#73: Real Estate Capital

 
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The COVID-19 global pandemic has affected real estate investing tremendously as more companies were forced to shut down physical stores, hotels, office spaces, and other establishments to comply with health protocols and social distancing. Is there a silver lining in real estate investment despite this?

Today’s guest believes so. Licensed attorney, real estate broker, and financial advisor, David Blatt, believes that 2020 can be still seen as a positive year to invest in real estate because a lot of opportunities have been opened up due to the pandemic.

David Blatt is the CEO of CapStack Partners, an NYC based company focused on helping real estate clients find debt solutions, including project financing, loan sales, and syndications, and loan workouts and restructuring. He is a Registered Investment Advisor and holds Series 24, Series 79, Series 82, Series 7, and Series 63 securities licenses.  He is admitted to practice law in New York, New Jersey, and California, and is a real estate broker in New York and Florida. 

David is also a public speaker and has spoken at big real estate conferences about capital and investment trends in real estate, entrepreneurship, and innovation.  Moreover, he hosts his own real estate investment podcast, "Make the Deal: Real Estate Investing with David Blatt" and has been invited as a guest on YouTube shows of Grant Cardone, Jake, and Gino, CEO Money, as well as podcasts such as Embracing Uncertainty. 

Join in on our conversation, as David shares the current state of real estate investing during the pandemic, how he ran his debt fund for 10 years, and the reason why putting your money in “unloved assets” like hotels and offices, is a great opportunity for real estate investors.   

In this episode, we’re discussing…

  • [01:41] How David started in real estate specifically, distressed real estate and debt capital markets

  • [05:25] The current state of real estate markets during the pandemic

  • [11:57] The difference between an investor or a spectator

  • [12:29] How refinancing with a 10-year fixed or longer works

  • [16:46] Why there are massive opportunities in investing in hotels despite the pandemic

  • [19:20] Why stay in Hotels and not AirBnbs?

  • [21:12] Is there a future for retail assets?

  • [23:18] Opportunities in Suburban Office Spaces

  • [25:03] The value of renting a hub or a space to collaborate

  • [26:02] Why the evolution of flex office Space models has been fast-tracked by the pandemic.



David’s Top Tips:

  • “Real estates are fixed assets, right? So, it's one of those types of things that when you go into it, it's not as easy to get out of it. If you just don't like the direction it's going in, you liquidate. But it's really also an asset that teaches you the discipline of long term investing, and really thinking about how you're putting your money out.”

  • “Are you an investor or a speculator? If you define yourself as an investor, then you really need to look at opportunities through a longer-term lens. Because otherwise, you're going to end up undermining value creation, if you have to continue to jump in and out of things, reset, and hope to find something to roll into on the next one that makes sense.”

  • “Doomsday is driving [people’s investments] towards a brick wall and maybe the forbearances that are in place burn off. Suddenly, [they] carry defaulted loans and [they] want out now. But to me, I just see those as really tremendous opportunities to buy irreplaceable real estate.”

  • “I think that there are massive opportunities in the hotel space right now, simply because people are, from what I have been seeing, dumping assets.”

  • “I'm an optimist. Things get back to a new normal and that involves people traveling, whether it be for work or pleasure, and they have to make decisions about places to stay. What's happened now, is that the hotel development pipeline is basically milk.”

  • “Nobody's bringing more hotels online. So whatever is out there is out there. As someone who is choosing to stay in a hotel, you can choose to stay at those that are built and open. From that standpoint, you now have a long term supply and demand component that's going to start working in your favor as a hotel operator.”

  • “I particularly like suburban offices because I just think people do want to work closer to home.”

  • “What people don't necessarily know is that a lot of the bigger companies have started to essentially outsource the office.”



Nicole’s Top Tips:

  • “If you're a mature kind of long term investor, you want to continue to grow and build the wealth, and not to have to frantically search around where you can put the capital and reduce your taxes.”

  • “I think it has been interesting to see even before COVID just the influx in temporary office space places to come and collaborate kind of shared spaces. In my corporate world, I have used those spaces because they were closer to where the team was, and basically access a facility where we could all meet and collaborate. People want to get together and don't always want to be virtual, but maybe want some of a balance.”



Resources: 

 

Resources About David:

David's Facebook | David’s Twitter | David's LinkedIn | Company's Website | Company’s LinkedIn | Company's Twitter | Company’s Facebook | Company’s Youtube

 

Categories: Real Estate Investment, COVID-19, Finance

Tags, David Blatt, CapStack Partners, unloved assets, financial advisor, real estate broker, hotel asset, : hotel asset, real estate asset, lawyer, suburban office space, capital and investment trends in real estate, flex office spaces, distressed real estate, debt capital markets, office outsource, collaboration, build wealth, reduce taxes.




+ Read the transcript

Mike Stohler
What if you could be doing something smarter with your money that creates income. Now, if you're wanting to get ahead financially, and enjoy greater freedom of choice, if you want a comfortable retirement, and you know you'll have more choices, if you can do more with your money. Now, if you've wondered who else is creating ways to make their money work for them, and you want actionable ideas, honest pros and cons, and welcome to the Richard geek podcast. We're here helping people find creative ways to build wealth and financial freedom. I'm Mike Stoller, and in this podcast, you'll hear others reading these things.

Welcome back to the Richard geek podcast. This is Mike. And on episode 71, we shared how I'll be transitioning to hosting the podcast. Many times episodes are recorded several months in advance. So during this transition, sometimes you'll hear hybrid episodes. This is one of those and we hope you enjoyed today's episode.

Nichole Stohler
Hey, everyone, welcome back to the richer geek podcast, I had the pleasure of meeting David Blatt. For today's episode, he's the CEO of cap stack partners. Basically, his company helps real estate clients find Debt Solutions, which include project financing, loan sales, syndications and loan workouts. He's a licensed attorney, a real estate broker and a financial advisor. So he's got really a great background and perspective. He talks a little bit about his debt fund that he basically ran for about 10 years. And so he really comes at it from the debt side and how to get financing around real estate investments. We had a really fun conversation. And I like how he talked about, quote unquote, unloved assets that he's seen right now, including hotels and where he sees the opportunity. Let's jump in to the show. David, welcome to the show.

David Blatt
Thank you for having me.

Nichole Stohler
Let's start a little bit with having you share your background and how you got into this space.

David Blatt
Sure, so my focus is in real estate, and particularly the debt capital markets. So I've been in actively in real estate and real estate finance for 20 years, I started out working for a small Brownfield redeveloper, which is basically investors who look for environmentally impacted properties that they then clean up and make them essentially functional and accessible. And that was really my on ramp into distressed real estate, which was focused mine. And still is, because what we were finding at the time was that, you know, nobody goes out and advertises their contaminated properties for sale. But a lot of banks who had defaulted loans on suspected contaminated properties, never wanted to take back the keys. And so they were willing to dump this stuff at like, you know, 1020 cents on the dollar. So it was really, you know, if you knew how to handle it, it was just a really, really great space to play in. And that was really the intro for me to get involved in distressed real estate, distressed mortgages. And so from there, I had left started my own platform, and then I ended up ramping that up into a full fledged distressed debt fund that I ran in total for about 10 years, you know, started out with private capital and then graduated institutional capital through the last recession. And then around 2012, markets started to rebound, I dissolved the fund. And then I formed my current platform cap stack partners, which focuses on two things. We have an advisory practice, which works with real estate developers, helping them line up the capital that they need, primarily the debt for projects and their platforms. And then we also work with lenders to help them either bring in other lenders to partner on loans or if they're looking to sell loans or things like that. And then on the principal side, continue to actively invest and looking for those same type of distressed or heavy turn around value add type opportunities, where instead of the institutional funds I've really had more of a stable of individual investors that have come in and participated in those. And, you know, that's really been the focus for the last number of years. So that's, that's my background.

Nichole Stohler
It's such a great background, there's so many interesting pieces there in the whole Brownfield contaminated property, I would have never thought of that. But I totally get it, where it's just like, that is a very desperate seller, like get this off of my head, just lately, like liability, all kinds of things around that, right. It's not even just so super, super interesting background. And I also like that you talked about you ran this fund for, you know, 10 years, and then the market started to improve, and you weren't finding as many distressed properties. So that was around 2012. Okay, so it's very appropriate now to talk about what you're seeing when people are trying to access capital, with what's happening right now in the market.

David Blatt
Yeah, so, um, you know, there's a couple of things. So first, you know, the markets been so strong for such a long time. And there's been tremendous interest in real estate, both from individual investors and, and institutions, and there's just, you know, a lot of capital chasing deals, which has made it really, really hard to find things that, in my opinion, pencil out. But certainly, you know, with what's happened this year with lockdown and everything, you know, but is surrounding that I've seen, I, frankly, have seen so much activity, and you know, we've been so active in both sourcing opportunities and accessing the capital for it. And, you know, what's interesting is, you know, real estate's a fixed asset, right. So it's one of those types of things that when you go into it, it's not as easy to get out of it, like say, you know, a stock where, you know, if you just don't like the direction it's going in, you liquidate, but it's really also an asset that teaches you the discipline of longer term investing, and really thinking about how you're putting your money out. And I think that it also creates a level of stability, because you're not checking the market, so to speak on a daily or, you know, minute by minute basis. So, you know, what I've been finding is that one, I haven't really seen any diminishment in capital, interest, investor interest. And two, I think, for our purposes. You know, institutional capital is great, because there's so much of it. It's, it's defined capital, meaning, you know, when you're going to an institution, you don't have to present to them, Hey, what do you think about real estate, they have capital dedicated to real estate investing, and particularly to different strategies. So if you know where to go with a particular deal that you have, like, in my case, let's say distressed opportunity, and I know who I'm going to be talking to, and that they have capital for that deal. The downside to that capital, is that it usually has an exit period, in what I would describe as the near term. And I define the near term and real estate years. So you know, near term being anywhere from 235 year horizon, you know, if it's a little longer, that's generally possible, but it's unusual. But the point being that, you know, you really have to buy with the very near term end in mind. And to me, it goes contrary to the whole point of real estate investing, which is your wealth accumulation. And it's much more conducive to individual investors, and the sentiment of really building wealth, especially if you're thinking about building that wealth generationally. So what's been, I'd say, kind of better, this go round, so to speak, in terms of like, the distress that we're seeing, and, you know, the appetite is that there's a lot more investor interest in the asset class with that kind of foresight and time horizons. So, you know, where I had my distressed fund, and I had to exit, you know, come 2012 when I dissolved the fund, I literally had to liquidate every piece of real estate or node or asset that we bought. And you know, on the other side, you know, we had returns but I didn't have any portfolio to speak of, so it was a complete reset, where is now when we're buying assets and I execute a turnaround plan and I take it from distressed to performing. Rather than have to sell, I go in with a business plan of say refinancing the asset with like 10 year fixed rate money, which creates this, like set it and forget it to some degree kind of dynamic. And, you know, everybody's in it for the long term horizon, and we've created the value. Now we can sit back and really enjoy the benefits of owning that real estate, collecting the rents getting the cash flow distributions, and hopefully seeing the appreciation of value over the long term, which is really what it's made for as an asset class.

Nichole Stohler
It's, that is a great point. Because, and I've had people on the show who's who are sharing, you know, strategies around things like you know, 1031 exchange or deferred sales, or what a deferred sales trust. I don't know if I'm saying that right. DST? Yeah, that's right.

David Blatt
Yeah. Delaware statutory. Yeah. Yeah. Yeah. Yeah. DSPs are like, you know, another 1031?

Nichole Stohler
Yeah, yeah. But it's, it's too, it's. So there's a popularity right now, too, because people are exiting that they don't really want to exit to your point, right? And then they're trying to figure out where does the capital go? And how do I keep it growing? And especially now, some assets are actually still pretty high price? Not all right, we can definitely talk about some of the different classes. But yeah, that's a, that's a challenge. And if your, to your point, a mature kind of long term investor, you don't want to be in that space, you you want to continue to, to grow and build the world not have to frantically search around for the where you can put the capital and reduce your taxes and all of that.

David Blatt
Absolutely. I mean, this isn't an asset, that's an that's built for churn, you have to be jumping in and out, you know, and there are people who are actively, you know, managing funds and things like that, that maybe do that. But to me, it's such a hard endeavor. And I think it forces you into a position to potentially overpay and pray that the market momentum continues to move in your favor. You know, capital availability remains. And listen, a lot of those things do happen and people are successful, but that deviates from a thoughtful deliberate execution for long term value. And, you know, I always posed the question, Are you an investor or a speculator. And if you define yourself as an investor, then you really need to look at opportunities through a longer term lens. Because otherwise, you're going to end up undermining value creation, if you have to continue to jump in and out of things reset. And hope to find something to roll into on the next one that makes sense.

Nichole Stohler
And when you say longer term, and I know you talked about refinancing with a 10 year fixed, but like, Is that what you mean, by longer term? And based on your experience?

David Blatt
Yeah, I mean, listen, I, you know, obviously, everybody has a certain, you know, milestones in their life individually, you know, and how they define those. But, you know, the reason why I like, let's say that example of an execution, particularly if you're buying something that's like, distressed or impacted, that requires you to actively go in and really create value, whether you're doing you know, just a basic renovation, you know, like, take the fix and flip, you know, versus fix and hold, right. So, the first part, the fix is where you're going to create value. So presumably, you come in and you buy something that has diminished value, your Fix is going to create a higher value that's higher than what it costs for the purchase and the fit, right? In theory, in best case scenario, that's how it's gonna work. Now, you basically have two paths in front of you, you can flip, make your profit, hope to find something else, roll it into the next one, you're going to have costs associated, you're gonna have tax consequences associated, right. Okay, now we go to the other side. And with that same model of buying low, adding value through that fixed component, and then instead refinancing, you have now hopefully gotten a refinance at a much higher valuation that will deliver your initial investment back or good chunk of it anyway, in the form of the debt. So now you haven't even triggered a tax event because it's not technically profit or a return of your capital. Right and And you're also going to get the benefit of collecting the cash flow stream that you've created, as you've lowered the risk of owning this asset, right? So the ideal situation is that refinance has exited out your initial investment. And when I buy distressed that, that does happen in a lot of occasions, or at least most of my risk gets taken off the table. And then I get to sit back, and, you know, it's basically gravy train. So if I can set that up for the next decade for myself, fantastic, you know, I mean, at that point, it's a low low to no risk proposition to earn that cash flow. And then in, you know, as a separate track, you know, the hope is, of course, you've you're buying good real estate, it will appreciate, right, and generally speaking, if you do nothing with real estate, but just apply inflation to it over a decade, it should be worth more than when you bought it, or when it was valued at the point of refinance. So you've been collecting cash flow effectively risk free, and now, you let's say, you liquidate in your 10 you're going to see a return, essentially, that is all profit, if that's when you want to sell, or you could refi again, and maybe you're in another cash out at that new valuation, you know, so, to me, that is really the path to wealth accumulation. You know, but if you're asking me what the definition of long term horizon is, I mean, I guess I kind of like, is relative, you could do it in five years, you know, it really all depends. But it's definitely got to be, you know, more than just like, you know, an in and out, you know, one two year kind of thing, because that's just a grind, because that's, that's not investing in real estate. That's, that's working in real estate.

Nichole Stohler
Yeah, no, that's a really great point. Now, we were chatting a little bit before we officially started recording, and I mentioned that Mike, and I invest in hotels, and you get this big smile on your face. And, and I'd love to have you share, you know, why? Why that made you smile and what your thoughts are there?

David Blatt
I think you know, so let me, let me just say that, you know, when you're looking for distressed opportunities, you're going to be a contrarian investor. So, you know, at a high level, you're going to look at things that are unloved at a moment in time. You know, there's a few asset classes right now that I think fall into that category. So as we were talking, hotels are certainly one of those, you know, people are obviously not out there traveling a lot of hotels, they're suffering. You know, and you see all the negative headlines associated with it. And, you know, to me, you know, the thought is, I think, you know, what I was saying is, if you have patient capital, you know, and this goes back to the whole concept of, you know, what your horizon is to invest in this asset class, I think that there are massive opportunities in the hotel space right now, simply because people are, you know, from what I have been seeing dumping assets. And, you know, I see it from the lender side, because we're buying distressed, right, so, there are a lot of lenders who are just absolutely getting out of the asset class, you know, they just don't want to even hold performing loans on their books right now, because they're just like, thinking, Doomsday, this is driving towards a brick wall, and, you know, maybe the forbearances that are in place burn off and, you know, suddenly I got to carry defaulted loans. You know, I want out now. So, you know, to me, I just see those as really tremendous opportunities to buy irreplaceable real estate. With Hotel in particular, I would say, the following that, you know, at some point, I'm an optimist, you know, things get back to a new normal that involves people traveling, whether it be for work or pleasure, and have to make decisions about places to stay. You know, what's happened now, is that the hotel development pipeline is basically, you know, mill, right? Nobody's bringing more hotels online. So whatever is out there is out there. So as someone who was choosing to stay in a hotel, you can choose to stay at those that are built and open. Right. So from that standpoint, you know, you now have a long term supply and demand component that's going to start working in your favor as a hotel operator. And then the other thing that crosses my mind is that people are certainly going to be attune to cleaning protocols, about places that they go to, no matter where you are, right hotel office, retail, it doesn't matter, you know, people are gonna just be thinking about, okay, you know, what exactly is being done in this place to keep it clean and safe. And so I think that, when you think about the option of staying at Johnny's apartment, that you can book on Airbnb, which looks really nice, but it's an private individual, right, or a hotel that is going to have, you know, a corporate flag, and a brand that you're familiar with, that tells you upfront, these are our cleaning protocols. These are our safety protocols. This is what we're doing to make your stay comfortable, healthy, safe, I think that a lot of people are going to be looking at that. And they're going to be placing a lot of value in that, which to me, again, goes back to value in the asset class. But again, I think you have to have a little bit of runway on that, you know, and so that's just a matter of, you know, buying, right. But if you do buy something, right, right now, or you know, in the near term, I think you could see tremendous value creation in the long term. So that's, that's my, you know, investment thesis on hotels in particular. But you know, I'm very big on a lot of the unloved asset classes, I think office is a great place to be right now. suburban office is a great place to be. And, you know, it's also one of the unloved. You know, we're pursuing a lot of deals right now in that space.

Nichole Stohler
And that's, that's what I was going to ask you what else is unloved? And I figured commercial office space as well. And retail, I don't know, are you seeing that as well.

David Blatt
So, you know, retail, I think, you know, the funny thing about retail is that it's, it was being challenged before, before locked down, you know, and the space was struggling to redefine itself. You know, and you saw this idea of experiential retail, coming to the forefront, you know, where a lot of retail establishments and a lot of the nicer malls were trying to integrate more activity type things into their locations to get people to come. Because if you could order something online, you know, you really need to get in your car or, you know, head over to the mall or go to the stores or what have you. So, you know, I think look necessity, retail doesn't go away to some degree. But, you know, I, to me, it's it's a little murkier, you know, it's hard for me to say, you know, I do think that people want to get back out, you know, and, you know, I think that, you know, I, I would put the restaurant space more into a category of hospitality than I would retail, per se, even though, you know, it kind of gets categorized with a ladder. You know, but I think selectively, you know, I think, for example, if you own like food franchises, you know, where there's, you know, drive throughs and delivery, as well as, you know, being able to eat there. I think that's a, you know, good place to be, but I wouldn't necessarily, I'm not, I'm not saying it's not a good asset class, I'm just saying it's a little hard for me to determine where it goes, because it was redefining itself before, I think it's going to have to do the same now. So it's a little tougher for me office, I can get my head around, particularly suburban office, because, you know, there's this concept of like hub and spoke that's being described, where even if there's like a headquarters in the downtown, that a lot of the bigger companies are now you know, so that's the hub and a lot of them are opening up college spoke locations, in like the suburbs, where their employees are, who don't necessarily want to have to commute in on a regular basis to, you know, the downtown of, you know, big office where they are, but I will say it's it's somewhat informal. But everyone that I speak to that has gotten back to the office is really happy to be back at the office. There is just that productivity and creative interaction. That is really hard to synthesize when you're working remotely, and there are certain jobs and maybe you know it, you don't have to come in every day of the week. But, you know, the office may reform may need less space as a business. But overall, I just, I just the idea that it goes away to me is not something that I buy into. So I really like the space a lot. And I particularly like suburban office, because I just think people do want to work closer to home. So that's, that's really where I've been focusing a lot as just finding some, like, good opportunity to mystic investments.

Nichole Stohler
That is really interesting. I had not heard of the whole hub and spoke model. But I want to research that more. I I agree, I think it you know, it's been interesting to see even before COVID just the influx in you know, kind of temporary office space, places to come and collaborate. You know, kind of shared spaces, which, which is interesting, you know, in, in my corporate world, I have used those spaces, because they were closer to you know, where the team was, and you know, paid to rent, basically access to a facility where we could all meet and collaborate. It's just, I agree, people want to get together, and don't always want to be virtual, but maybe want some of a balance, right? So not like every single day, you're grinding it out driving in dealing with commute. But maybe there's some more flexibility that comes as a result that people do want to get together. I agree with that.

David Blatt
Yeah, absolutely. Absolutely. And I think it also, you know, a lot of people, it, I think it's also really fast tracking the evolution of the flex space models. You know, people thought, well, that's the end of that, because, you know, it really was targeting like the individuals, when it started, like the weworks, were really targeting like solo entrepreneur startup people. And so when those people didn't have to get back into the office, or you know, couldn't afford to, you know, just look like they get it just got written off. But the reality is, you know, what people don't necessarily know is that a lot of the bigger companies have started to essentially outsource the office, to companies like that, where they're just saying, look, I need, you know, 50,000 or 100,000 feet of building for my staff, you know, and I'm JP Morgan, in this city. But I may downscale that next month, and I want to be able to walk as opposed to having to sign this like long term lease and build out the space and get the equipment. Even if I'm paying a little bit of a premium. You know, it's fine, because I've got that flexibility built in, in someone else's headaches. So I think it's actually driving more of that business now and really scaling it to a large degree.

Nichole Stohler
I'm smiling, because I'm thinking about, you know, being intact, the cloud, scale up, scale down pay for what you use. It's, it's the office, it's the, it's the cloud office, but it's actually a physical, but I, I can totally see that, you know, flex office space. And that is an interesting, it's an interesting space to watch. And it's good to have your insight on that. All right, as we look to wrap up, tell us where people can get in touch with you or learn more.

David Blatt
Yeah, so I'm pretty active on my socials. LinkedIn is, of course, an easy way to find me. It's David Blatt cap spec CEO. And otherwise, just our website cap sec partners calm. You know, I'm on top of my communications and everything. And I like I said, um, yeah, I like to find good things to talk about and write about. So, you know, that's probably the easiest way to get me.

Nichole Stohler
Awesome. I'll have links to all of that in the show notes. And thank you so much for joining us today, David.

David Blatt
Thank you for having me.

Mike Stohler
Thanks for tuning in to the richer geek Podcast, where we're helping others find creative ways to build wealth, and financial freedom. For today's show notes, including all the links and resources from our show, and more information about our guests, visit us at wwwtherichergeek.com slash podcast and don't forget to jump over to Apple podcasts, Google Play stitcher or wherever you get your podcasts and hit the subscribe button. share with others could benefit from listening and leave a rating and review podcast. I appreciate it. Thanks for listening.

The information, statements, comments, views, and opinions (collectively, “Information”) provided in this podcast are not intended to be and should not be construed as financial, economic, legal, accounting, tax or other advice.  For our full disclosure, click here.

 
 
David Blatt Headshot-Hi-Res.jpg

ABOUT DAVID BLATT

David Blatt is the CEO of CapStack Partners, an advisor focused on helping real estate clients find debt solutions, including project financing, loan sales & syndications, and loan workouts and restructuring. A licensed attorney, real estate broker and advisor, David took a humble start as a receptionist at a real estate firm and parlayed it into a career in real estate investments and the creation of his successful company in 2012. David is the host of the real estate investment podcast, "Make the Deal: Real Estate Investing with David Blatt" and has been a guest on such Youtube shows as Grant Cardone, Jake, and Gino, CEO Money, as well as podcasts such as Embracing Uncertainty. 



 
 
 
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