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- [00:00]
A
Chris, good morning.
- [00:09]
B
You've had a dynamic where money's become freer than free.
- [00:12]
A
If you talk about a Fed just.
- [00:14]
B
Gone nuts, all, all the central banks going nuts. So it's all acting like safe haven. I believe that in a world where central bankers are tripping over themselves to devalue their currency, bitcoin wins. In the world of fiat currencies, bitcoin is the victor. I mean, that's part of the bull case for bitcoin.
- [00:33]
A
If you're not paying attention, you probably should be.
- [00:36]
B
Probably should be.
- [00:38]
A
Chris, good morning to you on the West Coast. Early afternoon for me. How are you?
- [00:44]
B
I'm doing very well. Marty, how are you doing?
- [00:46]
A
Doing well. Excited for this conversation. I mean, we've been talking about the intersection of real estate and bitcoin for a few years now. Right before we hit record, you mentioned Leon Wonkum. We've had Andrew Hones on the show and a few others to talk about this. And recently we've had some real estate experts that really aren't focused on bitcoin that have come on. So I think this is going to be a good continuation conversation. And you're someone in the real estate industry in California specifically that has decided to come out and sort of ring the alarm bells In August, on August 20, you sent out a tweet that your pen tweet, a warning and a call to action for the entire real estate industry. Real estate is at a breaking point. Monetary debasement, 62% inventory obsolete, new financial products competing for capital. And so it seems like you're very well ingratiated in the real estate industry. You're a bitcoiner and you see the writing on the wall of some of the problems in the real estate industry and you think bitcoin is a potential solution to the problems that exist.
- [01:55]
B
That's absolutely right. I've been kind of watching this from the sidelines, so to speak. Having a career in the commercial real estate world and being a bitcoiner on the side for almost a decade now. I joke, I tend to round up. I'm probably seven or eight years in or so. But just watching it and thinking through, you know, what this means and the second and third kind of derivatives of the disruption that's going to take place here. And it's just gotten to a tipping point where I couldn't sit back anymore and just had to speak up, started to put some thoughts down on paper. I kind of been baking a strategy for a handful of years and the really the last piece of the Puzzle was the cash flow piece. So you know, I, I, I've said to others that Bitcoin's kegr could have been 200% a year. It, it didn't matter. There was a large segment of the real estate world that was just not going to, you know, give it any attention because of that cash flow component. And there's obviously arguments for and against that. I get it. But when Saylor and Strategy started releasing these preferred offerings that provided that cash flow stream built on top of bitcoin, that was when I was like, oh boy, here we go. Now we got to start talking about this because like it, hate it. Whether you understand it or not, I mean, these are viable competitors to the real estate industry, not just the bond markets. So I just started talking about it and here we are today.
- [03:42]
A
And I think it's good that you're in the commercial real estate space because recently we had Melody Wright on talking about residential real estate. And I think it's important to draw a line between the two and really highlight the sort of differences of each. And we went pretty deep on residential real estate about a month ago. And so I think commercial real estate is a different beast, particularly in a post Covid world where you had everybody rushing to work from home. And it seems like a lot of the commercial real estate properties were under stress during that era and still to this day. So I guess to take a step back and just talk about the problem before we jump into certain solutions. How bad is it out there?
- [04:29]
B
Yeah, I mean, that's a good question. The commercial real estate sector in and of itself, I mean, it's vast. People tend to paint it with just a broad brush, but you know, they overlook the fact of how many different property types and specialties make up the commercial space. And each of them have their own dynamics, their own supply, demand dynamics that make it up. You know, deals get done very differently across each of these product types. So there, you know, we could have a podcast, a long form discussion on literally each one of those specialties. But I mean, just at a high level, you obviously have Bitcoin, which is disrupting the industry massively and it's only going to pick up steam. But when you zoom out and you start to look at or consider all the other macro forces that are colliding at the same time, right? I mean, you cover a lot of them on your pod regularly, right? Demographics, technology, AI, automation, robotics, different generational expectations and consumer demands. A long term debt cycle ending, a new monetary regime emerging. I mean, you stack all These major forces up, and then you turn around and look at the commercial real estate markets just in the United States. And it's in the United states, there's about 87 billion square feet of commercial property. Just roughly. That's the four major food groups, office, industrial, retail, and multifamily. There's a handful of specialty sectors. But for the purpose of our conversation, let's just say it's 87 billion square feet. 62% of that supply, about 54 billion of it, was built before 1990. Right. It's older than you and I are. So that was built in a completely different era. Different consumer demands, different business models, all of it. So you hold that and then look back at these major forces that are underway, and you come to the conclusion very quickly of how much of that supply is functionally and economically obsolete. And you start to have an oh, shit moment like, how. How are we going to navigate this? And the next question you ask yourself is, well, who owns all of this stuff? Right? And that's one of the big differences between residential and commercial, right? Who owns all this stuff? If you strip out all the private, or, excuse me, you strip out all the public entities, the REITs, what have you. Commercial real estate is owned about 60% privately. It's privately held throughout the United States. And that's not including the private REITs, the private institutional funds, if you included those, you're another handful of percentage points higher. So just looking, just knowing that 60% of the supply is owned privately. That's you, me, mom, dad, grandma, grandpa, small operators, business owners, family offices. It's Main Street. So that's a huge problem. And kind of how you started the top of this discussion was it's gotten to a point where we have to acknowledge it. We have to start having these frank discussions about what it means and how we're going to move forward. There's a lot of really smart people in the commercial space. And if we leverage our collective brainpower, I have no doubt that we're going to make this transition a lot more seamless than it could be otherwise.
- [08:28]
A
Yeah, I think based off a tweet you sent out this morning. And I'll pull it up here just so people on the YouTube and Spotify video can see it. Correct me if I'm wrong, but it seems like there's an incentive misalignment between tenants and the owners of the building. You say here, office reset motion. Vacancy remains elevated, tenants are consolidating, decision cycles are longer, TI packages are bigger, renewals are shorter. Well located, Class A with strong amenities is still moving, generic space is sitting and pricing is adjusting. And so you have the goals and the incentives of the people that own this property, which is, hey, we need to get tenants in and start cash flowing. And then you have the incentives of the tenants where they're thinking, okay, is this the best economic decision I can make for my business, my family, whatever it may be. And it looks like there's a bit of an incentive realignment, particularly on a duration scale, if that makes any sense.
- [09:29]
B
Absolutely. And I mean, this kind of, I've been kind of pounding the table to the fact that this is not just another cycle. Right. I mean, some of the biggest criticism or biggest feedback I'm getting from folks online is that real estate cyclical, you know, we've been here before, it's just another down cycle. Right. And okay, fair enough. You know, I don't have 40 years experience in the, in the business, but you're missing a big piece of the puzzle here. Right? I mean, over on top of these cyclical changes, there's, you know, some structural, some structural changes that are taking place. The mismatch between landlords and tenants is just one of those that you're highlighting. So whether it's shorter lease terms in commercial real estate, lease terms, majority of them are three to five years in length. You can get seven and 10 years on larger tenants, larger properties, but by and large they're three to five years. And there's a lot of capital that is outlaid up front by both parties to get a deal done and to get the space ready. So when, when the tenant base is, you know, saying we're not signing a five year lease because of X, Y and Z, we need a 12, 24 month lease. That creates a whole host of issues for the landlord and the property, and I mean, even the tenant. So there's some big disconnects there that we haven't really filtered through yet.
- [11:12]
A
Yeah, I guess diving into the economics of the building owners and the owners of commercial real estate where it's privately owned or even the big funds, I guess distilling this down to first principles. Explain it like I'm five. Commercial real estate. What is their goal at the end of the day? What is their time frame? How much of a return are they typically looking to make?
- [11:40]
B
I mean, you can have timeline hold periods as short as three to five years. I mean, that's really the bulk of it, the last 15, 20 years. I mean, that's how you're really making your returns. And turn in a profit is those shorter compressed hold periods. You're not necessarily buying the properties for long term holds into cash flowing because these things are only spitting off 4, 5, 6% in cash flow. So if you're going to again outpace inflation, outpace debasement and turn a profit, you're making it on the exit. So three to five years is the short period, the majority of the period, I should say. And there's some core assets, some core plus assets that are longer term holds, 10 years plus. But those are, you have a very different tenant profile, you have a very different end user in those properties.
- [12:42]
A
So three to five years, they're basically looking to get their nut on sprucing up the place and flipping it to somebody else.
- [12:48]
B
Yeah, and exactly. And you're, I mean, at the end of that, that hold period, you're looking maybe high teens on a return. I think that's kind of what you're looking for there on your question. High teens, low 20s are few and far between if you get into the, you know, the spec development world, your mid-20s, but you're also taking a lot more risk. There's a lot more expertise and experience that's needed in those transactions. So yeah, high teens is what you're looking at. And again, I mean that's where you, you come back to Bitcoin, you know, as the hurdle rate. And it's like, at what point do you know, these LPs, you know, some of these less experienced operators, you know, just see the light and say, hey, I'm going to allocate this, this capital to, you know, other, other assets. You know, I, I think they're, you know, this transition is going to be, there's some good things that are going to happen from this transition. I don't want to be a total, a total doer on it because that's just not who I am. But I mean, I think the, the disruption is going to flush out a lot of mal investment that we've had over the years. And it's also going to separate the pros from the amateurs. Right? I mean, there are a lot of people running around pretending like they are sophisticated real estate professionals. And now that the market conditions have changed, interest rates have gone up, materials and labor are up. I mean, they don't know how to navigate these markets. So the folks that don't have the edge, they don't have the expertise, they don't have a strategy, they're going to get flushed out. And those that remain, they're going to have to have a comprehensive strategy that they apply to every asset or across portfolio if they're going to remain competitive and relevant and profitable. I mean, in my world, the big buzzword is that we have a value add deal, right? And value add, when you strip away all the, you know, all the, the lipstick there, right? Value add just basically means we're buying a property, we're making some minimal cosmetic upgrades, we're pushing rents, maybe we'll rename it, we'll rebrand the property and then we're going to flip out of it for a multiple in a, in a few years, right. We're not really adding any value to the property. And I think that game is coming to an end as well. So again, those that are remaining in the industry, they have to have an edge. They have to have some, some sort of strategy. And you know, I'm not pretending like I have it all figured out, but I've, you know, put a lot of thought into what that strategy looks like. And that's kind of what I've been talking about online is, you know, these four pillars that real estate operators have to execute on if they're going to, you know, be successful. And the first one is I call it your Bitcoin strategy, but you can call it your capital strategy whatever you want. And the Bitcoin strategy consists of a couple of things. One is your, you know, what percentage of your US Dollars are getting allocated into Bitcoin? That's question one. Question two is I can also see a scenario where your US Dollars are being held in a vehicle like stretch, right? So you're being really intentional about how you're holding your, your capital. The second pillar or the second category in that, that Bitcoin strategy are your loans and financing mechanisms, right? And you've done a great job of talking about the dual collateralized loans and these long duration credit products that, you know, infuse Bitcoin. I'm really excited about that. I think that's going to be a natural, you know, onboarding transition mechanism for the industry at large. So I'm excited to see where that's going. And the third piece of this capital strategy is how you're raising equity. And that comes down to, you know, understanding or at least acknowledging that your competition is just not your immediate submarket. It's not the, the building across the street, right? It's, it's spot Bitcoin for one. And it's these adjacent products that companies like strategy are putting out because again, like it, hate it, whatever your feelings are on them, there is a percentage of capital that's going to naturally migrate into these, these, these other assets. As adoption grows, as awareness goes, as these financial advisors across the country get educated and incentivize to put them into the boomer's portfolio, there's going to be a significant percentage of real estate owners. They're going to say, hey, I don't need that apartment building anymore. I don't need the tenants, I don't need the termites, all of that. And they're going to go for that less management intensive vehicle. So that's one of the pillars. The other one is your energy consumption, right? I mean depending in commercial property, energy is about 30% of your operating expenses. It'll, it'll fluctuate property, property, but that's, that's a good benchmark, is 30%. So and in most markets, all markets, all property types, your energy, the last handful of years, last five, six years, is increasing double digits, which far, far outpaces your fixed rent escalations. So if you're going to streamline operations, you're going to, you know, keep that noi robust and durable, you have to optimize that energy consumption any which way you possibly can. And you know, most of the industry knows about, you know, the basics, right? Window tints and films and sensors, you know, there's all these IoT devices now that'll, you know, reduce overall consumption, solar panels, battery storage. But now forward looking real estate owners have to start thinking about bitcoin mining, right? And how do you integrate that into the asset or across your portfolio? When you do it effectively, you're not only subsidizing, you're not only able to subsidize the energy cost, but you're taking an expense line and turning it into an income stream. When you do that on a large property or at scale across a portfolio, that's not an incremental improvement, that's a step function improvement in your operational efficiencies. I need to preface this by acknowledging that bitcoin mining into these building systems is still very new. There's a lot of changes going on and a lot of innovation taking place, but at the same time it's moving a lot faster than most people realize it is. And I mean, I'm also not an energy expert by any stretch, but as a real estate person, I see these three industries, these one separate industries colliding, right? You got real estate, you got energy and now bitcoin tech, however you want to kind of put those, that last one together. But they're previously separate, now they're colliding. And when you apply it to this real estate asset, it's taking this single purpose, this single use, monolithic, depreciating asset asset, and turning it into this financial machine that's resilient and positioned well for the 21st century. I mean, if that doesn't get you out of bed every morning as a real estate operator, I don't know what does. Right. So I'm really excited to see what happens in that particular area. The third category and the fourth category, the third category is tech integration. How are you integrating technology into the asset or across a portfolio? And technology helps you accomplish two things. One, it helps you provide a superior user experience, a superior customer experience, and it helps you streamline the operational efficiencies. We can have an entire podcast on the topic of prop tech. That's what it, what it's what it's called in my world. But again, it's allowing you to create conveniences and amenities for your tenants if they become very sticky. That's very, very important. The second piece of it on the operational side is you're able to get real time data, make decisions faster, informed decisions at that, faster, which ultimately keep your costs down and extend useful lives of building infrastructure. So that's, that's very, very important. The, and the fourth category, and I'll stop talking here, is has to do with modular improvements, right? If renovations and tenant improvements over the last decade, they've increased 100% across all product types, across all markets. And again, if you're, you're working on three to five year lease terms with these tenants and you're spending five six figures every time a tenant moves out just to get ready for the next guy. That's terribly inefficient from a capital perspective. And then you look at it. This goes back to your earlier question too, whether you have a mismatch in incentives. The landlord foots the bill a lot of the time for those improvements and oftentimes their break even points not until month, you know, somewhere between month 20 and 25. Generally speaking, if you have a big TI job, it can be well into the third year of the lease. So again, if you're turning over these units and dumping large chunks of capital into them every few years in the world that we're going into, that is a very bad idea. And you have to figure out how to optimize that. And fortunately, today we have modular improvements that are getting a lot better. They're applicable here. And from the owner's standpoint. It allows you to appeal to a broader audience, more tenants at once. And then in addition to that, you can carry. There's a residual value component that you can maintain through time and across multiple tenants. That's significant capital, significant dollars that fall straight to your bottom line. So again, just to kind of put a bow on all this, if you're going to be a real estate operator through the end of this decade into the2030s, that old value add strategy, letting appreciation do its thing, that's gone, don't do that. Don't give your money to that investor, that's a bad idea. They have to have a comprehensive strategy that they're going to execute on the asset or across a broader portfolio. Full stop.
- [24:06]
A
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- [26:55]
B
Yeah, I mean it's all the above, right. Checking accounts, T bills, money market funds, just short duration vehicles that are perceived as safe and you know, throw off a little bit of yield. But again, I mean again, maybe this is my, the bitcoiner in me. I'm you know, looking at these products and you just kind of look at some of the, you know, some of the highlights. Right. Senior in the capital stack over collateralized by five or six times. Right. Like liquidity. Right. All of these things. I have a heart. I personally would put my trust in the management team over its strategy that I would the clowns in Washington because we all know where that goes. We all know what happens there. We've seen that movie.
- [27:47]
A
Yeah. And like it said in misalignment, I think it's top of everybody's mind, maybe not everybody's, but it's a big theme right now, the relative in affordability, unaffordability of real estate. And when we're talking about incentives of the owner, specifically whether it's an individual or a fund, they need the Value of the asset, the real estate asset, to go up to make their nuts. And so they're highly incentivized to push the price up. And bringing this back to what you mentioned about these dual collateralized structures, that's why we're supporting Battery Finance at 1031 and why we're very bullish on the strategy overall. Not just for them specifically, but people that are tenants of commercial real estate properties or residential real estate properties. Because you give the owners of these properties a reprieve in the sense that they don't need the equity value of the property to go up a certain percentage every three to five years if it's dual collateralized. They can let bitcoin do some of the work of equity value accretion.
- [29:05]
B
I think. Absolutely. I mean, I think it comes just to distilling that down for the average real estate person is you have to explain to them that this is a new tool, a new innovation that's complementing the real estate asset. Right. If, if your livelihood and your business is, you know, in and around real estate, that's fantastic. Good. Right. I'm not saying sell all of it and, you know, run to the hills, learn how to homestead. That's not what we're talking about here. Right. You have a new tool that improves the asset that you know inside and out. Right. Why would you not learn it? Why would you not figure out how to integrate it into the, into the operations, into the asset, Plain and simple.
- [29:53]
A
Yeah. And it's not only. I think the benefit of adding Bitcoin to the collateral package is twofold, maybe more than twofold, but I can think of two very good reasons off the top of my head. Obviously, Bitcoin's cagr again, it can help you increase the equity value of that collateral package quicker, arguably than you would if you're just depending on real estate alone. But then liquidity, which you mentioned too, I think the liquidity component is very underappreciated. The ability, if, God forbid, something goes wrong, to get part of your principal back immediately.
- [30:29]
B
Yeah, absolutely. I mean, it's. Whether it's the loan piece or the treasury piece that we're talking about. When I'm talking with real estate owners about this topic, bringing the conversation to where they're at. Right. Meeting them where they're at. Why should you hold Bitcoin on your balance sheet? Well, you can improve your purchasing power. You can build and maintain adequate reserves for capex and maintenance and emergencies. And then you're going to improve your credit worthiness over Time. That's something that the real estate owners get. They can get on board with that. And that's just the treasury component. Now you add in this, the loan component, and the conversation just continues from there.
- [31:21]
A
Well, on that note, since you've gone public, and I'm sure you've been talking to this to many other people outside of your audience on X, how has this pitch been received by people in your industry?
- [31:37]
B
It's been mixed. It's been very mixed. You know, that said, I have been pleasantly surprised at the, at the feedback. There's a lot more curiosity and receptiveness than I initially expected, which is positive. I mean, I've had people reach out from across the country in all different areas of the industry, right? Brokers, lenders, fund managers, contractors, and, and the conversation with those guys goes one of two ways. The first one is, oh my God, thank you for saying this. You know, I thought I was the only one. Which that's, that's an easy conversation. And the second piece is, this is really interesting. I see where you're going. Tell me more. Right, that, that's the, those are the positive feedbacks that, the negative feedback. I mean, again, I mentioned earlier, this is a cyclical business. We've been here before. If you're into bitcoin, why don't you just go buy bitcoin? Just dismissing it. That tells me that that education gap is still very, very, very wide and we have to do everything we can to narrow that gap.
- [32:57]
A
Well, on that last point, that's the most common negative feedback that I get is, all right, why don't we just use the cash to buy bitcoin? Why do we need to dual collateralize it? Why does the real estate company hold it on the balance sheet themselves? And again, what you said earlier, a lot of hardcore bitcoiners, sell all your real estate, get out of it, just buy bitcoin. But it's like, no, we actually need businesses and properties that these businesses actually operate in to provide goods and service to the economy. So there's got to be some sort of middle ground or bridge that sort of connects these two worlds. You can't just throw the baby out with the bathwater. You can't just. Everybody dumps all their assets, buys bitcoin and thinks the world's going to be fine.
- [33:42]
B
It's not how exactly works exactly. And I say very frequently, right? I'm not saying that real estate's going to zero, right? Far, far from it. Right. It plays a vital role. Like you're alluding to in human society, shelter, business, community, culturally, I mean, pick, pick one. But to perceive like it's business as usual, like it's just another cycle and you know, things are going to work themselves out, that is a very, very, very dangerous approach. And to think that, you know, because you bought properties in the last cycle for 4, 5, 6 caps and you know, when the cycle comes full circle, you're going to be able to exit that property at similar cap rates and, you know, go about your business. I think that's incredibly near sighted. I also think if you think that you're again going back to that inventory issue, we have right of, you know, 62% of it being built before 1990, if you think those properties are, you know, all going to trade at a premium with, you know, the trophy assets and the class A properties, again, I think you're incredibly nearsighted. You're not looking at the entire game board objectively.
- [35:02]
A
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- [36:43]
B
Yeah, that's, that's a tough question because it varies so much by market and property type. But generally speaking, I would say yeah, there's a lot of just small parcels, small properties, you know, very, you know, whether they're funky shapes or inefficient layouts, they largely need to get demoed, they need to be redeveloped. You know, if someone come in and assemble, you know, multiple parcels to, you know, get some scale and build something new, that's how, that's how I see that going down. But that's going to, you know, if you don't get some of the local municipalities on board. Right. I mean, you're, you're just stuck in, you know, a regulatory quagmire for four years. And I mean, that's one of the things that disincentivizes a lot of that activity from taking place. I mean, especially since COVID there should be, there's a fair amount of redevelopment and demolition going on across the country, but not nearly as much as it should be. And I always come back to, you know, the regulatory burdens that are there. I mean, the time and the cost that it takes to get through zoning and planning in any one of these municipalities, whether the state is red or blue, is, is. It'll bottle your mind. Right. And along that entire way, you have to have a team of people that are ushering it through the process. Right. You have, there is so much education, there's so much Q and A that takes place with the planners. So it's not just a set it and forget it, fill out an application and wait for the decision. I mean, it's very, very proactive to get through some of these city governments.
- [38:39]
A
Yeah, I forgot to mention my OG intersection of bitcoin and real estate guest Kelly Lanham. But we spent a whole episode many years ago, probably three years ago now at this point just on the zoning and planning requirements. And it seems like that's something that needs to be completely raised to the ground and rethought.
- [39:03]
B
Just in my day to day business in commercial real estate, you always have to know what the underlying zoning is for a property because that essentially dictates what can and cannot go in a particular location. So I'm a lot more familiar with, you know, the, the city zoning than I ever thought I would be. And where I'm at in Southern California, I mean I play in, you know, probably a dozen different cities. There's, I mean these zoning codes are 500 pages, you know, each city and there's, you know, footnotes here and nuances there and asterisks there. I mean you got to have a, you know, an AI just for, for that particular city to, to get through the zoning code. And at the end of the day the guy just wants to know if he can do manufacturing at the location. So it's, yeah, it's, it's, that's a whole, a whole nother topic in and of itself as well. But I mean I, and I think about online, I've been using the word devaluation, right. I've been using devaluation a lot. And you know, I will admit I'm, you know, I'm trying to get a little bit of a shock and awe factor. Right. You know, get your attention to some extent I think about devaluation versus the, you know, the melt up scenario. Right. And in the, you know, in the short term I think it'll be more of a melt up situation. But there's going to come a point in that process where there's no marginal buyer for, you know, the bottom 75% of the stock. Right. And I think we saw the very beginning of this, you know, in the, the 2122 cycle. There were 5060 year old properties trading figures that were just absolutely bonkers. So if and when you see that melt up process occur again, where's that ceiling? And you know, when you hit that ceiling, you know, it'll take time for the sellers to adjust their expectations and you know, values will fall during that time. How long does it take? I don't know. Real estate moves a lot slower than, you know, global markets or anything in our digital world. But my fear there is, you know, by the time that a lot of those legacy owners realize what's going on there, the Train is going to have left the station and at that point, you know, what is the value of the property? You know, I mean, you have land value, I mean, so you can kind of look at it as a, you know, a little bit of a built in stop loss if you have value in the underlying dirt. But again, on a lot of these older assets, these older properties, they're small parcels. Unless you can assemble multiple and get some scale, there's not a whole lot of residual value there.
- [41:54]
A
Yeah, I'm being reminded of sort of the shock and all devaluation headlines. I've seen Denver get a couple buildings go for a few million dollars and they're sold for nine figures. Not too long ago, I believe Baltimore, D.C. area, similar things. Even in Manhattan, some of these properties are being sold at an 80% discount to their last purchase price. It seems like there definitely are pockets of the market where this devaluation is starting to happen.
- [42:26]
B
Absolutely. There's been some incredible data points hit the headlines. You're alluding to a lot of them. We've had a handful of them in my market here in Southern California. Again, again, I think that's good. You know, get those bases to reset. I mean, if you're an active participant in the real estate world and you had like you should be buying, the only properties you should be buying now are you need to buy them out of bankruptcy. Right. Courthouse steps, pennies on the dollar, get that basis as, as low as you possibly can or buy it significantly below replacement costs. Right. If you can do that, then I think you have a path forward, you know, long, you know, over the next five, 10 years. But that's also the first filter. Right. Once you buy the property, if you can get a great location, great asset, attractive basis, from there you need to implement, you know, a strategy similar to what I laid out earlier. Right. Because if you don't do those things, you're not proactive about the operations. I don't care how great the property looks on paper, you will struggle to compete in the years ahead. So that's how I kind of see it is, you know, if you want, if you insist on, you know, buying real estate now, make sure you're, you know, looking in some of those, those areas.
- [43:57]
A
That's, that begs the question like how many buyers are in a position to actually do that versus those that are fully allocated and sort of stuck with the portfolio that they've already built.
- [44:10]
B
I'm actually really glad you said that. And before I go into that, I.
- [44:14]
A
Mean.
- [44:17]
B
What you just described, how Many people can actually do that. Right. That goes back to one of my earlier points. We're going to separate the pros from the wannabes. If you're buying a property off Zillow, off LoopNet, whatever mass marketed, that one's going to struggle. Right. And I'm saying this, you know, to my own detriment. I mean, I'm a broker. I do leasing and sales of office and industrial properties. But you need to have the foresight in this and the understanding of how to buy these assets below their fair market value. Right. So that's my two cents on that. But as far as these operators that have existing portfolios, they have existing obligations, that's a tough sell. There are some operators, some big time capital that's coming into these major markets, gateway markets, large metros, mine being one of them here in Southern California, where they don't have any of those existing obligations to worry about. They got a couple billion dollars in cash and they're ready to deploy it. And you know, if you find yourself in that situation, then that's a really, really incredibly strong place to be in. And you, I definitely think you have a path forward there. Absolutely. One thing you said earlier, discipline in what you're buying. Have to have discipline in what you're buying.
- [45:48]
A
Yeah. And bringing this back to sort of intersection of bitcoin in the market that you play in, one thing that you said earlier that was encouraging is that you've had a bunch of people reach out from different parts of the industry, from brokers to buyer sellers, contractors, development companies. And that's encouraging because if each of these individuals or individual entities in these different part of the markets begin incorporating bitcoin, it sort of de. Risked them all. At the same time, in my mind, if they each get bitcoin on the balance sheet or incorporate it into their part of the industry in the way that's best suited for them. You can see a collective strength building up where it's easier to do deals and people don't feel like they're taking on too much risk because they have this safety net, for lack of a better term in their bitcoin exposure.
- [46:47]
B
Absolutely. I mean, you can draw those same comparisons in the lending space with what battery's doing. And those that have the dual collateralized loans, they're going to fare a lot better than those that don't. And when those properties that don't have that bitcoin exposure go bust, that's going to be the batteries of the world are going to be the players that can Swoop in and, you know, get, get properties a good basis. Same thing with the development community. I mean, there's going to be, for the developers that, you know, have a war chest of, you know, of bitcoin, there's going to be some incredible opportunities for them over the next handful of years to acquire market share. Absolutely. And it's kind of. I was thinking through, I haven't, I've been thinking through this one a little bit. You have the bitcoin cycle, right? I mean, obviously some people are arguing that that four year cycle is over with, but whatever your opinions are there, you have a bitcoin cycle and you have a real estate cycle and over this arc of time they're colliding. So I almost see you in the point of the cycle where you're in your bitcoin accumulation phase and your education phase, Right. So accumulate as much bitcoin as you possibly can and educate yourself on what these, these various components of a strategy can be. Right. And as you're doing that, you need to have a, you know, doing an assessment of your holdings, right. Figure out which assets are core and which ones aren't. The ones that aren't, sell them, get rid of them. Doesn't matter if you take a slight discount on them or not. Get them off your books, get that liquidity. Right. And I see this kind of period of cycle going from today to maybe 2030, 2032 on the long end. And then from there you, you start deploying your war chest, you start implementing the strategy. Hopefully you've acquired some stuff that, you know, between now and then and you have, you know, a handful of doors, you have a handful of buildings to go execute the strategy on. That's not a fully baked idea, but you just kind of, you got my wheels turning there as you, you made some of those comments, but I'm kind of seeing those things collide again.
- [49:19]
A
Yeah. And well, what you were talking earlier on the subject of prop tech make tenants sticky, get you better data. I don't think this applies to those two points that you made, but you look at something like Square did last week with the integration of bitcoin in their point of sale systems. And if you're a property developer, particularly for commercial real estate that's catering to retail businesses, it's like maybe you lightly nudge the tenants to use square terminals and educate them about bitcoin too. Sweep a portion of their cash flows into bitcoin using the Square terminal because that's the tenant risk for you.
- [50:04]
B
Well, I love where you're going with this. Play that out one more step, right? In commercial real estate, a large part of the value, right, that people pay, the multiples people pay are based on the tenant, right? It's not 100% on the property itself, it's on the quality of the cash flow, right? So in our world, we talk about credit tenants, right? If you've got a bunch of credit tenants, that property is going to go for a premium relative to a property that doesn't. And as the, you know, if you can, if you have this retail center, this strip center where you can lightly nudge or incentivize your tenants to learn and accept Bitcoin, how, how does that property trade in the marketplace when you go to sell it? If you have a retail center that's got however many tenants it is, but those tenants hold Bitcoin on their balance sheet and you have the exact same property where those tenants don't. How does the market assign a risk to those two properties? How do they assign a premium? That one's going to be really fun to watch play out. So stay tuned on that. You'll have to have me back for when that actually happens and I'll bring all the data points and analysis for you.
- [51:23]
A
Yeah, because I think it's very underappreciated what they launched last week, 4 million small, medium, some large size businesses across the country with the ability to do this automatically. As of last week, who knows what the uptick on adoption of that particular feature within the point of sale system will look like. But you can imagine a world where slowly but surely it starts at 5% growth to 10 and maybe 50% of square merchants are sweeping at least 10% of their revenues in the Bitcoin. And it's going to be incredible the amount of data that many people have four years from now to make decisions off of.
- [52:06]
B
Absolutely.
- [52:08]
A
The one thing I wanted to say earlier or a question I wanted to bring up is, and this is something I've been beating the drum about, particularly in relation to the square launch, is a bunch of people, particularly in finance and in real estate and other markets, are sort of pointing at the treasury, the Fed, the Trump administration, saying, don't worry, they're not going to let things go to shit. And I think that sort of consensus view on how we're going to fix the problem is shortsighted and people need to adopt sort of creative, bold solutions that are sort of external and inoculated from the whims of the political class.
- [52:53]
B
I agree with you 100%. I think it's incredibly shortsighted. I think the market, the players in the market have all been conditioned for at least the last 15 years to believe that the Fed's not going to allow a real down cycle to occur. I mean the Fed put comment has, I mean it's everywhere. And again, I think that's incredibly dangerous. I think it's near sighted. But when you play, and again when you play this out, let's just say that they do jump in. They jump in, they backstop it, no problem, business as usual. One, we've seen the inflationary impacts of that, but I'll leave that on the side for now. But if they do that, their only tool is interest rates. Interest rates aren't reversing demographics, they're not reversing AI and automation robotics from reshaping business models and broader society. They're not, they can't change the mobility of labor. They're not going to change the rise of Bitcoin as a store value. Right? So all of those things are outside of the Fed's control. They're structural changes taking place in the market. And this goes back to, you know, what I said earlier is this is not just another cycle, right? This is a, there are structural changes taking place, which is why you can't assume that this is business as usual. Oh.
- [54:37]
A
With that in mind, I mean you've given a rough playbook. But for anybody listening who's in commercial real estate, what is the lowest hanging fruit? What is the first step? What is the game plan? To begin thinking about this, because we've been going for 50 minutes and I'm sure for a lot of people it's overwhelming. But from your experience, what, what would you advise in terms of. All right, you are curious about this. You think it may be a good idea. What do I do first? What do I do next?
- [55:11]
B
Yeah, I mean the first step is just putting your ego aside and getting educated. I imagine that a lot of people listening to your channel are already there, but for the real estate professionals that maybe aren't, start, start getting familiar with Bitcoin, start the learning and the education journey. And as you get that, the first step is to buy some Bitcoin, you know, allocate some of your US dollars to bitcoin, hold it in self custody, experience what that is like, right? I mean, you should have the butterflies in your stomach when you export or send your, your sats from the exchange to your wallet that first time and they don't show up instantaneously, right? I mean you should be having an oh shit moment. Did I do something wrong? Is it gone forever? Have that experience, go through the process and start slowly accumulating a bitcoin position once you get there. Now, all those other avenues that, you know, we covered here today, you know, start to, you know, be, are on the table. And you don't get it all in one afternoon either. Right. I mean this, like I said at the top of the hour, I mean, I've been baking, you know, this, everything I've said here, I've been baking for half a dozen years.
- [56:37]
A
Yeah. Well, on the other side of that coin, what would you like to see in terms of products, services from the bitcoin industry would make this roadmap easier to go and tackle?
- [56:52]
B
Oh, good question. I mean, obviously the point of sales for, for certain tenants is a big one, but in the commercial world, I think the lending area is probably the lowest hanging fruit. Since I've been talking about all of this, the number of questions and inquiries I've gotten from people across the country, different products or different, excuse me, different property types, different sizes. Where can I get one of these bitcoin credit structures? Where can I get this dual collateralized loan? Right. And currently, you know, you can't. It's only reserved for a certain segment of the market. Right. You have to have a certain size of the property. So I think there is a lot of opportunity in the middle and lower middle market to provide some of the, these lending solutions.
- [57:46]
A
Yeah. And that's having been on the front lines of that, I think the big nut to crack there is to get institutional capital to take the plunge to actually deploy into these strategies, which is definitely beginning to happen. Not in earnest, but it's one thing that blows my mind not even thinking about the dual collateralized, just simple bitcoin collateralized loans for US Dollars. If you look at the rates across the board for the companies that are doing it right, not using defi, putting it multisig, not rehypothecating, the fact that it's double digits or just below double digits is insane to me. When you consider the risk profile, considering the collateral sits in a wallet that can be liquidated 24 7, 365. And if you're putting dollars at risk, the risk that you actually lose your principal is extremely low.
- [58:39]
B
I'm surprised the rates haven't come down faster as well. That was one I got wrong. I thought the rates would come down and you'd see a lot more of it sooner than we have. I mean, a positive Thing high signal, as you say, the fact that batteries deal in Philly there they got awarded the COSTAR multifamily deal of the year or developer deal of the year in that market. And CoStar, if you're not familiar, they're like the, the, the primary data source database for commercial real estate. Anybody in commercial real estate has a subscription to costar. So they're the monopoly. And for, you know, an, an incumbent like COSTAR to, you know, issue that award and draw attention to that deal, that was, that was very positive. And I, I've shared that with a lot of different folks in my world and they all do a double take. They did what? And then they, they got awarded what. So it's, it started, it's opening up a lot of the conversations. People are saying, okay, there's these things have, you know, various, like what the utility. Various utility to, to what we're talking about here. That's been helpful.
- [60:02]
A
Yeah. I guess. Second to last question, let's paint the optimistic future for commercial real estate if this is all implemented. Let's pretend people listen to this and they go, oh my gosh, Chris, you're right. Let's begin implementing this immediately. That happens. What does the world of commercial real estate and not only of commercial real estate, but beyond. What do communities look like? What is the economy look like if this is fully integrated?
- [60:33]
B
Yeah, great question. We're going to have to have another hour for that one. But you have a much healthier and robust asset class, right? Real estate is the largest asset class in the world. It's ripe for disruption. Adopting and integrating bitcoin into it and some of these other strategies makes it resilient. Right. And again, it's going to improve your communities, it's going to improve your business, it's going to improve all of your, everything that comes with your life and lifestyle. I find it as much as Wall street gets all the headlines and clicks and whatnot, Bitcoin started as a grassroots movement and it's obviously continuing that way, but with the merchants, the retail merchants adopting it, the, the investors using these, these long duration credit products, it's going to be a grassroots movement that continues and saves the real estate world. That to me is, is how it plays out. That's how it plays out. And I mean I went through college and entered the workforce when the Great Recession was, was going down and, and concluding. Right. And when the dust settled on all of that, the movies were made, the books were written, I mean there, it was very clear that there was a lot of people that knew exactly what was going on. And they were doing some very questionable things. They weren't acting in the best interest of their, of their clients. Right. They weren't being good fiduciaries. And I don't want to see the same thing happen here in real estate. And when the dust settles on this and the movies are made, the books are written for this transition in this potential crisis, I don't want my name or any of my colleagues attached to that, that they were selling buildings in the name of a commission. They put a business into a bad lease for a quick speak. Right. I don't want my name or my firm attached to any of that. So if I can go down as the crazy bitcoin guy that tried to warn everybody, I can sleep good at night with that and I'm cool with that. I don't know if I totally answered your question there, but that's how I see it.
- [63:07]
A
Yeah, well, we need more people like you in the world, Chris, because I think, I think there's certainly some froth in terms of the questionable nature of some of the actions going on in the market right now. But you got to be optimistic. Never doom. We have a roadmap for how to begin to fix this problem. And I think that's maybe another thing to touch on before we wrap up. I think setting expectations. And my impression is that this is not going to be a quick fix. This is something that's going to take time to integrate and you just have to commit to a 10 year view and start walking.
- [63:49]
B
I think that's exactly right. But 10 years minimum. Again, real estate does not. It moves at a glacial pace, right. Compared to markets and just everything in our digital world. So you're not behind, you're not late. This is a perfect time to get started and start figuring out what the best path forward is. Right? I mean, if you're wherever you are in the industry, right, Brokers, capital markets, property management, contractors, architects. I mean, it's crazy how many different industries, real estate touches and effects. So wherever you are in that industry, I challenge you to be the first one in your firm or the first one in your area to start talking about this. Get your team, get your partners talking about it. Be the first mover to adopt a bitcoin standard, get it on your balance sheet and start harnessing its power. And that goes for every industry, for that matter. Actually, insurance, medical, pick one.
- [65:06]
A
Yeah.
- [65:07]
B
That's what we need to do as bitcoiners. We need to spread it out to all These different industries that power our economy. Yeah.
- [65:15]
A
And again, I'll reiterate it, it's the solution that will enable you not to have to point to the Fed and the treasury and say, don't worry, they're going to fix it. It's like you don't need to wait for them to manipulate interest rates or do a massive bond issuance, inject stimulus into the economy. You can begin to fix your own balance sheet. And collectively, if enough people do that, we can look up and say, hey, we actually didn't need their help. We could do this ourselves. Which is incredibly empowering and hopefully exciting for many people because I think a lot of the market, not just real estate, just the American economy, is almost held hostage to the whims of the Fed and the treasury more and more these days.
- [66:02]
B
Yeah. And I mean, as much grief as social media gets and the various negative side effects of social media, there's been some positive things. And that's flat out getting the education, getting the knowledge, getting the opportunity, other side of the story out there and, you know, letting people make their own decisions. Right. I mean, I, I feel like, you know, people talking about macroeconomics these days and now they're dropping the buzzword, you know, debasement, trade. I mean, these are from people that, you know, they, they've, you know, that never before are they, you know, interested in these topics or, you know, exploring these particular areas. So, again, I think that's the positive side of decentralized communications and media is how many people were able to access and tell them the other side of why you may not need a Federal Reserve as part of that.
- [67:04]
A
Yeah, there's a lot of noise out there, but there's also a ton of signal. You just need to know how to find it. And hopefully now you found Chris and you can continue to follow him on his journey to implement Bitcoin into the commercial real estate market. So, Chris, really love this conversation. We'll have to do it again at some point, maybe at the beginning, first quarter of next year. And where can anybody who is so curious find out more about what you're up to, get access to the content you've been making.
- [67:36]
B
Yeah, thanks for having me, by the way. This was awesome. And look forward to keeping you and your listeners up to speed on the, the commercial real estate markets? You can find me on Twitter. I do have a NOSTR account, but I'm still trying to figure it out. There's a little bit of a learning curve I haven't gotten over on that one, but Twitter is the primary. I post the videos on YouTube as well, but Twitter's the main source and once you get to my Twitter you can find all my other other channels, what have you.
- [68:12]
A
We will link to that in the show notes. I hope you have an incredible Tuesday on the West Coast, Chris. And yeah, we'll do this again at some point next year.
- [68:22]
B
Sounds good Marty. Thanks again for having me. This was awesome.
- [68:26]
A
Peace and love, Freaks okay, thank you for listening to this episode of tftc. If you've made it this far, I imagine you got some value out of the episode. If so, please share it far and wide with your friends and family. We're looking to get the word out there. Also, wherever you're listening, whether that's YouTube, Apple, Spotify, make sure you like and subscribe to the show. And if you can, leave a rating on the podcasting platforms, that goes a long way. Last but not least, if you want to get these episodes a day early and ad free, make sure you download the Fountain podcasting app. You can go to Fountain FM to find that $5 a month get you every episode a day early ad free helps. The show gives you incredible value, so please consider subscribing via Fountain as well. Thank you for your time and until next time.