Stage 3 of the Commercial Real Estate Crisis Has Begun

There's a bloodbath going on in commercial real estate. Billions of equity has gone to zero. Banks are taking properties back, and a lot of people who thought they were conservative are about to get exposed. Now here's the part that should scare you. Last year alone, we bought over $500 million in real estate. And even with that, I still can't get some of the distress deals that I'm trying to buy. So the real question is, where are all the deals? So here's what's happened. If you're a lender or a debt fund, let's say, when you sell something, you actually have to take the loss. So why sell it? Better just to keep it on your balance sheet and asset manage it. So in other words, you don't actually have to show the loss right now, even though in many cases, the real estate is worth less than the loan. So what's happening is lenders are engaging brokers, and these brokers are putting out the deals to people, but they're not actually closing. Because what they're really trying to do is set the price and figure out what these properties are even worth. So that's how I know that there's actual distress. Because we're actually seeing these deals, but we're not able to buy a lot of them right now, but we will. Because the only thing that will save them is lower interest rate and lower expenses. And I can tell you right now, we're definitely not going to see lower expenses. So what we're seeing is a flow of distress commercial real estate. And the question is, how early should you buy? What should you pay? And how long will it take to actually turn these around? Those are the three things that you need to ask yourself before you step into any situation and you catch somebody else's problem. Because the traditional real estate process is actually broken right now. There is no value add. What you're buying is you're buying price per pound. And of course, hopefully, you're buying cash flow at the same time. So let me explain how this process is supposed to work. Normally, real estate is simple. An owner decides they want to sell and maybe they're tired. Maybe they want to retire. And maybe, of course, they think that they're at the top. So they call a broker and the broker lists it. The broker lists it and buyers tour it and offers come in. So people compete. It's like an auction. But what happens when the bank owns it? Who's emotional in that transaction? No one. Because the bank, of course, is trying to figure out what it's really worth. Even though the brokers might be accurate on what it is worth, if the bank takes the loss, they have to write off the loss. And by the way, the equity, gone. We're seeing massive distress. Primarily, the office buildings trying to convert to multifamily. And of course, some multifamily that was purchased within the last several years and has floating rate debt. Those are the three big ones. So let me give you an example. Let's say somebody paid $50 million in 2022. That property could be worth $25 or $30 million today. Well, I can tell you right now that that's about what the loan's probably at. So if they sell it at 25, all the equity's gone, and maybe they sell it for the price of the loan. But what happens if it's below? They have to actually write a check. So where does that $5 million come from? It comes from the partnership. If they're lucky enough to sell it for above the loan, then the equity, of course, the original equity, is still gone. So from a syndication standpoint, from an existing partnership and an older syndication standpoint, most of that equity is gone. And the one thing that could potentially save you is time. If you can kick the can down the road or work with a lender for a long period of time, you may get back into the money. From a bank standpoint, the bank wants to sell the property for at or more than the loan. And that's the entire point of being in the first position. From my standpoint, I want to buy this property if it has cash flow and it's below replacement costs, and it's in a great market that I can improve on. And now a word from our paid sponsor. I want to share something I personally find interesting, especially if you're someone who owns gold or has thought about it. Most people think gold just sits there. You buy it, you pay to store it, and then you hope the price goes up someday. But Monetary Metals does something a little bit different. They built a system where gold can potentially earn a yield, not through speculation or through trading, but leasing gold to businesses that genuinely need it for productive use. So just to be clear, this isn't about predicting gold prices or chasing returns. It's about understanding how gold can function as money again. If you're hearing this and thinking, I don't fully understand how gold leasing works, that's normal, most people don't. That's why you should consider booking a call with the Monetary Metals team. This content is sponsored by Monetary Metals and is for informational and educational purposes only and does not constitute investment advice. Monetary Metals offerings involve risk, including the potential loss of principle and are not suited for all investors. Past performance is not indicative of future results. Viewers should consult directly with Monetary Metals and their own financial, legal, and tax advisors before making any investment decisions. If you want to learn more, you can go to monetary-metals.com forward slash Ken. From there, you can book a call and see whether or not it makes sense for you. So let me give you an example. We just look at 1,210 units representing five different projects, and we offered 60% of the loan. Not 60% of the value, but 60% of the loan. So think about what has to happen at this point. The equity's gone and the lender now has to take the hit. The lender has to take a 40% hit that's not 60% of the value, but 60% of the debt. So if you think about what has to happen here, the lender needs to take a 40% hit. The question is, is can we still get the deal? Because in order to get that kind of a write-down from a lender, there's an entire process. It doesn't just happen. So at this point, if I'm talking to the bank, the syndicators are out. The original equity is out. So here's what's really going on. If for some reason we're lucky enough to get that deal, 60% of the loan, then of course somebody's taking the write-down. That's either the bank or potentially a debt fund. Who knows? This is precisely why you're starting to see some of these limits on these redemptions because it's possible that some of this toxic real estate is sitting inside of these funds with some of these bigger institutions. This is precisely why they are limiting the amount of money that you can pull out because they themselves don't have the liquidity that they need to pay you because in this particular case, it'd be the loss to the bank or a loss to the fund. So this is a little bit different than 2008, of course, where in 2008, this was a direct hit to Main Street money. And then after that, the banks took a hit too. If the property is worth less than the loan, then of course Main Street, their equity, or what they used to have as equity is gone. But also the lender itself, whoever that is, is also taking the write-down. In this particular case, now that we're in 2026, think about who's taking the loss. The losses are actually taken at the private equity level, the syndicator level, the family office level, and in some cases, at the lender level. It's not quite hitting Main Street, unless of course you're invested in some of these through either a syndication model or through a fund. And this is precisely why you guys aren't seeing it. This is a timing and a lag issue. The losses are there. They're sitting on these books and they're only recorded when they're sold and there's a loss taken. Wherein on a single family market in 2008 with a single family investor, with a single family homeowner, they're taking the loss immediately and moving in, let's say into a rental or into another house somewhere. The main difference here is just lag in time. This is exactly what I mean when I say load modifications or extend and pretend, or maybe there's new equity coming in. Either way, they're just kicking the can down the road and they couldn't do this. And in 2008, Main Street didn't have the capital or a single family homeowner didn't have the capital to try to mitigate the losses during that period of time generally. So if you're an accredited investor and want to see some of the deals that we're currently looking at, these distressed deals, just click the link below. So what we're seeing right now is the big money is kind of sitting on the sidelines waiting to see exactly what's going to happen in this particular market. And they certainly don't chase distressed deals. Typically, that's a small entrepreneur like us. I've been doing this for over 30 years and I'm telling you right now, what's happening in the economy is something that most people are completely unprepared for. Interest rates, private credit, the banking system, energy, AI wiping out jobs completely. It's all converging at the same time. That's exactly why I put together a free virtual event with some of the smartest people that I know. Robert Kiyosaki is going to be there. George Gammon, Jeff Snyder, Tom Wheelwright, talking about tax. We've got experts on gold, oil, AI, and real estate. Nine speakers, one day, completely free. This is the playbook for what's going to be coming up for the next 12 months. And more importantly, how to position yourself to be on the right side of it. Click the link below to register. So this is a great opportunity for the small entrepreneur to step in and fix these problem and fix these issues and then sell them to the big players. Because there's one thing for sure is that these deals don't really pencil. They require a whole team and a whole strategy to be able to fix these things. The sellers are certainly realistic when they end up being lenders or debt funds. So there are a lot of distressed properties and there's a lot of distressed sellers. The question is, is how long can they hold on and when are their hands going to be exposed? And of course, when do their reserves start to run out? Because that is exactly when you'll start to see these deals. So in the next 12 to 14 months, you're going to see a real write down and real equity wipeouts because the losses are realized when the property is sold. So if you want to see one of the deals that was valued at $152 million just a few years ago that we bought for just over $90 million, watch this video next.