B (3:19)

And we're also going to talk about.

A (3:20)

This mismatch of distressed capital versus distressed opportunity. And this is something I've talked about before, but I'm talking when I'm, when I say that, I mean we have groups that have that actually for those who actually do have equity, they really are chasing deals that are well located, newer, vintage. But what they're finding is that those deals are proving to be somewhat few and far between. So more the actual distress appears to be emerging in these pockets of older vintage deals and less desirable submarkets. Maybe it's still a good msa, but it's in that less desirable, weaker demand submarket. So how does all that play out and what impact could it have on the broader multifamily market? We'll get into all of that today. So let's get into it. And before we do, a big shout out to our sponsors. First and foremost, big thank you to jpi, a leading apartment developer with a stated purpose to transform building, enhance communities and improve lives. Check them out@jpi.com know they're here. They're here at NMHC, just slammed with meetings. So hopefully a good thing for some development. I know they ramped up more this past year, so good to see that. Also, a big thank you to Madera Residential, a leading apartment owner and operator based in Texas and expanding into the Southeast. So check them out@maderaresidential.com all right, so as always, kick it off with a section we call. Here's a chart. And this segment is sponsored by my friends at Mason Joseph Multifamily Finance, the number one FHA construction lender in the Southwest for a reason. Since 2016, Mason Joseph has closed as many as FHA construction loans in Texas and surrounding states as the second and third place lenders combined, according to my friends there. So check them out. Mason Joseph all right, so real quick, let's set the stage for our conversation on distress. Here's where we are in apartment sales. I touched on this briefly last week. I'm going to kind of take this to the next step today. We bottomed on sales in 2024. We went up moderately last year in 2025, but volumes are still down. We're down around 2017, 2018 levels in terms of dollar volumes, down around 2014 levels in terms of total transactions. And so it's still a slow market as many of you know all too well. And while transactions are thin, cap rates haven't really widened out as much as people, some people thought and certainly haven't grown, expanded out as much as interest rates did. In fact they really jumped that much at all. We went from an average of the mid fours at the peak to now around mid fives on average in some cases high fours, low fives. And you know one of the things we often hear though whenever we share those numbers, people say well you know those, that cap rate number is skewed downward by these, by what's trading. It's predominantly better quality newer vintage deals. And that's, and that's true, that's fair and that gets again that's what capital is chasing. Capital has been chasing these higher value newer vintage deals and that means they're going to be lower cap rate deals. And it feels like there's more confidence that that segment of the market has, has kind of seen it has done its price discovery. Like that's where the market is. It's high fours, low fives maybe a little bit lower in some cases. And for well located deals, that's their A and even B B plus, like that's, that's that that seems to be settling out. But the real question to me is what about all those class C deals? I mean they were a big part of the peak in terms of sales. So many of these deals had a friend here at NMHD tell me who did some research on this, show me some of these deals that were in that category. They some traded five to seven times over the last decade and really kind of buy flip strategies among short Term sellers and value add players, that part of the market has largely evaporated. So what happens to those deals? And in particular, let's be really specific, what about those older vintage deals and less desirable sub markets because that's where the distress is concentrated. You know cap rate spreads, have they really tightened up regardless which had multifamily that those spreads tightened up between the best quality assets to lower quality assets regardless of again quality or location. You know that's starting to wide out and, and you know we certainly aren't seeing anything like you know the some cases, threes and low fours for these older vintage deals that we saw a few years ago. So where is that stuff settling out? And to me that's, that's less clear than, than in the AB market. So let's do this, let's look at some markets here. This is a list from Trep showing the top 10 markets on their watch list for multifamily loans. So this is measuring basically potential distress or potentially troubled loans. And this will give you some idea of where distress is concentrated in terms of markets. And then drilling further, we know much of this will fall into the category of older vintage busted value add deals bought at the market peak, low cap rate and a lot of it was short term floating rate debt.

B (8:13)

And of course a lot of these.

A (8:14)

Were sub institutional groups, sometimes they were newer syndication groups chasing hot markets. But to get to those markets they were oftentimes buying older vintage deals in less desirable, maybe sub institutional submarkets. So those 10 markets where we see this as measured by trip are this, it's Austin, Jacksonville, Houston, Atlanta, Dallas, Memphis, Tampa, San Antonio, Seattle and Denver. So obviously a lot of Sun Belt as well as the hotter growth west markets like Seattle and Denver. So you know again high demand spots for the most part, most, most part solid long term profiles. But still it's a particular segment of the market that falls into this potential category. It's not saying all these markets every deal or that's that that in this case know 10 to 16, 17% of loans are distressed. Like that's not representative across the board. It really is a particular segment of the market. Much of it, you know, based on, you know, deal structures and pricing and timing bought when rates were cheap and now resetting at and maturing at higher rates. And at the same time of course many of these properties, they only get older every year. They have some have heavy capex needs, some have rent roll issues, low economic occupancy, they've a lot of them in these higher demand Higher supply markets have seen the impact of filtering. They're losing the higher income renters up market and that's creating further pressure on occupancy and, and rent even in that class C market. So while there's a big spread to the new construction, they're still seeing the impact. So that takes us to cap rates and values. As I mentioned earlier, we may have found. I'm sorry, I think we, I think we have a pretty good pulse on where the market is for class A and B plus assets and where that's settling out. But I don't think we really found the clearing price for these older vintage deals and less desirable submarkets. And again that's a big chunk of the overall pie. Look at transaction volumes compared to the P. You can't ignore this even if you're, even if you're not in that part of the market, never have been. There's a broader impact. You're just showing people look at flows into the sector that's not there right now. So there just isn't a lot of this trading as lenders and sponsors have generally tried to wait this out as long as they can. And so we really haven't seen cap rates widen out all that much yet. So there's some co star data. It shows that in these markets I just mentioned, those 10 cap rates between class A and class C deals are generally 100, 150 basis points spread, which if you think about it, that's not a lot of meat on the bone for potential buyers. That's still, I would say fairly thin now maybe it's okay if you're a class C in a great submarket. I think there's some opportunity there to chase maybe the most challenged deals in the best locations. There's a strategy there that's still a pretty liquid market but you know, and also too I think we're gonna see more institutions maybe going into that space if they get into the B, A B minus. I don't like B slash C as some of you know, but that B minus C space, I think B is a little bit different but that, that lower end of the market, you know, I think if institutions are going to get there, it's going to be in those really good locations where there's a good story there and you're really, you know, looking at, you know, getting kind of naturally occurring workforce housing in these great spots with proximity to good jobs and whatnot. So anyway, aside from those issues, if you're a, that, that carvet, I should say if you're that class C in the weaker submarket and especially if you have deferred maintenance issues, rent roll issues, 100, 150 basis points, that that's just not a big spread to price in the risk. Now I also looked at cap rate spreads by submarket using some data from Green street and keyed in on five markets in particular, Atlanta, Austin, Dallas, Houston and Tampa. And all those five which are on the TRAP watch list by the way, some market cap rates and are in that same range, 100, 150 basis points for the most part, maybe 200 in a place like Houston, but still, you know, fairly tight now. So what does all of this mean? Well, you know, friendly disclaimer. I'm not a cfa, not an investment advisor, but I'm just going to share with you a few thoughts, all right. And really not even thoughts, really, just questions as we tee up our conversation with Mike later on. Distress. So number one, do we see more for sales and, or foreclosures and taking the keys back on some of these deals, particularly class C and less desirable submarkets? I suspect we will here in 2026 and in 27, where does pricing number two, where does pricing settle out for those types of deals? Is it a 7 cap? Is it higher? We'll see. And then perhaps most importantly, and this is what I'm genuinely curious about, I just posted this on LinkedIn, had a good discussion on it earlier this week. Who is the buyer for these types of deals? And I'm genuinely curious, who are the buyers at scale? There's some one off players of course, but who are the buyers at scale, significant scale for these types of deals. Now you might just say, well hey, these are going to be smaller local groups, local, you know, sub institutional syndication groups, whatnot. And that's probably true to some degree, but at scale I think that's going to be tough because if you remember back to the early 2010s when there wasn't a lot of capital or a lot of equity out there, it was groups like Blackstone and, and, and, and Starwood, they bought a lot of those types of deals. And you know, I can't say this for sure, I don't have firsthand knowledge of this, but I kind of doubt that they're going to be buyers at scale for those same types of assets this time around. Again, those, these deals have just gotten older. You have a lot of other issues related to filtering, Capex, rent roll, et cetera. Then maybe you, you look at these smaller groups, these syndicators but you know, and again, there'll be some that are out there and then active. But you know, remember a lot of these syndicators, you know, they're doing capital calls and trying to hold on to deals like this. These, the same profile. They're trying, they're, they're also kind of the sellers, so they're, they're, they're distracted and a lot of their investor base is fatigued. And so it's tough to raise capital for the next deal, at least for now. Maybe that changes as the market heats up, but that's the reality for now, you know, and then you look at, you know, larger private equity groups, other institutions, you know, and I just think a lot of them are going to avoid this space regardless of where cap rates go. You know, just, it's just more risk and more operational headaches than they really want to take on. And of course, you know, obviously if pricing does get good enough, you know, there's going to be some of them, they're going to jump in. But again, who will that be? I don't know. But I'm, I'm certainly curious how that plays out. So anyway, we'll get Mike's take on this question during today's interviews. I'll ask him his thoughts on who's buying these types of deals and how that market settles out. Maybe one last thought before I move on. You know, I, I do, I mentioned this in our 2026 preview. I do think we're going to hear more noise about distress this year and next year. You know, at some point some of these deals just have dealt with you only. You only kicked the can down the road so many times. Some of these deals just, you know, they're years and years away from recouping some of the lost value. So you know, we've got, you know, I've said the stat before. We've got tens of billions of dollars in potential distress. Now, friendly reminder, that's still a single digit share of the 2.2, 2.3 trillion dollar multifamily debt market in the U.S. but it's still, it's, but it's still fairly significant. So that distress is real, even if it's not necessarily systematic, systemic. So again, we'll hear, I think, a lot more about that this year finally. And of course we think we said the same thing last year, but I think we'll, I mean, you got to, surely we'll see more of that this year. Right. So just to wrap it up, I would say this. I think Two things we treat. Number one, most capital is chasing distress. Most, let me rephrase that. Most capital is chasing distress where distress really isn't concentrated, meaning the capital is chasing these newer vintage deals. A good location and sure there's some distress, but it's not, it's not going to meet the demand for capital that wants that debt profile. It's going to be very competitive and that's going to keep cap rates low in that segment. Maybe even see some compression. Now I think those, so I think that'll be real the same time there could be a kind of alternative reality for the lower end of the market where second point is that you could see these older vintage deals hitting the market at, you know, higher cap rates, widened out spreads and, and maybe even bumping up market medians and means in terms of cap rates. But you know, the real story is going to be the details and again I think it's going to be the bifurcation between the A's and the B pluses, the good solid B's versus the true C's. And you know, someone could eventually do really well in this segment buying up distress class C at the right price. And that's, that's just how cycles work. But again, it's just not obvious to me who that is or when that'll happen. So anyway, that's just my take and we'll talk to a real guru here in a bit when we get Mike on. But before we do that, it's time for some rental housing trivia. All right, today's trivia is presented by Landing a full service furnished housing partner helping operators drive incremental noi. Simply landing turns vacant units into revenue. Learn more at hello landing slash partner. Goodbye vacancy, hello landing. All right, so this week's question, according to Green Street, Austin and Phoenix have seen deeper drops in apartment valuations from peaks to current than any other market. So Austin and Phoenix are 1 and 2. So those two are probably too obvious. So I'm going to take those out of the question. Okay, Austin and Phoenix. So the question is which market ranks third after Austin and Phoenix? Which market has seen the deepest drop in apart in values? I'm going to give you four choices. Is it Denver, Jacksonville, Las Vegas or Raleigh? So give that some thought and we'll answer that here in a bit. But first in the news. All right, in the news when we review headlines impacting the multi family and single family rental markets. In the news this week is sponsored by Authentic. If you've got a property that's Underperforming and you can't quite figure out why, check out their multifamily leasing and marketing audit. They'll dig into your pipeline, your leasing funnel and comps and tell you exactly where things are breaking down. But plus strategies on how to fix it. Listeners of the pod get 50% off. So head to authenticff.com and click on the banner to learn more and claim the offer. All right, a few headlines for you this week. The first one comes from the National Multifamily Housing Council while we're here at the NMHC annual meeting. So this is a new release from them. It's their fresh results from NMHC's Quarterly Survey on market conditions where they pull apartment execs on on how the sector's doing. This one is from the month of January. A few big takeaways. Between October and January, respondents noted some slight lost momentum on the sales side. Nothing major, but slight decline. Some of that could be seasonal. And they also reported continued improvement in debt availability at the same time. So more debt but still continued challenges, or I should say more debt availability, more continued challenges in accessing equity, which has been the story for a while. So no surprise there. Still a pretty soft market in terms of fundamentals, according to the survey. Basically the same since October. Nothing really surprised surprising there either. But here's maybe the most interesting thing from the survey. Okay, I'm going to put up a chart on the screen here. NMHC asked respondents. They said several jurisdictions have recently either imposed or strengthened rent control limitations or are seriously considering doing so. Would you like to know? I'm sorry, we would like to know whether this has affected your investment or development decisions. All right, so in total, 76%. So basically 3 and 4 said they would either not invest in these markets or they've cut back on development or investment in these markets. So again, three out of four are basically cutting back or avoiding markets that have rent control or are just seriously considering rent control, as is the case right now in Massachusetts. I mean, why take that risk if your investment and your entire thesis could be negated by one vote in November? And by the way, you know, I've talked about that in the past, that, that, that, that particular proposed ballot measure in the past. But there, you know, there's some real challenges that would bring about. So, so again, rent control, it's cap and revenues, not expenses. So you know, but I think it's interesting, it's an important reminder for I think the, the public sector policymakers that even serious consideration of rent control has A freezing effect on capital, including development capital. The Massachusetts governor, Democratic governor, mentioned this herself as something they've already seen happen. She's seen that. And if she's seen that, not just people, nerds like me looking at data, you know, that really tells you something. So obviously, of course, even Sears consideration of rent control, that could backfire on renters in the form of reduced supply, reduce investment, existing supply and higher rents. So let's trust the science, right? It's not complicated. Fast rent control in your city capital is just going to go somewhere else where it's wanted. And capital tends to prefer going to cities that prefer collaboration over demonization. Demonization. Excuse me. All right, next headline. This one comes to the Wall Street Journal. It says, these developers stand to win in Trump's housing investor crackdown. The build to rent business looks poised to take off after Trump exempted this industry from his regulations on large investors. And the article goes on to say President Trump is taking aim at big institutional investors that buy single family homes. But one big, sorry, but one Wall street group active in the housing market stands to benefit from his crackdown. All right, so, you know, I, I, I, I, I don't want to be too nitpicky, but I just, you know, these type of clickbait, click, clickbaity headlines, they kind of drive me nuts a little bit. The angle makes it sound like, you know, Wall Street's chasing loopholes and, and obviously not even just Wall street that does build to rent. I don't know why we just make that a, you know, a synonym for all types of capital. But obviously there is some truth behind this, right? To meet growing demand. I'd put it this way, right? It's not just about, it's not a loophole, it's just a reality. It's like there's a lot of people who need a single family home but can't or don't want to buy and so they need a place to rent. And, and by the way, like the fastest growing demographic in terms of age is in America is the kind of that in that single family rental BTR stage of life. So if it's really about meeting that growing demand for families and certainly, you know, wanting to see a return from that, but it stems from growing demand, right? And so that's going to shift more capital into build to rent. And I've talked about this previously as a, as a, you know, I think a ban on an SFR is, or even a, even if it's not a full ban, but even a heightened Intensified spotlight in the sector is going to drive more capital into btr. That's again, it's already been happening. It's already been shifting that way. But maybe now. So even, maybe even more so now, given the challenges from the regulatory perspective. It's just, again, it's not that complicated. You're chasing the demand. All right, speaking of SFR topics, here's a really great read from Vox, which is a, you know, certainly not an industry application by any means. More of a alternative media source. And the headline here is Wall Street Buying Up Houses is Good. Actually the Surprising Truth About Corporate Investment in Housing. So this is a really good read. If anybody's in this topic right now, I would highly recommend you read this. It's very well done. It talks about the runaway narrative of Wall street buying up houses, driving at home prices, pushing out average American home buyers, and then it tackles that narrative with facts. So let me read a little bit of this. It says the narrative has spread virally for years on social media. More nuanced versions of the tale have appeared in major publications and on congressional press releases. Earlier this month, President Donald Trump pledged to ban large institutional investors from buying more single family homes, then signed an executive order that heavily restricts such purposes. And progressive Democrats in the Senate are cheering him on. Unfortunately, the story spurring these policies is largely false. Corporate investment in single family homes is not a major driver of Americans high housing prices, house housing costs. To the contrary, that investment has likely made housing in the United States more affordable. The quote blackrock ate our homes quote narrative owes its popularity to an ideological convenience, not empirical validity. And then it goes on to say that institutional investors own less than 1% of America's single family homes, which is true far. And then it says far too little to explain high home prices. It says corporate investment houses has likely reduced rents and segregation. It also says America's housing crisis driven by scarcity, not speculation. So anyway, this is straight from the article. It's not for me, but similar. I've obviously pointed out similar things in this podcast as well as my newsletter I put out, if you haven't seen it, 11 myths combating 11 myths on single Family Rentals and Institutional Owners. If you haven't seen that, you could find that on a website, jparsons.com and you can subscribe to my newsletter there too, if you'd like. But of course it's far more impactful for a major media, or at least a major alternative media outlet like Vox to point these things out than it is for me. So kudos to Bosch taking the time to study the facts and having the guts to put them in print. All right, let's get back to our trivia question of the week. The question is what market ranks third behind Austin and Phoenix for largest decline in apartment values since peak? And this is according to Green street. Is it Denver, Jacksonville, Las Vegas or Raleigh? And the correct answer is a Denver. So Denver is third in declines according to Green street from peak to current behind just Austin and Phoenix. All right, next up, it's time for today's interview and it is sponsored by funnel, the AI and CRM software trusted by four of the six major REITs and many more leading operators like BH and Cortland. To learn how Funnel can help your property, centralize operations, automate everyday tasks, visit funnelleleasing.com oh, and by the way, quick heads up, the registration for Funnels form event is open. It's already, we're already more than 50% sold out. I'm told. I'm going to be speaking at the forum this year, so I'd love to see you there. It's, it's an, it's one of the only operator only events where, you know, people are just having open conversations about what's happening in multifamily and what's actually working. It's going to be 3-23-26 in Scottsdale at a five star resort. And again, you have hundreds of operators there just having real conversations about centralization and the human side of operations and AI. So check that out. Funnelleleasing.com forum all right, so our guest today is the president of Benefit Street Partners, Michael Comparato. Benefit street is part of Franklin Templeton and it manages, among other things, a major publicly traded commercial mortgage REIT known as Franklin BSP Realty Trust. Mike has a great story and you he'll hear that early on in the conversation. So I, I, I, I did not know the story previously. You'll love it about how he got into the business and of course, we'll talk about all things multif family distress as well. So let's jump in. Foreign.

B (27:56)

Welcome to the interview portion of today's podcast and I am honored and excited to welcome in Mike Comparato. Mike, thanks so much for being here today.

C (28:05)

Hey Jay, thanks for having me. Appreciate the opportunity.

B (28:08)

Oh absolutely.

A (28:09)

I'm honored.

B (28:10)

So before we obviously we have a lot of hot topics around debt right now and you've got a great pulse.

A (28:16)

On what's happening in your role.

B (28:18)

But before we get into all the fun Stuff.

A (28:19)

Tell us some of your story, your.

B (28:21)

Background and how you got into this business.

C (28:24)

Yeah, I've, I've mentioned this on a few podcasts and other interviews. Just kind of my, my background for my family. I was very blessed to be born into a, a pretty big development family that did a little bit of everything from shopping centers to office buildings to multifamily condos. What I've never really talked about is how I got into finance or at least got interested in it. And it's, it's kind of an interesting story again relating to my family. My grandfather, God rest his soul, built an office building, I think it was in 1985 in Boca Raton, Florida. And he was struggling a little bit, filling up the ground floor space with an anchor tenant. And he woke up one morning and says, you know what? I'm going to start a bank. And it wasn't because he wanted to be in the banking business. He wanted a tenant for his office building.

B (29:22)

Wow.

C (29:22)

So he found a handful of guys to run a bank. He formed a board, he put up, I think, you know, at least 50, if not a little bit more percent of the, of the capital to start it. And he started a little one bench branch bank in Boca Raton, Florida called First United Bank. And over the next 10 years they took it public, they grew it to like 40 branches. And it was actually the first bank that Wachovia bought to enter into the Florida markets overall. Interestingly, my dad was on investment committee and this is back again in the late 80s. At this point he would come home way before PDFs and emails and all that stuff. He would bring home his binder of loans that were going to investment committee. And at 13 years old I would sit at the kitchen table and like be a nerd and flip through this book of loans that was going to bank investment committee. And I just got fascinated by the finance side of the business. So, you know, grew up around commercial real estate as a, as an asset class and as a product and as a family business. But, but got introduced to the finance side because of our, our banking business.

B (30:31)

Wow, that's a great story. When I was 13, I was reading the box scores in the sports section of the newspaper and you know, you're, and think, and maybe thinking, well, maybe not a good enough athlete. Maybe I could be on SportsCenter one day. I'm instead I'm hosting a podcast for rental housing. But that's, that's a great, that's a great story. So let's fast forward a little Bit. Tell us about benefits for obviously your name is very well known, but for those who don't know, tell us about Benefit street and, and more specifically your strategy.

C (30:59)

Yeah, so Benefit street is a wholly owned subsidiary of Franklin Templeton, who I believe is like the fifth largest asset manager in the world. Benefit street is a boutique credit manager within the FT family, knock on wood. We're going to hit about 100 billion of assets under management later part of 2026. And then I run the real estate group within Beneficiary Partners. And I think, you know, the real estate group that we've built is, is kind of the dream that I always wanted to have. I think of us more as like a real estate hedge fund than an alternative lender. We can do and do do everything in the space. I think we have a focus on credit right now and historically just we, we like that space a lot, but we make equity investments, we make investments in the companies. There's, there's literally nothing that we can't do within the commercial real estate universe. And so it's, it's kind of cool to have a product where we wake up every day and you know, if something interesting or opportunistic comes along, whether that's in credit or in equity or somewhere in between, yeah, we, we've got a bucket and an ability to do it. So it's a, it's a really fun platform to run and we've got just a great set of human beings that I get to run it with every day. So I'm, I consider myself very, very blessed in the ability to do what I love with great people every day.

B (32:21)

So, so given that flexibility, I'm curious, like why do you focus on, in my perception at least focus on credit and then within the credit bucket, you know, what, what's the, what's your kind of sweet spot? Like what, what types of, you know, what do you, what do you really focus in on?

A (32:36)

What type of strategies?

C (32:37)

Look, I'm, I'm, I love the asset class, right. I grew up around the equity side of the business I've owned. You know, whether that's personally or individually or with the family. Billions of dollars of real estate over the past 30 years. I think as an asset class it's great, great. I think that the big differentiator between debt and equity equities is really timeline, right? Like commercial real estate equity historically has been a long owned asset class. You own something, you run it properly, you don't over lever it, you get the tax benefits of the depreciation and you kind of just let inflation and rent growth do its thing and every 10 or 15 years maybe you sell an asset and you have a great outcome. I think we largely live in a society certainly on investment side where just everybody wants instant gratification and less and less are they patient and they can't wait that 7, 10, 15 years, nor do they want to. And so I think just credit on a timeline basis it seems like just a much better investment than equity today. So I think that's why we've always gravitated to that is we think we can get close to making equity like returns but in a credit risk profile and you know, if you can make a 14 or 15 at 65 LTV, that's a heck of a lot better than making a 14 or 15 at 100% LTV. And so that's just kind of why we've always gravitated toward, towards credit but still have a, you know, a multi billion dollar equity business within benefit streak.

B (34:19)

That we so and then so this is, this is private credit debt fund.

A (34:23)

Type structures where you're doing this on the credit side.

C (34:26)

Yeah, we've got the publicly traded mortgage reit then we've also got a closed end credit vehicle as well as an evergreen vehicle. So a lot of what we're doing is shorter duration floating rate but we are getting into some of the longer duration assets. We're going to buy our first CMBS B piece probably in the next few months. Our first since the gfc. We kind of, we bought our first. No, I'm sorry, not since the gfc, since COVID We bought one right after Covid hit. That was more for liquidity reasons like to get those, those loans into Q sips than it was anything else. But CMBSB piece has become very interesting and so we're going to dip our toe there and we're also going to do something with a multifamily only CMBS product. So trying to be creative, do something a little different than other people and you know, see, see where it leads.

B (35:21)

And then last question is kind of the background. So within the housing rental, housing space, apartments etc, you know, what's the profile of the, of a typical deal that kind of fits what you're looking for.

A (35:31)

In the private credit side Again there's.

C (35:34)

There'S nothing that we can't do. So I think our job today is really what's the best thing to do. And you know it's a drum that kind of everybody's beating but it just is the Best risk return in our view. It's just nicer, newer vintage, multifamily and big liquid markets where they still need 12, 18, 24 months to either fill it up or burn off concessions. And so that's what we've been doing, I would say for the better part of the past two or three years now. That said, we do everything right. So we're doing construction loans, we, we're doing renovation bridge loans, we're doing all of that stuff. But I would say for every 10 loans that have gone to IC over the past two, three years, probably six or seven of them have been that newer vintage, higher quality asset that just, there's no business plan, it's just time. Just fill it up or burn off concessions and hopefully bridge to greener pastures which look, the pastures are greener.

A (36:34)

Right.

C (36:35)

I was having this conversation with some JLL guys this morning at coffee. You know, we're, we're seeing loans that are now, you know, right inside a six handle coupons for floating rate loans because sofrs come in, spreads have tightened, they're still not what they were four years ago, which was sub 3% handle coupons, but they're certainly a heck of a lot better than eight or nine. So hopefully the worst of it is behind us on the credit side and the market can start feeling a little bit better.

B (37:05)

Yeah, that tees us up for what's getting the kind of where we are right now. And before we get to 20, 26, let's talk about 21 and 22, the height of this cycle with the benefit of hindsight, which of course we all wish we had even in the present. What do you think everybody? And I'm just using this broadly, obviously a lot of different strategies, but what do you think the industry generally got wrong? Was it as simple as just the unexpected spike in rates and more supply than anybody anticip or do you think there was more to it that we should have been looking at?

C (37:38)

What didn't we get wrong? Yeah, I, I, I'm dating myself just a little bit. But you know, I, I grew up fascinated by Mike Tyson. You know, just an unbelievable boxer.

A (37:49)

Oh yeah.

C (37:50)

I just feel like the multifamily market got a three punch Tyson combo that was just like unrecoverable. And, and I think those three things were supply, higher rates and then I think maybe the biggest issue out of all of them was just the commoditization of multifamily regardless of vintage or asset quality. And I think that was kind of the most obvious and Biggest problem at the time is, you know, guys were walking into my office with a 2020 vintage Class A multifamily deal in Fort Lauderdale saying that, you know, the debt was a, I don't know what it was back then, six and a half debt yield. And then the next guy would walk into my office five minutes later with the 1972 vintage deal in Chattanooga, Tennessee and it was the same debt yield. And I was like, these things aren't supposed to be the same. Like, it's just. This is just wrong on many levels. So I think that that's probably an equal part of the pain as we unwind here or is at least we kind of get through this correction. The nicer, newer, higher quality vintage stuff in big liquid markets. I feel like we've corrected there. I think the correction is much more severe in that older vintage stuff and secondary and tertiary markets. And that's why it's, it's kind of the last stuff that's going to resolve itself. I'm hoping it resolves itself in 26. But it's painful. I think it's a little bit more painful than most people think. I think these things are trading wider than most people think. I don't think there's been as much capital raised around that stuff as there's been around the new vintage stuff. And again, that new vintage acquisition is kind of easy button for institutional investors. Like if you can walk into your investment committee and say, oh yeah, I just bought a 2023 vintage asset in a high demographic area of DFW, you're probably not getting fired if you get that one wrong. If you really go out on a limb and buy the 1972 asset in Chattanooga, if you don't get that right, people kind of cock their head and what were you thinking there? So I think that's the final part of the market that needs to kind of find its price. And right now I think there's a pretty big bid ask spread between that older vintage seller.

B (40:10)

Yeah, I was asked about the layer. Let's jump into that right now. And you've nailed this. I'm just going to repeat what you've said, which is that a lot of the capital out there today of all types that actually has capital very focused on well located newer vintage deals. A lot of the distress is not that. So there's a mismatch between what's called distress opportunity and buy boxes right now. So how. And you've sort of alluded to this, but let's kind of get to the. To the to the end of the story here, like how does this play out for these potentially distressed, you know, 70s 80s deals, particularly those in these less desirable submarkets, even if it's in a good market. And then second part of the question.

A (40:47)

Is who do you think ends up.

B (40:49)

Being the buyer profile?

A (40:51)

What's the who's the who ends up.

B (40:53)

Being the one that kind of swoops in and buys this stuff? Because right now it's not obvious who's going to be that, what type of group that's going to be.

C (41:01)

I think the second part of the question is actually a little bit easier. I mean there's some groups out there that are just phenomenal at this stuff that just want to buy that 1970s, 1980s, 1990s workforce housing. I mean the Morgan family, that Morgan Properties comes to mind instantly as being one of the best in the country. There's other guys that look like them, act like them. I think that they will be massive beneficiaries of this stuff over the next 12, 24, 36 months. I think to get there though is really what I just mentioned. Like it's, it's getting the price in the right spot and I don't think investors are going to make the mistakes that they made in 2021 and early 2022. If a class A brand new vintage multi deal in a high demo market is trading for a 5 cap just to pick a number that 1980s vintage asset, wherever it's got to be 100 basis points wider and at least. Yeah, at minimum. Yeah, to your. Exactly. At minimum. And then if you throw in a little business plan into it and there's some renovation and there's some this and that, you know, maybe it's 150 basis points and I just don't think, I don't think sellers are going to be accepting of those cap rates because four years ago they were selling those for three and a half. And so I just, I think it's really tough. And so I think that no one is a seller by choice and the sellers that we are seeing out there are mostly forced sellers, if not lenders. And I do think there's more debt trading than people think there's trading. There has been billions and billions of dollars of loans sold. I think it's just been done very, very quietly. And you're not seeing the transactional volume traditional seller to buyer right now. And I think that's mostly just price discovery. I just, I think buyers are much wider on cap rate than where sellers are.

B (43:06)

Oh, absolutely. I mean, I think by the way.

C (43:09)

That'S supposed to be how it works, right? I mean every business of all time, you know, the risk is going to be higher. If the risk is higher, the rewards reward has got to be higher. And right now the market just doesn't appear to be accepting of that. You know, very basic business rule.

B (43:29)

So how does this play out for 26 and maybe 27? Are we going to see a lot more distressed deals that are finally trading or is this stuff that maybe the debts traded and they gets restructured and we never really see it show up as a, you know, actual sales comp? I mean how do you think this plays out in terms of actual sales volumes?

C (43:48)

Look, I, I think more will come to the market than less, although not much has come. So that, that's not a high bar.

B (43:55)

People been saying that for two years.

A (43:56)

Right?

B (43:56)

Me too.

A (43:57)

Yeah.

C (43:58)

I mean we've all been sitting around kind of waiting for the, the second half of the storm to happen. And I think everybody from debt fund lender to bank lender to every lender out there has been pitching to their investment committee or their shareholders, you know, things are going to get better, wait a little bit longer, you know, extend and pretend and da da da da da. And I would say fortunately, but unfortunately we have seen short term rates come in and spreads come in and so that you know, they haven't gotten to the point where it's been a panacea and just everything's fixed and everything's great. But unfortunately it has given hope to those lenders that well maybe if I do wait another year, you know, fed funds and so for will come down another 75 basis points and then magically everything is covering again. So it's a little bit, you know, rates coming down is a little bit of a blessing and a curse. It didn't, it didn't make force the system to flush over levered loans but it also didn't force the system to flush over lever loans. Right. So it's, it's just this interesting kind of no man's land right now where I think if rates stayed higher we would have finally seen kind of that capitulation flush and people would just said I'm done. I think that hope and that light at the end of the tunnel is a little bit brighter than it was 12 months ago. And so maybe they wait a little bit longer. It's anybody's guess. But I do think that some of this stuff has to come out at some point. Just investors role get exhausted with it's. Going to be better, it's going to be better, it's going to be better. They're just going to say hit the loss button and move on. And I think we're getting hopefully closer to that because I don't think the market can have a healthy rebound without the full kind of flushing of that, you know, that back inventory.

B (45:52)

So take us behind the scenes a little bit. If for, for lenders are having those discussions like what, what? And they're looking at these troubled loans.

A (46:00)

Like what's the final straw for them.

B (46:02)

To say, hey, we're pulling the plug on extended pretend, like we're ripping off the band aid, we're going to push it out, like what, what's the what, what triggers that?

C (46:11)

I think it's going to be lender by lender, investor by investor. Right. That answer at a bank is very different than that answer at an evergreen debt fund, which is also different than a closed end debt fund. So I think each one, you know, you're, you're married to your investors and at some point the investors are going to be one that says, you know, enough, you know, hit, hit the button and be done. I think when you go to the banking side, obviously you invite the regulators into that conversation as well and that adds a whole nother layer of confusion, complexity and how you have to account for them. Right. I think that's one of the interesting things. You know, I think it was a New York Fed that published a white paper on extended pretend and how banks are actually hurting themselves more than helping themselves by doing that. I think that came out in like December of 24. You know, interesting that a regulator would put something out like that. And then I, and then I think that they came out saying that how you had to account for modified loans on balance sheet was going to change. So it's just a very different world, the banking world to the private credit world. And I think that those two universes have to treat those things differently. On the private credit side of things, I think it's going to be driven largely by the investors who just say to the manager, you've been telling us this story for three years, it hasn't come to fruition done, we want to move on and you guys need to liquidate.

B (47:43)

So given what's facing the banks right now, obviously much more different environment than what coming out of the gfc. Are they more incentivized? You mentioned there's a lot of funds out there, private credit that's been raised to buy up bank loans. Like you Alluded to are some of these banks just better off selling the debt and getting rid of it that way.

C (48:04)

It's, it's not that easy. You know, I think one of the biggest issues within the banking system overall is just the amount of leverage. And it's something that we never talk about publicly. And I just, I, I find it very strange, right, if I go out to the market and tried to raise a fund and I said we were going to run at 9x leverage, I would literally get laughed out of every room that I walked into to like literally. There's not a single investor who would invest with me with that kind of leverage profile. But that's where the banks run, right? You know, we've got this false sense of security because the word bank and you've got the FDIC and you know, we think that their balance sheets are just like they're indestructible and they're just not. They run at the highest leverage of anybody in the universe. And so the smallest of loss is really exacerbated because of the leverage that's, you know, built into the bank. So I don't think it's as easy as just, hey, let's go sell $1 billion, $2 billion, $5 billion of loans. Certainly not if you're a community bank and certainly not if you're a regional bank. You know, can a money center bank move $1 billion, $5 billion loans? And it probably doesn't show up anywhere. I'm sure that they can. But where most of the distress is, is in the regionals and in the communities and having a liquidation event below par, which undoubtedly most of these will be, it's disproportionately painful in the banks because of their leverage. So I think it's more complicated than most people believe it to be.

B (49:42)

Yeah, that's a great point. So I guess just bigger picture, you go back the last few decades, you know this better than me, but I see the long term trends. The banks have been playing a reduced role over time in direct multifamily lending. We've seen debt funds taking a broader share. Some of that backed by banks is there, is there just a lot. Is this, is this a cyclical thing.

A (50:05)

Or is there a long term structural.

B (50:06)

Shift where the banks are just going to take less, do less direct lending and focus more on backing these debt funds?

C (50:14)

Well, look, I think this comes full circle back to the regulators again. I mean, how many real estate oriented bank problems are we going to have systemically or across the industry before we say enough's enough. Right. I mean, it just seems like commercial real estate or residential real estate is always the catalyst that is starting some sort of bank conversation of the banks being unhealthy. And so I think we've come to the point where the regulators have said we don't want last dollar cresk in our depositories. Right. We want the last dollar credit risk in private credit and we want the banks, you know, backstopping the private credit. The issue is community banks and regional banks can't do that. They're either A, not sophisticated enough or B, they don't have enough capital where, you know, they, I'm sorry, they don't have the ability to write a loan large enough where they can actually back private credit. So yeah, it's, it's really easy for the big guys to be in that space and they are and they're expanding and growing that as much as they can. But it's really hard for a 12 branch community bank in, you know, XYZ, you know, USA to just start providing back leverage to private credit. Like they don't know what that means. They don't know how to do it. So if they're going to be in the commercial real estate market, they kind of have no choice but to be a direct, you'll lender to these borrowers.

B (51:46)

Yeah, that's, that's, that's a great point because I've, you know, I, I, some of the outside you see, you know, the banks are backing these but they're doing less direct. But that, the way that you lay it out makes a lot of sense.

C (51:57)

Well, I think they're doing less direct because they just don't have the ability to lend. And again, I'm not a banking expert or a regulatory expert by any means. A lot of people would say I'm not an expert in anything. But you know, I think also the way that they, you know, the regulators treat warehouse facilities is a corporate loan and not a CRE loan. So a lot of that is how they get to bucket that when they're talking to, talking to regulators. But you know, the, the banking system's had the biggest headwinds it's had in forever. I mean, right. They, they've been on the sidelines for three years. This isn't been like a temporary like pause in bank lending. This has been like a shift in how we do things. And banks don't tend to cannonball back into the pool, right? They dip a toe, then they dip an ankle, then it gets to the Knee like it's, it's relatively slow getting back in the pool and they get back out of the pool really fast. So they're coming back. I would say it's, it's relatively slow, but they are slowly trying to come back. I just don't think it's going to be playing the game the same way that they played historically.

B (53:07)

So then what does that mean for, or what, what opportunities that create for debt funds is it, does that become a more kind of long term change where the debt funds play a bigger role in the market? And how does that impact, you know, the recovery in the next cycle, if at all?

C (53:22)

Oh, 100%. I mean, look, I think that if you rewind 10 years ago to private credit, right? So this is lending to companies, corporations, it was non existent, right. This was all in the banks, this was all, all bank lending, broadly syndicated loans and private credit kind of came out of nowhere. And you saw, I don't even know how many billions come out of the banking system and end up in private credit. I think commercial real estate is having that same kind of moment right now. And I'm of the view that you're going to see a lot of loans come out of the banking system and end up in private credit. This is a real industry shift on how the industry works going forward. I have no doubt that this is a real shift in the industry. Not just a, this is not a trade, this is like an investable change in the industry.

B (54:15)

And what are the implications of that? Does it change anything about, I don't know, liquidity or, you know, structures? I mean, does it, does it change the game for, for buyers out there?

C (54:25)

I think it does. I think you're taking probably the last 10 or 20% of a capital stack and you're pricing it more expensive than where you were able to get that at the bank.

B (54:39)

Right.

C (54:39)

I mean, let's just look at it very, very simply. If the bank was lending 75% LTV five years ago and now they're lending 60 or 65 LTV, you're either bridging that gap with equity if you want, or you're bridging it with private credit. Right? Because private credit is going to be or should be incrementally cheaper than equity. But it's going to be incrementally, if not, if not a lot more expensive than the bank. So your debt cost overall is increasing if you're going to keep that leverage point the same. So what does it mean? It means equity returns are lower either way and so I just, this is, this is a longer correction than a lot of people wanted it to be. Right. And we've been saying for years like there's not going to be a V shaped recovery coming out of this and we're going to continue with that mantra rates need to be lower or cap rates need to be wider. And it's very, very simple. It's negative leverage. Right. Like you just can't have, in my opinion a healthy equity market if credit is more expensive than equity. I mean it's not rocket science. Right. And we just have been in a negative leverage environment for literally three years. We're getting closer to neutral, but we're not in a positive in any way, shape or form. And I think historically multifamily has occasionally worked when leverage was neutral because you could really pound the table on NOI growth. And I just don't think anyone can pound the table across the board. Are there certain markets and certain assets within certain markets that are going to clearly have rent growth and NOI growth over the next few years? Absolutely. But it's not like this wholesale all tide, you know, tide's going to lift every single boat. I think we have a real affordability problem in the country on rents right now and I think pushing rents on that older vintage, lower quality stuff is much, much harder just because I think the consumer is, is pretty strapped.

A (56:44)

Right. Right at the moment.

B (56:46)

Well, I mean especially this is something I feel strongly about, especially at those getting those lower price points. I just think it's another headwind for investors trying to buy potentially distress older vintage deals is affordability is a non issue in the A. I mean speaking.

A (56:58)

Very broadly in the A B plus market, I think it's a bigger issue.

B (57:01)

In the C B minus market. So that does create another challenge for.

A (57:04)

For potential buyers as well. To your point. Yeah.

C (57:07)

Well, Jay, you don't think, you know, right. I mean we all know. I mean there's a reason bad debt is where it is. There's a reason that concessions are where they are. And even if those things improve and I, and I think everybody is generally of the mindset that they're going to improve. Right. Just new starts are down, deliveries are down. Like that's just factual information. They are down.

A (57:31)

Yeah.

C (57:31)

But not seeing it translate into concession burn off yet.

A (57:36)

Right.

C (57:37)

I mean again, I had coffee with some JLL guys this morning and there's some 95% leased assets in the market that they're in where the, the landlord's still offering two months of free rent and so they just are not. Historically you didn't see that, like, right, you got the 95% occupancy and you were, you were not offering any free rent or maybe a few weeks or something. But that just tells you like we're not totally through the supply problem yet. Are we moving in that direction? We are, but again, even once we're through it, you know that, that older vintage, lower demo renter, like they can't afford an additional 50 bucks a month in rent right now.

A (58:20)

Right.

C (58:20)

I mean, gas is helping them a little bit. Right. I filled my car up yesterday. I was shocked and pleasant, pleasantly surprised to see gas at 250A gallon. So, you know, it's better than things were, but it's still, you know, that consumer is really counting every dollar right now. And rent increases are not going to be easy to push through. And I think one of the biggest things that like just, we all know it, but we don't talk about, we jammed five or six years of rent increases into 2021. Right. And in, and incomes didn't grow along with it. So, you know, that's gotta unwind itself. And I, and I think we're just dealing with that right now.

B (59:00)

Well, now we've had three years of no rent growth, so it's starting to balance out.

C (59:04)

Exactly. But, right, but just to get to, to equilibrium, we need another two or three years of no rent growth for things to be, you know, air quotes in some spots.

B (59:14)

Yeah, yeah.

C (59:15)

In some spots.

B (59:16)

Yeah, yeah. I think that's going to be the big story for sure. And I, I, I, I, I feel very strongly there's going to be a lot more bifurcation. We talk about K shape recoveries, whatnot. I mean, we're going to see that.

A (59:26)

More and more in the apartment sector.

B (59:28)

For sure between these, you know, class A and class C deals and I think B being more distinct in the middle as well.

C (59:35)

But Jay, that's also how it's supposed to work. Yeah, right, that, that's how it's supposed to work. You pay for growth, you pay for quality, you pay for location. And if you don't have those things, the cap rate is supposed to be wider and the return is supposed to be bigger because you're taking on a different and additional risk. And I think that again, that's where we got into the biggest problem. If you had multifamily in your name, it didn't matter what you were or where you were, you were just a three and a half cap. And like, yeah, that, that's not how this works.

B (60:06)

Yeah, absolutely. So I got to ask you one more question. You know, we talked about troubled loans and recovery or whatnot. You've, you've taken an unusual route with some deals that, some foreclosed deals taking directly to social media yourself to market some, some properties. So I'm curious, you know, I know that's, that's, that's created a lot of buzz. Why take that on directly? And how's that worked out?

C (60:33)

Why not? Right? You know, that's the easy answer. Give it a shot and see what happens. And I think that's largely what it was, was kind of experimental. Look, I think that the brokerage community in, in the US is outstanding. They serve an incredible purpose. Yeah, we've got some great, great intermediaries that do great stuff. Right. Mentioned jll, but not, you know, the new marks, The Brad, the Jlls of the world. Like these guys are incredible at what they do. And then you've got the subset of guys below them, the regionals and even the one off guys, like, they add a tremendous amount of value to their clients. The reality is through social media now, we can touch on people that we couldn't touch on previously, right? Like I can't find that guy quickly that wants to buy a $15 million multifamily deal in Little Rock, Arkansas. I have no idea where to even start, but with one post on LinkedIn, those guys can find me, right? And I think it's gone. I think it's gone really, really well. I by no means think that this can replace the brokerage community in any way, shape or form. But you know, we foreclosed the deal or we're about to foreclose a deal. Nicer, newer, vintage asset on the north side of Dallas, you know, really good demo area of Dallas. And I, I posted something on LinkedIn and David Moore from Nightvest, who I had always heard of but had never met, he literally called me and he goes, I drove the property this weekend with my daughter. I'll have you an LOI Monday morning. I'll go hard in five days and close in three weeks. Like, I can't do that hiring a broker. And so I think it's been wildly successful in that regard. And you know, I, I think it's, it's just an, it's another tool that people get to use. It helps liquidity in the market and, and we'll continue to use it. I mean we're, we're actually going to come out with a portfolio of about $500 million of loans to sell. And I'm going to post about that on LinkedIn next Tuesday. Right. Like, who would have thought in a million years that an institutional lender would market a half a billion dollar portfolio of loans for sale on a social media network? And the reality is that there are loans in that pool that people are going to want to own because they want to own the real estate. I don't know how to find them.

B (63:07)

Right.

C (63:07)

There's going to be a $20 million loan in Corpus Christi, Texas. There's a guy in Corpus Christi that wants to own that property at my loan basis. I have no idea how to find that guy. He's going to find us through social media. So I think it's just been a really interesting, really interesting medium as a way to get to the broad market.

B (63:29)

Absolutely. Well, I'm fascinated to see how that plays out. Well, Mike, thank you so much for your time. Really appreciate your insights and best of luck here in 2026.

C (63:38)

Thanks, Shay. And look, I, I would be remiss to not thank you for the content that you put out there on LinkedIn as well. I think it is like the best, best stuff out there. Love reading it and please keep it coming.

B (63:48)

I will. Thank you.

A (64:12)

All right, that's a wrap on episode number 69. Thank you to Mike for being our guest today. Thank you to jpi, Madera, Funnel, Mason, Joseph Landing and authentic. And thank you to all of you for spending part of week with us. We'll see you next time. Sa.