THE $2 TRILLION REAL ESTATE APOCALYPSE: What You Need To Know

SPEAKER_1 (0:01)

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Michael Zuber (0:28)

Well, it's happening. Something we have been talking about for years on this channel feels like it is just about to break. Of course, we are talking about the real estate apocalypse that is multifamily real estate. Folks, I've gotten some recent numbers about some debt that really should be a signal that we are about to unlock a lot of inventory in the multifamily space. I know everybody and their brother talks about a 38% housing crash. It is not coming to residential properties. It was never coming to residential properties. But it likely is coming to a real estate market near you. And according to some numbers we have here, the best opportunity is 2021 vintage multifamily variable, or aka floating rate debt. Folks, we are talking about a $2 trillion apocalypse. There are $2 trillion in multifamily loans. Most of those are going to cause investor pain. Most of those LPs are going to zero. These are all things that I have warned about. Yes, I know we all know about S2 Capital. We know about Brandon Turner and likely others, but it is going to get worse. Here's the deal. 2021 multifamily loans. So if they were originated in 2021, we are coming up on the five-year term. 2021 multifamily loans, specifically floating rate loans, are 53% delinquent.

So every other loan of that type, floating rate 2021 origination, is delinquent.

That is catastrophic. That is unbelievable. Think about that. Every other loan, 2021 origination, floating rate debt, is delinquent.

Now, for comparison, all era loans, floating rate, are 28% delinquent. So one in four.

Folks, I told you, I told you this was coming. We repeated the same stupidity in a bigger asset class with more zeros. What do I mean? If you want to know why the GFC was so bad, and why the pain started in 2008 and continually got worse, you have to rewind the clock not to 2008, but to 2006 Why 2006? Well, guess what? 51% of originations were adjustable rate mortgages.

Americans, homeowners, whatever, believed that you would just refi till you die. So people got adjustable rate mortgages at unheard of rates. The problem with 2006 Vintage is they had this new product with teaser rates. Come get a 1% mortgage for two years, and then we will reset it after two, so at the 25th month. And of course, don't worry about it. Yes, I know your loan gets bigger, but don't worry, you'll just refi because home prices never go down.

Enough people believe that nonsense, that created the kindling or raw material for what became a spectacular housing crash. Real estate, housing, owner-owned housing, residential housing crash. Now, the people with PTSD want you to believe that the 38% housing crash is coming back to single-family homes. It just can't, it mathematically can't.

Up until this year, 98% of loans are fixed rate. We have 40% of homes owned free and clear. You guys know the drill. But we certainly can have a 38% real estate crash in multi-family. And in fact, in a lot of the country, we are already seeing it. The reason this is starting to break, frankly, is the latest rate increase. Yes, Kevin Warsh's rate increase last week, and the betting market for another one to come, is finally causing lenders to mark to market. For whatever reason, they had this extend and pretend mindset. The Fed was going to somehow bail us out by lowering rates. Now people believe that Kevin Warsh is not playing. He is focused on inflation. And he's going to do what he has to do, which is causing banks to look at their balance sheet, going, holy cow, we got a lot of garbage. And the garbage is getting stinky, it's getting ripe, and it's getting worse. We are going to start to see this break in a big, big way. This is going to force banks to mark the market, and these markdowns are going to be ugly. Unfortunately, this means not only will banks feel it, but LPs, the folks that invested in other people's deals, in Texas and some other markets, where you got floating rate debt to make the IRR look pretty, your money's gone. Your money, frankly, was gone the day the deal was done. But now, lots of people are going to be taking their medicine.