the markets in a couple years. And that’s where we’re at exactly today, right?

Commercial real estate has endured one of the most challenging environments in decades, and rising interest rates that, you know, highest, uh, slope in the history of the United States. Tighter credit conditions, wave of new supplies that were ready to go made the markets even more challenging. Yet, while all these challenges have created this distress out there, they have also created something investors haven’t seen in years.

And again, it’s the ability to buy quality assets at substantial discounts to replacement cost and prior valuations. The question really isn’t whether those opportunities exist. If you are in our investor club, you know that they do exist already. You’re seeing them, right? Thirty, forty percent discounts.

The question is where they exist and how to identify them. So this week on Wealth Formula Podcast, I sit down with a guy I’ve known for a long time, a guy by the name of Victor Menasce, uh, to discuss what he’s seeing across the commercial real estate landscape. We talk about why some multifamily properties are trading thirty to forty percent below peak values, how oversupply is impacting certain markets, and why investors who understand local sol- supply and demand dynamics may be positioned To ultimately benefit from this current dislocation.

Uh, Victor also makes an important point, uh, you’ll see, he… that often gets lost, that is that real estate is not one market, and that’s really important. Every city neighborhood and every asset class has its own story, even within real estate. So while some areas, uh, remain challenged, others continue to benefit from powerful long-term drivers, including population growth, immigration, healthcare demand, and affordable housing trends.

Today’s environment resembles the periods that have historically produced exceptional long-term gains. Institutional investors, family offices, and large capital pools are increasingly stepping into the distressed situations, not because the conditions are perfect. In fact, it’s because they’re not, but they recognize buying quality assets during periods of pessimism, as we have right now, it’s always sort of been, uh, you know, a winning strategy.

Now, of course, success still requires discipline, financing matters, market selection matters. You gotta pick all this, you know, very carefully. Uh, understanding future supply matters. But for investors willing to do the work, today’s market ultimately may be remembered for less dis- less about the distress and hopefully for you, the opportunities that it created.

Anyway, we’re gonna talk about this stuff and a lot more when we come back.

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Welcome back to the show, everyone. Today my guest on Wealth Formula Podcast is Victor Menasce, real estate developer, syndicator, entrepreneur, host of the Real Estate Espresso Podcast, and author of Magnetic Capital. Victor’s raised hundreds of millions of dollars for real estate and business ventures, and is known for his highly analytic approach to market cycles, underwriting, development, and raising capital.

Welcome, Victor. How are you?

I’m great. Great to be here.

Yeah. Uh, it’s funny, I haven’t seen you in a long time. When was the last time I saw you? Was it, was it, was it in Robert Kiyosaki’s, uh, was it, like,

70th birthday or something like that? It

could have been. It was on– It probably was on the Investor Summit. I remember you and I sat down and, uh, in the bar next to the, uh, up on the promenade deck and, uh, had a nice long conversation.

Time

flies. It’s been a few years. Yeah.

Yeah. I mean, I think Robert might be, be approaching his 80th pretty soon.

Pretty close. Anyway. Pretty

close.

But listen, uh, you know, you, you are, you know, you’re tapped into the real estate space. Um, and you often, I think, talk about real estate through the lens of cycles, which I think is smart. So where, where do you believe we are today i- in the cycle, and what are, you know, what are investors– what should be looking at?

There’s a word I hear frequently these days, especially when speaking with institutional investors, and that word is opportunistic, which in some ways is code for buying distress. We’ve seen a lot of markets that I would say have gotten over their skis in terms of just the amount of supply that’s been injected to the market.

And it makes sense in the sense that There’s always a lag between, um, between delivering a new pro- or starting a project and delivering it, and it’s that time lag that creates those overhang type situations, that delay. Because you can’t respond to the market in an instant. You respond to the market in three years, five years, depending on whatever your development cycle is, and that’s part of what creates the problem.

You started a project in year X assuming a certain set of market conditions, and then three years later it’s different. Capital costs are different, construction cost is different, rents are different. All of the things that you can’t control are different, and all of a sudden it looks very different from the day that you launched the project.

So, uh, it’s not surprising that that happens, but we see it not just in real estate, we see it in all kinds of different industries. You see it in the semiconductor industry where it goes from being undersupplied to oversupplied, and it’s just gone through that cycle so many different times. You see it in building materials.

Y- you just see it all in many, many different industries because think about it. Imagine for a moment, you see it in supply chains. If, if someone tells you, if a supplier tells you that there’s a shortage and so now you’re only gonna get 90% of what you order, what do you do? You order 110%. That’s what everybody does.

And so all of a sudden it amplifies that perception of demand- Yeah … to be much greater than it actually is. Yeah. And then of course it’s not real. It creates a shadow inventory and then all of a sudden it comes to a screeching halt.

When you look at, when you zoom out, kind of what do you see? I mean, obviously there’s a lot of pain.

Mm-hmm. But you also talked about it as opportunistic. And so, so give us a little bit of a, a, you know, a, what you’re seeing through that lens zooming out, you know, 1,000 feet.

I’ll quote some statistics from Houston just because I have them top of mind. I reported on it on the podcast a couple of weeks ago.

And it’s not confined to Houston. You can see the same phenomenon happening in other markets. But in Houston, in Q1, there were about 6,400 deliveries. These, these numbers came from CBRE, I think, or maybe it was Collier. It was one of those two. And about 6,400 deliveries of new product in the market in Q1.

About 3,400 were absorbed in total. 3,200 of that was Class A 500 and change was Class C, couple of hundred in Class D, and minus 750 in Class B. So Class B is being squeezed from above and below. If you can live in a brand-new place for an extra 50 bucks a month with all the modern amenities, you’ll say, “Yeah, why not?”

You’ll move out of that Class B product into a brand-new place. And yeah, maybe they’ll jack the rent on me in a year or two, and maybe I’ll move, but in the meantime, I got a great place at a great, at a great price with all those leasing incentives. And so we’re seeing that not just in Houston. We’re seeing it in multiple, multiple markets.

Seeing it in Austin, Texas right now. That is absolutely a poster child for oversupply right now. Uh, but many other markets as well.

A lot of markets actually are headed towards undersupply as well, though, because I think a lot of new starts kind of just, you know, they’ve been limited the last few years, right?

So, so, you know, I know in Houston you’re saying that it sounds like there is a kind of a glut still. Do you see that nationally? Like, what are you seeing nationally? Because the builds seem to slow down. Houston… Yeah,

it’s a good question. Houston’s a funny market because unlike other markets, there’s no zoning.

So you can build anything anywhere as long as you meet fire code and maybe, uh, get your municipal utilities allocation. As long as you meet those two, you’re good to go. Uh, whereas in other markets, there’s a little bit more bureaucratic impedance. There’s zoning, there’s si- height restrictions. There’s all these other things that come into play.

Uh, so it, it, it, the markets move a little bit slower. Houston has always had a history of being a little bit oversupplied. If you go back to, you know, early 2000s, vacancy in Houston was, gosh, close to 15%. And then along came Hurricane Katrina in New Orleans, and a lot of people left New Orleans ’cause there was so much housing that was decimated, moved to Houston, and almost overnight they went from 15% to like eight-

Right

um, because they absorbed it, and then it crept back up. You don’t see that quite as much in other markets, but, uh, we’ve certainly seen it nationally. I mean, Dallas-Fort Worth, lots of areas of Dallas Uh, oversupplied San Antonio, Nashville

Right

Uh, you can go on down the list

When you look though two or three years out, a lot of those markets look like they’re poised to absorb and be in, in, you know, essentially a, a, a space where sort of the tables are flipped.

Maybe. Maybe because you have to think about it through the lens of demand as well. And where does demand, the demand come from? Uh, demographically, we’re not– no– none of the Western economies are producing enough babies to sustain population. So the, it, the growth is coming through immigration, and immigration’s a policy.

Right now, we’re at historic lows in terms of immigration numbers, both in the US and Canada. So will that change? Maybe. But for now, at current immigration rates, probably not. Then you gotta think about household formation. How many people are dealing with affordability issues? Uh, employment rates for folks in their teens and twenties are, um, near historic lows.

There’s a lot of youth unemployment. So that’s delaying household formation. You’ve got an aging population, some of whom are gonna exit. They’re, they are over-housed in the sense that a single, uh, person in their seventies in, in a five-bedroom house is more house than they need And so what will happen with that product?

Are they gonna end up in independent living, active adult, assisted living? At what point does that inventory return to the market? Um, and or maybe they move back home with the kids, so, you know, the household formation reverses. So you gotta look at all of these different things, and then of course the, the whole job market.

Yeah. What’s driving the job market, uh, in

a hyper local contract. Well, and, and that becomes very… That, that’s als- that also becomes very local as well, right? Yeah. I mean, when you look at, you know, where are the jobs, I mean, that’s gotta be one of the major things that anybody thinks about when they think about multifamily, especially, you know, when you, when you think…

You know, you, you bring up a good point about immigration and birth rate, but if you look from state to state immigration, that’s a significant variable to consider as well.

Oh, absolutely. I mean, think about, do, do, do you know which state in the nation actually has a birth rate high enough to sustain population?

There’s only a couple.

No, I don’t know that.

So you need to be 2.1 in order to, uh, births per, per female in order to maintain population constant. Utah’s like 2.5.

Uh-huh.

Uh, but most of the other states are well below two. Some are like 1.2, 1.4, so they’re definitely not sustaining population. If there is population growth, it’s because of migration.

Right. Yeah, migration’s the bi- a big one there. So when you look out, say, two or three years, because I think the, you know, the mistake sometimes people make as investors is getting caught in the moment, seeing froth in the market and getting super excited about where AI is headed. And I totally understand that, by the way.

I’m not, I’m not, uh, begrudging people who are looking at tech very positively. I do too. But it’s certainly not a, a market on sale, right? Is this a market in real estate right now? Um, to me it looks like a market on sale. Are… What is your, uh, what is your take on that?

I tend to view the market through a slightly different lens, because if you view…

And, uh, assume right now we’re talking primarily about multifamily apartments, although we can go different segments. If you view that as a commodity, and the definition of a commodity is that it really degenerates to price. So if gasoline is five cents cheaper across the street, you don’t have any allegiance to Sunoco or Mobil or anyone else.

You’ll go where it’s five cents cheaper. That’s the definition of a commodity If you are looking f-for, uh, through the lens of a specific product for a specific customer, then it changes. So for example, maybe when you look at housing, if you look, if, if you look at the active adult segment, where maybe about a third of those are couples and two-thirds are singles, women outnumber men six to one.

Uh, the tenure in that product is about nine years. It’s much, much longer than almost any other rental housing type because it is age-restricted, has a sense of community. It’s not as expensive as independent living. It’s… Yes, it’s a bit of a premium to market rate apartments, but it has a sense of community.

It’s amenities-rich. It has all of these other things that that specific customer is looking for. It’s a different product. And so you l- if you view the supply-demand dynamics through the lens of a particular segment, it changes w- uh, the way you look at it because the, the, the 70-year-old single woman, husband has died, is not gonna go into the same building as a bunch of 20-somethings that are, you know, close to the college campus.

So where’s the opportunity?

It’s an under– It’s really in looking at the m- at the market through that very specific lens. If you happen to be in an area where, um, th- there’s, let’s say, a lot of very affluent single-family detached homes, and folks maybe may wanna downsize out of that neighborhood If you’re going from a five-bedroom detached home, you’re not going into a one-bedroom with a, you know, an eight-foot by nine-foot bedroom where you can’t even fit your furniture.

It’s not the right product. And y- and a lot of the new product, ’cause some of that, especially in the urban core, a lot of that’s what’s being built. So y- if that is… if you’re that customer, where do you go? It- there’s much less supply of those larger apartments that are specifically designed for your, for you as a customer.

And so when you segment the market and look at it through that lens, it changes. You, you see the supply-demand dynamics differently because if you look at the market averages, and I’m gonna say– I’ll make an outrageous statement here. The market average doesn’t exist. Like, there’s almost nothing at the average.

A great example is Miami.

Mm-hmm.

Right? If you look at the average price in Miami, it’s like four hundred and fifty thousand. But the truth is, there’s almost nothing at that price point. It’s either a million plus or, like, two hundred and almost nothing in between, right? It’s, it– so you gotta look at the, how the market segments.

Right. Right. So let’s talk about, uh, metrics that you pay the most attention to, especially right now when you’re looking at, um, opportunities, cap rates, debt spreads, construction starts. Tell us what, tell us, tell us what you look at.

Look, you’ve got three main variables that define what ha- what happens.

Uh, you know, you’ve got your construction cost, your capital cost, and rent. And how many of those do you control? None of them, really. So it, it’s a matter of looking at, is there a pocket of sustained supply-demand mismatch where the numbers work, where you can see that, that mismatch, uh, persisting for a, a good long time?

Because you don’t wanna just underwrite for the next two years, uh, till you get into, you know, into stabilization. You wanna… you’re gonna own that asset for a lot longer than that. It’s gotta survive through the entire length of its life cycle. So, so you wanna make sure that those market conditions are there, uh, and, and really look at it in a hyperlocal context.

If you are thinking, “I’m just gonna go add more apartments to Atlanta because Atlanta is growing,” that’s probably not the right thesis. If, if you’re looking at something that’s much more hyperlocal where I’m, you know, right on the I-85 corridor, and maybe there’s a new Amazon fulfillment center that just went in next door.

You know, there’s gotta be some other driver, some other economic driver. Uh, Savannah, Georgia, there’s a, a new EV plant that just went in, and, and there’s a shortage of housing in the radius of that particular, uh, manufacturing facility. Those are the types of things you wanna look at because that’s what drives that demand.

How do you look at the market, uh, you know, and I, again, I’m, I’m focusing on the multifamily market where we’re seeing You know, 30, 40%. I mean, first of all, there’s not as much… Y- you know, there’s not, there’s not that much liquidity in the market. People don’t– If you don’t have to sell, you’re not gonna sell right now if you were holding through the rate increases of the last few years.

But now we’re seeing, you know, the, the trickle out, unfortunately, of, of, um, you know, uh, opportunities, uh, for people at the, at the expense, unfortunately, of others who were in, in properties, uh, ju- at just the wrong time. And, and those properties, you’re getting these discounts of 30% to 40%. And should we be seeing that 30%, 40% as, uh, presumably as a buying opportunity given where, uh, we may be in the next couple of years?

I th- I think so, yes. And but at the end of the day, it’s not just a matter of buying, it’s a m- matter of buying and getting into the right debt structure. Some of the easier financing to get is agency financing. I know you’ve done it. Uh, but it’s not necessarily the best financing in the sense that, uh, there’s a term associated with these loans.

I’m a big fan, even though they are… there’s a lot of brain damage associated with getting these loans. I’m a big fan of HUD loans.

Uh-huh.

You know, the 223, 35-year, fully amortized, assumable, non-recourse. It has a lot of the right qualities. They’re hard to get. You need the right sponsor group, you need the right experience base, you need the right, uh, HUD-approved property manager.

All of these things come together, but if you can get into that, it’s often worth it because now you don’t care what happens, uh, you know, in the Federal Reserve building in Washington. Um, you’re, you’re good to go. You’re, you’re locked for the next 35 years.

Do those have, uh, big prepayment penalties?

Uh, they will have a lockup, a, a yield maintenance, uh, and, and it declines by year.

So usually it’s, you know, it, it burns off, uh, in the first 10 years.

Yeah.

Uh, same with the 221(4), which is the construction to perm loan, uh, also has that. But, you know, oftentimes, uh, you can… There are programs where you can rate lock, you can, uh, do a rate buydown. You can, uh, potentially even within that 10-year period sometimes refinance with the same lender, uh, maybe put a second on it with the same lender.

There’s, there are other things you can do that can help, uh, give you a little bit of flexibility.

Yeah. And

for some folks, you know-

I think that one of the challenges certainly of, um, of that kind of debt is, is if you’re looking at, you know, most value add is, um, underwritten for, you know, five years.

Mm.

And, um, if you have a really big, uh, if you have a, a big, uh, payment, prepayment penalty, that makes it very difficult. So that’s certainly one of the challenges there that, um, that people deal with. Let’s talk a little bit about, uh, the economy in general. Um, what do you think is… How, how should we look at the economy in terms of inflation and rates?

And obviously we know that interest rates ultimately are probably the single biggest driver of real estate value.

Yeah. Yeah, for sure. I mean- I often ask people the question, is an oil price shock inflationary? And first thing you’d do is you’ll look at it and say, “Well, gee, prices are going up,” and so, yeah, I’ll say yes, uh, an oil shock is inflationary.

The truth is it’s not. It’s deflationary. And the reason for that is because for every unit of GDP, there’s a unit of energy consumed, equivalent unit of energy consumed somewhere in the world. So if you take 15% of the world’s oil supply off the market, GDP globally had to go down. It’s an inescapable truth.

GDP had to go down. Did it go down uniformly? No, but it’s gone down. So we are seeing economic contraction, certainly on a global basis, but it, it– we are not islands, economic islands any longer. The en- the economies are far too integrated. Back in the 1970s, we called it stagflation. At the time, it was deemed to be theoretically impossible, where you would have inflation at the same time as you have economic contraction.

But it’s, it’s happening again. It’s not being widely talked about. But we, we are in a period of stagflation right now, and it’ll take a while before the Bureau of Economic Analysis declares it officially. And no politician’s gonna use the R-word. Uh, it, it, it’s more than four letters, but they treat it like a four-letter word.

They don’t– They, they, they refuse to use it because it’s politically unsavory. So we are in economic contraction today. That means that the job market is gonna be weak. The Fed will have to respond by lowering rates, try and stimulate the economy. Raising rates in the current environment is not going to print oil.

Yeah.

It’ll print money, but it won’t print oil.

Yeah, I think the, one of the things to think about there is if you look at which way inflation numbers were headed before this Iran conflict, you could see monthly everything. If you follow like real-time numbers and truflation, things like that- Yeah … every month it was going down, right?

There’s a elephant in the room called artificial intelligence that’s c- also adding to that deflationary, uh, element. And so, you know, when I look at that, I start to, you know, think, “Okay, well, what is that… What, what happens to us in two years, you know, two and a half years?” Because if you’re buying now at a 30% discount, for example, at today’s rates, and you are looking at ultimately a descending rate environment, that’s, that’s a pretty good setup

It can be.

The big question, and there’s a wide range of opinions on what AI is gonna do to the economy because it, it actually bifurcates the economy. On the one hand, corporate earnings go up because efficiency went up, uh, productivity went up. But then some people are letting go because those jobs are redundant now.

They can be done much faster with fewer people. So that creates a, a headwind in the employment market, there’s no question. If you look through history, though, there’s no company that cost-cut their way to greatness ever. The, the, the real opportunity is h- what new business opportunities does AI unlock that weren’t there before?

And if you can use your people combined with AI to create new business opportunities, those are the ones that I believe are gonna really transform. Now, th- there will always be that defensive desire to cost cut b- and gain efficiency if your business model ultimately is not changing over a six-month or even a two-year time period.

So we will see job losses. That part is clear. How will the economy reinvent itself? H- it’s hard to say. It’s hard to say, but I can say f- with confidence that I do see business opportunities today that didn’t exist only a couple of years ago, and I think the market’s gonna bifurcate in two ways. Number one, it’s made it possible for companies that are new and agile to capture market share.

The folks, the, the behemoths, the Amazons of the world that have a high degree of trust and have great market reach, they’re gonna do just fine. I think it’s the medium-sized companies that are probably the most vulnerable. They’re probably the most vulnerable.

Right. Um, overall, though-

Hmm?

My– I, you know, AI is deflationary.

Do you agree?

Is AI deflationary?

It sort of brings the cost down of everything, right? Just in terms of productivity. Uh, you know, it just makes companies able to offer, uh, you know, have better margins, creates efficiencies

It is overall a driving force for deflation.

I agree with that. Yeah, I agree with that because it’s gonna put downward pressure on salaries. The folks that remain will be the linchpins. Their salaries may go up, actually- Yeah … because they’re, they become proportionally more valuable, uh, but there’ll be fewer of them.

So they’ll be- Yeah, and that’s the thing, though, because then you think about from the demographic standpoint, at least for the next several years, I don’t see blue-collar jobs going away. Mm-hmm. You know? Um, you know,

certainly- With the possible exception of truck drivers.

Correct. Right. Anything that’s related to that, but you, you look at the labor force, the blue-collar labor force- Mm-hmm

seems to be, in many ways, the safest place to be, at least maybe for the next decade.

Plumbers, electricians, mechanical- Yep … anything like that, you’re not gonna get robots to pull wire through a wood-frame building. Not, not anytime soon.

Not anytime soon, even though I think that’s Elon’s grand plan with Optimus and the robots.

Yeah. But that’s gonna take a lot longer than, you know, all of this compute that is just, I think, going to be very hard, mostly in the white-collar, uh, space. So when you put that together, Victor, in the, through the lens of, of, of multifamily real estate, how do you, how do you interpret that?

If we look at the sectors that are continuing to drive employment, um, we’re, we’re seeing it in the numbers today.

Healthcare, no question, is, is probably leading the, the, the nation in terms of driving employment, both skilled and unskilled. Uh, everything from personal support workers helping the aged to the, the demand is there certainly in medical, uh, for both nursing and, and, uh, more advanced degrees. I don’t know that the schools are turning out enough to supply the need.

That’s probably the biggest bottleneck. Uh, and will we import them through immigration? I don’t know. That’s an unknown at the moment.

So you’ve, uh, interviewed thousands of investors, developers, economists, entrepreneurs on your podcast. What are the most– or what are some of the things that you’ve learned over the years from them that, that you think are some of the best lessons?

I love talking to the institutional players, the folks that are doing this at a high level to gain an insight into how they think. Uh, I definitely learn from those conversations I, I, I had someone, a guest on the show even just a couple weeks ago, who is the largest owner of industrial, uh, and developer of industrial nationwide.

He’s got like 65 million square feet. And the way he views site selection, in particular for last mile, was very sophisticated in terms of the variables they look at. It’s not just access to freeway, it’s what’s the dwell time on the freeway? What– You know, does this one have traffic jams, or is there actually a better location?

Uh, so they look at a whole bunch of different variables to see– view value through the lens of the, the operator. I think th-that’s important. I think there’s opportunities out there that are– You know, information has become democratized. It’s so much easier. If you wanna choose a location for commercial, you used to have to commission traffic studies, engineering studies, all this stuff.

Now that data is available in under an hour for, you know, a couple hundred bucks. And, and so you can make much better decisions today than you could at, at any time. I think that’s one of the real opportunities I don’t know. It’s a, it’s a unique time. Yeah. It, it’s a unique time to be alive, that’s for sure.

So those institutional guys, Victor, how are they… I mean, I’m sure everybody– I’m sure there’s a, a variety of, of, of opinions, but do you see big money coming back into real estate anytime soon? Because it, it sure seems like it’s the red-headed stepchild right now.

I– Whenever I talk to family offices, I m- there are some folks that are placing bets on, on, I’ll say normal pr- uh, projects, but overwhelmingly folks that would’ve been traditional equity investors, uh, have skewed a very large percentage of their allocation towards preferred equity, where they wanna come in, rescue a project.

They might not wash out the original operator. Maybe they get to live and fight another day, but they’re gonna be way down in the priority, uh, you know. So I think there’s– it’s easier, you know. You can avoid some of the development risk. You come and rescue a project at the 11th hour that’s already built, and it’s halfway through lease-up, and, uh, and you get that development risk off of, off the timeline, uh, for…

And you get a premium interest rate and a preferred position. Why not? Like, you know, that, that’s why so much of the money’s moving in that direction. I think the bottom of the market is turning in some places. I’ll give you an example. It’s a Canadian example, but, uh, the co- in particular the condo market in Toronto, uh, there are tens of thousands of condos that are brand new vacant.

Uh, the, the city really got over its skis, and some very large, uh, REITs, together with, uh, provincial government have come together and literally purchased thousands, I mean, tens of thousands of units off the hands of developers, yes, at a discount, and they are turning those into a rental portfolios, affordable, meeting the needs, uh, of the city, where government’s being a partner in this, and is taking that excess inventory off the market.

So when you see those folks coming in and establishing a floor to the market, it sends a very strong signal that, okay, this is the bottom of the market because at this price, people are coming in and buying in large volumes, much like Blackstone and some of the others did in the wa- in the wake of ’08, and started buying portfolios of detached homes in Maricopa County and places like that, and Phoenix.

That, that signaled the bottom of the market. That, that really established the floor.

Do you think the floor is in?

I think we’re close to it, yeah. I think- Yeah … we’re close to it. You see- Yeah … y- you know, there’s, there’s a lot of office to residential conversion happening. You know, when you see, um, you know, when you see these large complexes like in Denver th- being acquired for literally 5 cents on the dollar, um, and, and they’re happening in many locations.

Uh, some of them are very difficult to convert because- Yeah … an office complex is not naturally designed with enough perimeter, um, real estate for bedrooms and living rooms. There’s too much in the core. But you buy it cheap enough, you don’t care if you fill the core or not, you know?

Yeah. So what’s your takeaway message to people interested in real estate, investing in real estate right now?

I think you need to look at the market through a competitive standpoint, just like we started the conversation, where are we in the cycle? And it’s not just look at what’s in the market today, but forecast out a couple of years. Because if, if there’s gonna be a glut in the market or if it’s gonna take too long to absorb, at a certain point, your absorption risk is your biggest risk.

A big empty building is more expensive than anything. So you need to get leased up, and everyone else that’s got a big empty building needs to get leased up. So they will fight for survival in order to get leased up. That’s your competition. And if they’re gonna give you… If they’re gonna give leasing incentives, they’ll start with one month free, three months free, six months free.

They will get that brand-new product leased up no matter what. They have to. They have no choice.

Right.

All right? So that is your competition. You might say, “My competition’s B class, well, ’cause I have a B cl- B class building.” That’s not true. That’s not true. It’s the A class that’s gonna come down and compete with you in your B class product.

You might not view it as competition today, but it’s, but it is. It’s shadow competition. So you gotta be careful for sure. Uh, go for hyperlocal situations. You know, if you are right next to the UT campus and you have a product that is maybe geared towards graduate students in the medical school and, and it’s the perfect product for them because it’s right across the street from the medical building, that’s gonna be much more resilient than a generic four-bedroom student housing for first-year students.

It… You know, you really wanna be that much more targeted. Yeah.

Yeah. Victor, uh, tell us, uh, tell us, tell the listeners where they can find you.

Uh, my company is Y Street Capital, so letter Y, streetcapital.com. And as you mentioned, I’m the host of the Real Estate Espresso podcast. Daily show seven days a week, over 3,000 episodes now.

And, uh, so the show is continuing to do great. Uh, we speak to a sophisticated audience. Uh, we’ve got a very loyal listener base and love to connect that way as well on whatever platform you prefer to listen, Apple, Spotify, YouTube, uh, you name it, uh, you’ll probably find it.

Fantastic. Thanks for being on today.

My pleasure.

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Welcome back to the show everyone. Hope you enjoyed it. Of course, uh, Victor and I don’t see everything eye to eye, but, uh, one thing’s for sure, we both see that this market has significant, uh, opportunities. Of course, as Victor points out, that’s not in every market.

That’s not every property that’s discounted even. You have to find the right one. But if you’re willing to do the work, and if you’re willing to really spend this time understanding that this is a market that has been absolutely devastated, I’m convinced that it will be rewarding in the next few years for you.

That’s it for me this week on Wealth Formula Podcast. This is Buck Joffrey signing out. If you wanna learn more, you can now get free access to our in-depth personal finance course featuring industry leaders like Tom Wheelwright and Ken McElroy. Visit wealthformularoadmap.com