January 10, 2024 • 33 mins
Our conversation with Chris Seveney takes you through the labyrinth of commercial loans, where we reveal how investors can turn the challenges of balloon mortgages and rising interest rates into opportunities. Discover the intricacies of cap rates and their effects on property values, and get a firsthand account of strategies that can pivot your investments toward success, even when the market takes an unexpected turn.
Venture with us as we dissect the complexities of converting office buildings into residential havens, a process fraught with economic and structural hurdles, yet ripe with creative potential for the astute investor. We'll also shine a light on the tumultuous tech industry, sharing the growth journey of 7E Investments and how they navigated the storm to emerge stronger. Our personal successes and strategies culminate in this insightful episode, offering you not just a glimpse, but a clear pathway to achieving your own real estate and entrepreneurial aspirations.
Resources and links discussed:
- Videocast on our YouTube Channel
- ANB Funds Website - https://anbfunds.com
About the Host:
Justin Bogard – Note Investor specializing in performing Residential Real Estate Debt. He finds deals and acquires them for his own portfolio as well as educates investors while walking them through the process of owning a Real Estate Note!
Connect with the Host:
Facebook - bethebank
Twitter - bethebank1
Instagram - bethebankpodcast
American Note Buyers - https://anbfunds.com/
Monthly Broadcast - https://youtube.com/playlist?list=PLzc944w1xydt5aLDrrEPHJhdJeDkBjjD4
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Narrator (00:02):
Interested in real estate.
How about wealth?
Well, they go hand in hand, andhere you'll learn all about it.
Welcome to Be the Bank, apodcast where we discuss and
debate the topics centeredaround real estate investing.
Your host, justin Bogard,shares insights into investing
in real estate to create realwealth and passive income for
(00:22):
you and your family.
He'll share stories of realestate investments done right,
take you through the process ofowning a real estate note and,
most importantly, educate you soyou can be the bank.
This is Be the Bank brought toyou by American Notebuyers.
Now here's your host, justinBogard.
Justin Bogard (00:46):
Hey, hey, welcome back listeners.
This is Justin Bogard here onthe Be the Bank podcast, season
number six.
This is the first episode in2024 for season six.
Today I have a guest, my friend, mr Chris Seveny, founder of
SevenE Investments, and we'regoing to be talking about kind
of commercial loans.
It's kind of a subject matterthat Richard and I really hadn't
(01:06):
got a chance to talk a wholelot about this year.
Chris can bring some valuableinsight to this and we're just
going to discuss kind of what'sgoing on there and what
opportunities are you going tosee, and just have a little fun,
little conversation.
So stay tuned.
Happy New Year, my friend.
(01:31):
Happy New Year.
Chris Seveney (01:32):
How are you today ?
Justin Bogard (01:34):
I'm doing pretty well.
It's been kind of cloudy herein Indianapolis and so the last
few days have been just kind oflike depressing.
I hate to start off the podcastthat way, but I'm just going to
be honest.
It's just been kind of gloomyand yucky out.
Chris Seveney (01:50):
We've gotten cold .
It hasn't been too gloomy, youknow we're over here in the
Northern Virginia area butgetting colder it's a nice balmy
42 here today.
Justin Bogard (02:00):
But yeah, I'll tell you what I live like on the
third floor and so I have a lotof windows and so when the sun
comes out on the cooler days,like these 30-degree days and
stuff, it's like I'm going toturn on my heat because
everything resonates from thebottom up.
So it's kind of nice.
I actually kind of like enjoythe winter because I don't have
(02:21):
to pay as much electricity.
Chris Seveney (02:23):
Yeah, I joke when you know my team who's out in
Southern California.
You know joke about being 70degrees there.
I'm like it's 72 in my houseevery day.
So, hey, I'm at 72 every day.
You know, we built our house,we spray foam insulated it, so
we only did it.
So it's pretty tight andthankfully we, you know, don't
have a 100-year-old house.
That basically lets all theheat out where our electric
(02:45):
bills are not too bad.
Justin Bogard (02:47):
I love the character of old, like colonial
houses and stuff built in likethe late 1800s or late 1800s.
But, man, I don't want to livethere anymore because, I agree
with you, it's so inefficient,so inefficient.
Chris Seveney (03:00):
Yeah, when I was up in Massachusetts I'll share
this one story before we get togoing.
Same thing I love historichomes.
Yeah, I love the house that wasbuilt in.
I think it was like 1789.
This was in the early 2000s.
This house was awesome.
Eight fireplaces, I mean.
One of them was just humongous.
I couldn't buy it, though,because I was getting sick
(03:21):
because the floors were sounlevel that, like I was like
almost like in a I don't know itjust screwed with my perception
of things.
Okay, my house was just soawesome and I loved it, but I'm
like I couldn't live in thisthing because, like I feel like
I'm like walking up and downhills because you know the
foundation, you know it's, ofcourse, settled over time old
(03:42):
fuel, stone foundations and widepine floors and everything but
oh, it was awesome house, butyeah, so it's the oldest house
that I've ever considered.
Justin Bogard (03:52):
I never seen a house that had, you know, an
established built date back thatfar.
So Indianapolis has a lot oflate 1800, early 1900s homes and
then a lot of 1950 style,craftsman style homes that are
just all over.
You know the blue color partsof Indianapolis.
So, but anyways, man, we're nothere to talk about our stuff,
(04:12):
we're here to bring up, you knowbeing the bank talking about
loans, specifically commercialreal estate loans.
So over the past year I'venoticed you've probably noticed
more that a lot of people aretalking about.
Hey, you know, watch out,because things are changing in
this climate as far as a lot ofthese office buildings that are
(04:35):
that have mortgages on them.
You know strip malls and thingslike that that people got loans
on early or pre COVID.
Those are being called duebecause, for the listener, as
you may not know, when acommercial loan gets created,
you don't necessarily have likea 30 year mortgage with 30 years
with the payments.
You have a balloon with anamortization of, you know, 20 or
30 years on it and that balloonChris correct me if I'm wrong
(04:58):
can be anywhere from usuallylike commonly, probably like
three to three to eight years.
Chris Seveney (05:03):
Yep, typically so short term, you know, anywhere.
So some will even go a year,which now back in the day wasn't
too much of an issue.
But typically the ones you'llsee are between the three and
seven.
Justin Bogard (05:15):
And so now, if they're being called due, they
are in a bad environment torefinance that loan because
interest rates have obviouslygone up.
Uh, I would say probably 2.5%,3% pretty easily, since they got
those loans originally.
Chris Seveney (05:28):
Yeah, yep, and that's part of challenge.
And when people look at thatcommercial side, which will dive
into deeper, is that interestrate risk that they play.
They play off of because youknow your cap rate, which is how
the loans are.
You know, I'll say it's thevaluation method.
(05:49):
It's not the end, all be all.
Yeah, but the way they'revalued is based off of cap rates
.
And what's happened is you knowthe cap rate previously was,
let's say, 5%, and you know yourborrowing rate was at 3%.
So borrow money at 3%, the gain5% is, you know, arbitraging.
(06:11):
Where it works Today, interestrates might be, you know, at the
you know, 6%, 7%, but the caprates are also at that or
slightly, even if they are lower.
So to borrow money is actuallyhurting you because it's like I
think we're taking a home equityline of credit.
If I took a home equity line ofcredit out at 7%, then best in
(06:34):
a treasury of 5%, would you dothat or she wouldn't.
Justin Bogard (06:38):
Right, right, this makes sense.
I owe you 2% what I don't likethat deal.
Yeah, no one likes that deal.
So that's the quandary thatthey're in and I've I've heard
more that the office, like thedowntown office space type of
type of loans are ones that aregetting hit the hardest.
Have you heard the same thingor are you seeing something
(06:58):
different?
Chris Seveney (06:59):
So there was during the break.
There was a statistic or achart that just came out.
I saw on LinkedIn that thenumber of distressed multifamily
loans is now greater thanoffice.
So both situations in realityare not in a good place, and
(07:21):
part of that also is it's notonly the loans that are in
default, but the loans that arein default.
Let's say I had a multifamilybuilding or an office building,
doesn't matter that.
Let's say I had a floating ratethat was coming due and you
have a loan that, hey, you'vegot.
You're smart, you got the fixedrate, five years, whatever the
(07:43):
case may be.
Now what's happened to you know,I'm basically in trouble.
I'm probably going to lose myproperty, so I'm going to get
foreclosed on which is going tosell at a discount.
Now you're building that's fourblocks away, just like
appraisals happen, so forth.
What's going to happen to yourbuilding, even though you're
(08:04):
still doing well and so forth?
Your building's going to bedevalued as well.
Yeah, it's coming down.
Yeah, and that's what'shappening is even to the ones
that are doing well.
You got to remember a lot ofthese are in syndications that
one investor went and raised abunch of money from people and
was like hey, I'm going to sellthis thing in five years and my
loan is for seven, so it givesme some play.
(08:26):
But that five years has come upand guess what?
They can't sell because they'recap rate, even though they're
okay on that debt service to paythe loan.
That cap rate has increased sonow they're going to take a
significant hit and on averageevery 1% is about 15% of value
of a property, roughly to giveyou a ballpark idea.
Justin Bogard (08:49):
Wow, that's a big hit, yeah.
So I'm not sure when a lot ofthis is going to come to
fruition.
I'm guessing it's going to bemore like a longer waterfall,
from starting probably last yearand probably go out another two
or three years that we'reprobably going to see, depending
on if the rates actually comedown a lot, which I don't think
they will.
So I can see this beingopportunity for people that have
(09:14):
funds that are ready to pounceon those opportunities to turn
those real estate, commercialbuildings or what have your
multifamily, large multifamilybuildings into some good
opportunity where they can getsome good buys, because I can
see some of those owners justhanding back the keys to the
bank and be like it's not even,I can't even try.
I can't even try to sell it.
Chris Seveney (09:35):
Yeah, and the reality is anyone that knows
when it's going to happen or howlong they don't?
The reality is there's so many,you know, impacts that affect,
you know, the housing, theinterest rates and everything
else.
Everyone can assume, everyonecan guess.
Everyone's like, oh, there'selection year, so this is gonna
happen.
First, that's gonna happen.
You know, nobody knows.
(09:57):
I mean we, you know, you've had, you know, a pandemic, we've
had, you know, wars going onthat have impacted things.
So I think people can read thetea leaves on things, and even
people reading the tea leaves,I'm think everything's gonna be
hunky dory, fine.
Others are like and not so much.
You can be in either camp.
The reality is, no, nobodyknows.
(10:19):
But you can just look at dataand say, hey, there's this
percent of commercial debt thatis coming do and this much is
underwater.
Oh, you know, what's gonnahappen with that debt is really
what's gonna.
And those properties is gonnabe the million dollar question.
Justin Bogard (10:34):
Yeah, I like how you brought that up, because
you're and I agree exactly whatyou're saying it's so hard to
really have a good prediction asto what's going on far out.
It's more or less like you saidyou guys gotta understand the
data and see what the trend isand make sure that you make a
direction change, if you need to, as quick as you can, because
so many people have been wrongthat have been experts at I.
(10:56):
You know that I respect andlook out to, but you know
they're really just guessing offof past experience and,
unfortunately, past experience.
This is new territory foreverybody.
I think there's a cycle likethis.
The last five or six years,because of things like you said,
you know we had a pandemic.
That was just.
You know, nobody was expectingthat obviously.
Then you had a couple wars andsupply chain issues Because of
(11:16):
all that just a trickle downeffect and had a super bullish
market in real estate for solong since the great recession.
We kind of knew there was gonnabe a correction, but we didn't
know how correction was gonnahappen or when.
But it's kind of it's kind oflike it kind of started
correcting.
I feel like the market hasstarted to correct as far as
real estate.
Chris Seveney (11:33):
It has, and you know you mentioned interest
rates as part of that.
I think the Fed, you know theyforecast out where they
anticipate you know the fed rateto be.
I think next year they expectedto be at like 4.5 or 4.75.
Which I think today is whatfought between five and a
quarter and five and a half.
Justin Bogard (11:53):
Yeah, I'm not sure what's that, but yeah,
that's alright, yeah.
Chris Seveney (11:56):
And people like, well, technically the Fed rate
doesn't impact mortgage rates,but it kind of does and it
doesn't.
You know, the last time andagain you can go back in 2005, I
think the Fed rate was at like4.75, and where were interest
rates?
Now they're about a point to apoint and a half higher, which
is typically where they are.
(12:17):
But again, they're based on tenyear treasury and you know we
not gonna go down that deep dive, yeah.
But I think the people who aresitting there like, oh, I think
interest rates are gonna go backdown to like two and a half or
three, well, if they do justrealize that the economy is in a
world of hurt if it gets downto that level, you know the feds
(12:37):
are not going.
You know they're trying tocontrol inflation and part of
that is, you know, the cost ofgoods and certain cost of
services.
So they're trying to increaseunemployment back up to four and
a half percent or wherever itis.
And then, you know, trying todecrease that cost of goods,
they're not.
If the economy is doing well,they're not gonna drop it back
down the two percent or again,because we're just gonna take
(13:00):
off again.
They're trying to control it.
And if it does shoot down tolike two and a half percent,
just realize that everythingelse is probably also probably
in a deflationary period.
And again I'm guessing, butyeah, now, based off of common
sense.
In that point of view, you know, the only reason they're gonna
(13:20):
go really low is if it's goingto be a hard landing.
Justin Bogard (13:25):
Yeah, I can't imagine an environment anytime
soon that it would get down thatlow.
But then again, you know whoare we to try to predict what's
happening, because there's justtoo many unknowns that happen in
the future that we just don'tknow about.
But yeah, what?
What when these commercialloans like this is something
that I don't know if your fundis preparing for these
(13:45):
opportunities with notperforming commercials, but
we're trying to prepare for itand we're trying to come up with
strategies and ways to thinklike, okay, when we get these
opportunities in front of usthat we can get these not
performing loans or maybe theyjust become REOs pretty quickly
and we can buy these things fora really good discount, what are
we gonna turn these into?
What are we gonna do with itafter that?
Chris Seveney (14:05):
Great question and it really is going to be
dependent, I think, on the assetitself, for example, office.
I come from commercialbackground and converting a
office building into residentialis usually not economically
viable, and I'll explain quicklywhy.
Office building is usually asquare box and you got to get
(14:26):
light into, you know, thoseareas.
To have a bedroom, it needs tohave a window.
Well, unless you're making it adonut and cutting a hole down
the middle, then you have torealize that an office building
does not have adequate water andsewer supply, as a residential
does not have enough power.
For a residential it justdoesn't make sense.
(14:46):
Now, a few things that peoplecan do is A you know try and you
know whether it's office orresidential.
You know try and rework it orupgrade it.
But you know some other optionsbesides just buying that
defaulted debt is if you can getout early enough on it, you
know, can you provide rescuefunding.
So let's say I need a milliondollars, that I'm short to do a
(15:12):
loan extension or a modificationwhere the bank says, hey, we'll
modify this or refinance it,but you got to come up with two
million dollars or a milliondollars.
Well, let's say I need twomillion dollars.
If I go to you, justin, say Ireally need two million dollars,
well, you kind of have theupper hand on that and say, okay
, if the value of the propertyis 10, I'll give you two million
(15:34):
, but I want 30% of the equity.
Justin Bogard (15:36):
Yeah, an equity play.
I was thinking you were goingto get there, yeah.
Chris Seveney (15:41):
So that's another option that you can have in
regards to some of these assets.
And when people look at, realestate is very cyclical and
people who, if you can hold forthe longer period, you know long
haul you typically win.
So let's say, you do buy anoffice building, that okay, I
(16:03):
have a 10-year horizon.
So eventually I suspect youknow this will come back in 10
years.
You know, unless it's out inthe boondocks and just like
really random you know I've seenpeople do is turn that into
self-storage.
You know as well.
So things you can do, but overa period of time, more than
likely it's going to be a wavewhere you know you might be
(16:25):
under water for a period of timebut hopefully you can come back
up and ride that wave as timemoves on.
Justin Bogard (16:31):
Yeah, when you brought up the architectural
part of taking real estatecommercial real estate and
converting it from, like, anoffice space to residential,
there was an article I read Ithink I posted about this online
where there was a big New Yorklandlord that is doing that, who
wants to turn his building intoluxury apartments.
(16:52):
Because they can see a lot ofthese, you know, autonomous
vehicles being able to pull up,kind of like.
You know, I picture this atDisney World where the train
runs through the hotel.
Yeah, Like I can picture theseshort-term taxi rides that are
made coming up, you know,through the resident building
for people just to be able totravel wherever they want and
not actually have to go outside.
So like I can see that sort ofthing happening.
(17:12):
Yeah, you're right, if youdon't figure out how to use the
space that's in the middle ofthe building, you know very well
it's going to be very difficultfor all the plumbing and HVAC
and you know well much moreElevators If you need more
elevators.
Chris Seveney (17:26):
Yeah, it's a.
Yeah, it's a, I've done it.
You know I did a project.
Actually I've done.
The last one I did was aproject in Alexandria, virginia,
called the Ornoco.
We turned it to high-end condosand this building was C-shaped.
We still had a lot of demoinvolved in the project, but it
(17:46):
was suitable.
Well, somewhat suitable.
We actually, in this building,had to take where the concrete
slab and we had to raise everyfloor by six inches to meet
handicap accessibility, wow.
So we basically had to build itup on two by sixes across.
And let's see it was.
It was at 60 units, 60 condounits averaging about 2,000
square feet.
So I mean, it was a major,major renovation.
(18:10):
You know, renovation and a lotof work to do, yeah, but we've
looked at others, likeespecially in downtown DC, and
it's just the numbers.
You know, typically they justdon't work, fortunately.
Justin Bogard (18:23):
Yeah, so you're.
When you did that stuff wereyou?
Were you based out of DC?
Yeah, Like in the Washington DCarea.
Chris Seveney (18:31):
Yeah, I was working for a local real estate
developer that was doing it andyou know they were.
They got very creative becauseeveryone else was looking at
this ugly office building thatliterally was on the water.
There was a park in betweenthat and the Potomac River.
So where it made sense is youcould get a premium for those
units where you know the topunit sold for about $1,800 a
(18:56):
square foot.
They give you an idea, for youknow what the unit sold for.
They sold for anywhere from1,000 to 1,800 square foot, and
this was back in 2014.
So which, at the time, I thinkthe high in the market in the
city was close to like 900.
So they were really pushing theenvelope on doing it and the
only way they made the numberswork is because they could get
(19:18):
such a premium price for thoseunits.
Justin Bogard (19:22):
Is the DC area pretty pricey and lease or rent
payments for commercial stuffcompared to other major cities
in the US?
Chris Seveney (19:30):
Oh, it's, you know there's what's called K
Street, which is where all theattorneys and law firms are.
Yeah, so DC is astronomical.
On housing and on officeRentals are, I think one of the
last time I checked where it wasa little over, I think $5 a
square foot for an apartment.
If you have thousands of squarefoot apartment, pay about $5
(19:51):
grand.
Wow, I want to say office space, depending on location, is
anywhere from like 40 to 90square foot.
Yeah, it's because, again, lookwho's in DC.
You have the federal government, all the lobbyists.
Yeah, Everybody wants to be asclose as possible.
Justin Bogard (20:07):
Yeah, no, that makes sense it.
Just when you were talkingabout that I was like, yeah, I
think because you hadn'tmentioned that to me before how
expensive it was and I've neverlived there so I never knew.
I think Richard spent some timethere so he had told me it was
expensive too.
But you know I have no.
I live in good old.
You know the crossroads ofIndiana here, so that it's a lot
different.
Mark, there's not a lot ofcompanies that want to be out
(20:29):
here.
Chris Seveney (20:30):
Yeah, it's different, but it's also again,
it's going to be expensive.
And the other component to itwhere it's going to cost you is
you know how many companies areexperienced in how to do it.
You know perfect example is Upin Boston, for example, most
buildings are built with steelconstruction.
Down in DC, most buildings areconcrete.
(20:50):
Okay, I want to build abuilding in DC and I want to
build it out of steel.
In Boston it's cheaper becauseeveryone does steel.
In DC it's more expensivebecause everyone does concrete.
You have less competition.
So when you think about oh, Iwant to go do this, well, I got
to hire a contractor.
If they know there's not a lotcompetition, I'm the only one
who can go do this type of work.
(21:11):
And of course, they're gonnacharge a premium also to you
know to do that work, especiallyif they're busy.
Justin Bogard (21:21):
Switching gear slightly, so I read a couple
articles recently that I didn'tpay attention to until I started
reading some headlines more andmore, and it was about Bank
jobs that have been cut in 2023.
I think it was something over60,000 jobs with the the major
banks that have been that theyhave cut jobs.
So do you think that's atelltale sign of the banks are
(21:44):
having having some issues withWith their profitability?
Chris Seveney (21:49):
Yes.
So I would look at banks andpeople realize too you know
banks, especially on thecommercial side, banks are a
primary lender, but even on theresidential there's a lot of
other non-bank traditionallenders and how much they're
cutting Staff and actually goingout of business or closing shop
.
So you're seeing a significantdecrease in Jobs and a the
(22:15):
mortgage industry, because who'sgetting loans?
And then, like you said, peoplelook at the residential side of
things and say, oh, not a lotof homes or transactions.
That's happening on commercialand multifamily as well.
There's a bid-ask spread of theseller needs this much and the
buyer only Wants to give this.
Much is the same, especially inthis interest rate environment.
(22:35):
But it's a tug of war wherethere's not a lot of
transactions happening.
Well, yeah, think about howmany people are tied to a
transaction.
You have bank the one, you knowhow many people with the bat at
that lender bank the titlecompany and so forth and so on.
There's a lot of peopleinvolved and you're seeing those
Aspects or those areas cuttinga lot of jobs.
Justin Bogard (22:55):
I In that same article that I read and I think
I read this a few days ago Ithought I read there was over a
quarter of a million tech jobslost in 2023 as well.
Chris Seveney (23:07):
Yeah, you know that, yeah, the tech industry.
Have a family member who's intech and actually they were in
the mortgage tech and thecompany they were with literally
just shut down Because theywere doing a lot of the lines of
credit that were like noappraisal.
They do kind of like online.
Those companies, you know,basically are just dead in the
water today.
But you know, people look at,okay, facebook, amazon, tesla,
(23:33):
google, like the big three orfive I think somebody mentioned
to me like big three or fivetech companies are the only ones
that made money last year.
You know everyone else in techand I follow a woman online who
raises money for venture capital, which is all in the tech space
and it was a statistic.
It was.
I don't remember the numbers,but the number of tech failures
(23:55):
last year and a number ofcompanies that have just
shuttered is like in thethousands because of, you know,
not being able to raise moneyand just the interest rates.
So the tech is also reallytaking a beating.
Justin Bogard (24:09):
Do you, do you correlate some of that with the
fact that so many tech companiesstarted up during the COVID
time period?
Or maybe we had an inflationand big influx of tech companies
and now we've kind of reducedthe fat a little bit of, you
know, non-essential ones?
Chris Seveney (24:27):
I think there's two pieces.
That one is, yes, during theCOVID, but also, you got to
remember, the government printedI don't even know how many
trillions of dollars at very lowinterest rates.
Yeah, so a lot of companieswere like, hey, I'm just going
to, I have this money now I'mgoing to go invest it in all
these startups and all theseareas.
And now you're seeing thosecompanies being a lot more
(24:48):
selective and where they'reinvesting.
Justin Bogard (24:51):
Yeah.
Chris Seveney (24:52):
You know, three, four years ago, vc had money
flowing in like there was notomorrow.
Now you look at it and theyhave completely dried up, and a
good example is that I'll use islike look at those NFTs, those
non-fungible tokens.
I mean those.
Basically, people were startingcompanies or right nose things,
and they were selling forthousands or tens of thousands
(25:12):
of dollars for just a piece ofdigital art that really had no
value.
Now what's happened to them?
They're like baseball cards,they're basically worthless, and
so, yeah, I'll use that as asimilar scenario.
Justin Bogard (25:24):
Funny image in baseball cards.
My dad and I happened to lookat some of our some of our full,
full set of tops baseball cardsfrom like the mid 80s and stuff
and we were reminiscing aboutit and we were just twining
around and looking at the valuesand stuff and you're right, the
values aren't anythingastronomical like you would
think.
You know, with 30, 30 to 40year old, you know baseball
cards.
That's just kind of funny howyou brought that up compared to
(25:46):
NFTs.
So what is going on with 70investments?
I've, obviously I follow you.
You're my friend, yep, and Iget to talk to you.
You know, at least once a monthwe get to talk, if not more,
and so I know that you havedefinitely grown a lot this year
as far as the expansion ofpeople that work with you guys
(26:08):
and growing your fund and allthe you know the asset
management part of what you do.
So what?
What has this 2023 been likefor 70 investments?
Chris Seveney (26:16):
So you know, 2023 , a lot of people will look back
at 2023 and be like, oh man,what a hard year, difficult year
.
And you know, I thought thesame thing and then I started.
You know, I read the book overbreak the gap in the game Great
book, by the way where it reallytells you a focus on everything
you gained.
And you know, we went from, atthe beginning of 2023, from a $5
(26:36):
million company to over a $20million company at the end of
the year.
We have over 500 investorswithin our fund.
So we are continuing to growand, you know, raise money to
invest in performing andnon-performing defaulted paper.
And you know we're looking at2024 is another good year.
And you know, last year in thespace, there was a lot of pivots
(26:59):
.
You know, early on in the year,you know we were at a point
where, oh, we're trying to buyloans early on and it was
difficult.
And then, towards the summerand the end of the year now, all
of a sudden, it's like, wow,we've got all these loan deals
coming in and it's trying toraise money to fund those deals.
So, overall, I look at it, asyou know, being a successful
(27:21):
year.
Of course, there's other thingsyou'd like to look and do
better.
Interestingly enough, I'll sharethis with you because I was
doing a, you know, a recordingfor some people in one of my
membership groups about, youknow, setting a one year and
three year goal, and I was usingthe template from 2020,
actually, and that I had puttogether for my own personal
(27:42):
goals and had a three year goalwhere I wanted to be at the end
of 2023.
And it was, you know, havingbought over 750 notes, which I
think I'm pretty, I think I'mthere, I doubled the amount of
money that I've raised.
But the big thing, or my big,hairy, audacious goal, was I
wanted to leave my W2 to workfull time and run my own company
(28:02):
, which, fortunately, I was ableto do that in 2022.
So it was a year early and itwas interesting because I didn't
even notice I had, I forgot Ihad this actually, and I went
back and pulled it out and it'skind of like dusted off.
I'm like wow, actually likecheck the box on some of these
things.
So that was very I don't thinkit made me feel very good.
(28:23):
That's his best way.
Justin Bogard (28:26):
Well, you should.
It's in a lot of people.
I don't think they knew thepeople that know you in the
space.
They might not have known thatyou still had a W2 job because
it seemed like you were so fullyactive in the real estate space
and I actually had forgottenthat you still had a full time
job till you told me when youdid finally quit the W2 job.
But it's just, it is impressivehow much you're able to have
system and processes and allthese efficiencies to help you
(28:49):
grow to where you are today.
So congratulations, and that'sawesome to see how you guys went
from.
It seemed like this year was avery powerful year for you, at
least noticing it, at least froman online perspective.
It was always that way thewhole time and I just didn't
notice it, but definitelynoticed it this year.
Chris Seveney (29:06):
Yeah, and I think part of it is.
You know, within the space, alot of people come and go and a
lot of people will chase theshiny objects.
For us, you know I'm a big topgun, you know movie buff.
You know never leave yourwingman type.
And you know that's how I lookat your investment strategy is,
(29:28):
you know, you just got toharness and focus on that
strategy because I've seenpeople who've gone out there and
you know they chase.
They went from one to chase theshort term rentals.
They've chased all these otherasset classes and it's okay to
diversify, but when you do a,you know a huge shift from one
to the other.
You know it's a big upliftingand understanding what it's
(29:52):
going to take.
Most people underestimate thatand that's where I've seen a lot
of people fail is because theyunderestimated that and they
left what they're good at.
You know, and for us, we justwant to be.
I'd rather be the best at oneor two things than be average at
five things.
Justin Bogard (30:07):
I fully agree with what you said and I've seen
it too, with people coming andgoing pretty quickly and you hit
the nail on the head, and myopinion as well is that they
don't realize how much work itis.
It's not passive to run abusiness.
It's not supposed to be passive, right, unless you are having
people run it for you.
But when you're the owneroperator, it's not passive, it
is active and it's hard work,just like anything else.
Chris Seveney (30:29):
Yeah, and the other thing I'll just mention to
that is, you know, having the,you know looking ahead and being
able to.
You know, one of the thingsthat we do a lot of is, you know
, if this than that type ofsituations okay, if this happens
, how does it impact ourbusiness, our market, our
profile and that's where havingbeen in real estate for a few
(30:53):
years for me goes shows thatexperience comes into play
understanding that.
You know, when government wasprinting all this money, I was
wrong that I thought home priceswould drop dramatically.
Yeah, I was right that interestrates were gonna shoot up and
but now that, how did that haveits impact on things?
(31:16):
People are seeing it today where, for example, I know a note
investing company that they havebank lines of credit and they
were Originating commercialloans at, you know, 8% because
they were dead.
Was it 5%?
But their 5% was floating.
They're lending at a fixed rate.
Yeah, now that their floatingdebt is now at 11 and they're
(31:37):
getting 8%, they're like, oh,now what do we do?
So?
And they can't sell the loansor they'll sell them at a loss.
So they've got their hands tied.
So for people, no matter whatyou invest in now play out every
single scenario in your head,even though, even if it Doesn't
happen, if it could happen, playit out and how are you prepared
(31:58):
?
Or what are some of the steps,and you don't need the
full-blown plan.
But if it happens, it's likeokay, here's what I would need
to do, or here's how I need tobe defensive with my business,
because it can take a companydown, and I've seen it Happen,
so you just need to be careful.
Justin Bogard (32:15):
Yeah, you're right, it's, it's scary, and
thanks.
Thanks for mentioning all that.
Dude, we are out of time fortoday, so thank you for being on
the first episode of season 6on the be the bank podcast.
I'm Justin Bogard, my friendhere, chris 70, founder of 7e
investments.
What, what's your website?
Is it 70 investments, calm.
Chris Seveney (32:33):
Yep, the number 7 , the letter e investments calm
cool.
Justin Bogard (32:36):
Check him out.
Check out.
It's fun.
Check out.
They do have a podcast and theyhave a group of people that
they that they do webinars to.
If you want to be part of thatgroup, you can reach out to them
and you can.
I'm sure you can find all theinformation on your website.
Chris Seveney (32:49):
Yep.
Everything's on the websitecool.
Justin Bogard (32:51):
All right, brother.
Well, it's good to see, is goodtalking with you, and I will
see the rest.
You guys on episode number two,don't forget to check out the
video stream of this on ourYouTube channel, the American
note buyers YouTube channel.
Until then, I'll see you guyslater.
See you, chris.
Thank you.
Narrator (33:09):
Thanks for listening to be the bank.
We hope you learned somethingfrom today's show.
If you enjoyed this episode,please rate and review us.
Plus, check out our Channel onYouTube and follow us on
Facebook and Twitter at be thebank, and on Instagram at be the
bank podcast.
Be the bank is sponsored byAmerican note buyers.
Thanks again for listening you.
Interested in real estate.
How about wealth?
Well, they go hand in hand, andhere you'll learn all about it.
Welcome to Be the Bank, apodcast where we discuss and
debate the topics centeredaround real estate investing.
Your host, justin Bogard,shares insights into investing
in real estate to create realwealth and passive income for
(00:22):
you and your family.
He'll share stories of realestate investments done right,
take you through the process ofowning a real estate note and,
most importantly, educate you soyou can be the bank.
This is Be the Bank brought toyou by American Notebuyers.
Now here's your host, justinBogard.
Justin Bogard (00:46):
Hey, hey, welcome back listeners.
This is Justin Bogard here onthe Be the Bank podcast, season
number six.
This is the first episode in2024 for season six.
Today I have a guest, my friend, mr Chris Seveny, founder of
SevenE Investments, and we'regoing to be talking about kind
of commercial loans.
It's kind of a subject matterthat Richard and I really hadn't
(01:06):
got a chance to talk a wholelot about this year.
Chris can bring some valuableinsight to this and we're just
going to discuss kind of what'sgoing on there and what
opportunities are you going tosee, and just have a little fun,
little conversation.
So stay tuned.
Happy New Year, my friend.
(01:31):
Happy New Year.
Chris Seveney (01:32):
How are you today ?
Justin Bogard (01:34):
I'm doing pretty well.
It's been kind of cloudy herein Indianapolis and so the last
few days have been just kind oflike depressing.
I hate to start off the podcastthat way, but I'm just going to
be honest.
It's just been kind of gloomyand yucky out.
Chris Seveney (01:50):
We've gotten cold .
It hasn't been too gloomy, youknow we're over here in the
Northern Virginia area butgetting colder it's a nice balmy
42 here today.
Justin Bogard (02:00):
But yeah, I'll tell you what I live like on the
third floor and so I have a lotof windows and so when the sun
comes out on the cooler days,like these 30-degree days and
stuff, it's like I'm going toturn on my heat because
everything resonates from thebottom up.
So it's kind of nice.
I actually kind of like enjoythe winter because I don't have
(02:21):
to pay as much electricity.
Chris Seveney (02:23):
Yeah, I joke when you know my team who's out in
Southern California.
You know joke about being 70degrees there.
I'm like it's 72 in my houseevery day.
So, hey, I'm at 72 every day.
You know, we built our house,we spray foam insulated it, so
we only did it.
So it's pretty tight andthankfully we, you know, don't
have a 100-year-old house.
That basically lets all theheat out where our electric
(02:45):
bills are not too bad.
Justin Bogard (02:47):
I love the character of old, like colonial
houses and stuff built in likethe late 1800s or late 1800s.
But, man, I don't want to livethere anymore because, I agree
with you, it's so inefficient,so inefficient.
Chris Seveney (03:00):
Yeah, when I was up in Massachusetts I'll share
this one story before we get togoing.
Same thing I love historichomes.
Yeah, I love the house that wasbuilt in.
I think it was like 1789.
This was in the early 2000s.
This house was awesome.
Eight fireplaces, I mean.
One of them was just humongous.
I couldn't buy it, though,because I was getting sick
(03:21):
because the floors were sounlevel that, like I was like
almost like in a I don't know itjust screwed with my perception
of things.
Okay, my house was just soawesome and I loved it, but I'm
like I couldn't live in thisthing because, like I feel like
I'm like walking up and downhills because you know the
foundation, you know it's, ofcourse, settled over time old
(03:42):
fuel, stone foundations and widepine floors and everything but
oh, it was awesome house, butyeah, so it's the oldest house
that I've ever considered.
Justin Bogard (03:52):
I never seen a house that had, you know, an
established built date back thatfar.
So Indianapolis has a lot oflate 1800, early 1900s homes and
then a lot of 1950 style,craftsman style homes that are
just all over.
You know the blue color partsof Indianapolis.
So, but anyways, man, we're nothere to talk about our stuff,
(04:12):
we're here to bring up, you knowbeing the bank talking about
loans, specifically commercialreal estate loans.
So over the past year I'venoticed you've probably noticed
more that a lot of people aretalking about.
Hey, you know, watch out,because things are changing in
this climate as far as a lot ofthese office buildings that are
(04:35):
that have mortgages on them.
You know strip malls and thingslike that that people got loans
on early or pre COVID.
Those are being called duebecause, for the listener, as
you may not know, when acommercial loan gets created,
you don't necessarily have likea 30 year mortgage with 30 years
with the payments.
You have a balloon with anamortization of, you know, 20 or
30 years on it and that balloonChris correct me if I'm wrong
(04:58):
can be anywhere from usuallylike commonly, probably like
three to three to eight years.
Chris Seveney (05:03):
Yep, typically so short term, you know, anywhere.
So some will even go a year,which now back in the day wasn't
too much of an issue.
But typically the ones you'llsee are between the three and
seven.
Justin Bogard (05:15):
And so now, if they're being called due, they
are in a bad environment torefinance that loan because
interest rates have obviouslygone up.
Uh, I would say probably 2.5%,3% pretty easily, since they got
those loans originally.
Chris Seveney (05:28):
Yeah, yep, and that's part of challenge.
And when people look at thatcommercial side, which will dive
into deeper, is that interestrate risk that they play.
They play off of because youknow your cap rate, which is how
the loans are.
You know, I'll say it's thevaluation method.
(05:49):
It's not the end, all be all.
Yeah, but the way they'revalued is based off of cap rates
.
And what's happened is you knowthe cap rate previously was,
let's say, 5%, and you know yourborrowing rate was at 3%.
So borrow money at 3%, the gain5% is, you know, arbitraging.
(06:11):
Where it works Today, interestrates might be, you know, at the
you know, 6%, 7%, but the caprates are also at that or
slightly, even if they are lower.
So to borrow money is actuallyhurting you because it's like I
think we're taking a home equityline of credit.
If I took a home equity line ofcredit out at 7%, then best in
(06:34):
a treasury of 5%, would you dothat or she wouldn't.
Justin Bogard (06:38):
Right, right, this makes sense.
I owe you 2% what I don't likethat deal.
Yeah, no one likes that deal.
So that's the quandary thatthey're in and I've I've heard
more that the office, like thedowntown office space type of
type of loans are ones that aregetting hit the hardest.
Have you heard the same thingor are you seeing something
(06:58):
different?
Chris Seveney (06:59):
So there was during the break.
There was a statistic or achart that just came out.
I saw on LinkedIn that thenumber of distressed multifamily
loans is now greater thanoffice.
So both situations in realityare not in a good place, and
(07:21):
part of that also is it's notonly the loans that are in
default, but the loans that arein default.
Let's say I had a multifamilybuilding or an office building,
doesn't matter that.
Let's say I had a floating ratethat was coming due and you
have a loan that, hey, you'vegot.
You're smart, you got the fixedrate, five years, whatever the
(07:43):
case may be.
Now what's happened to you know,I'm basically in trouble.
I'm probably going to lose myproperty, so I'm going to get
foreclosed on which is going tosell at a discount.
Now you're building that's fourblocks away, just like
appraisals happen, so forth.
What's going to happen to yourbuilding, even though you're
(08:04):
still doing well and so forth?
Your building's going to bedevalued as well.
Yeah, it's coming down.
Yeah, and that's what'shappening is even to the ones
that are doing well.
You got to remember a lot ofthese are in syndications that
one investor went and raised abunch of money from people and
was like hey, I'm going to sellthis thing in five years and my
loan is for seven, so it givesme some play.
(08:26):
But that five years has come upand guess what?
They can't sell because they'recap rate, even though they're
okay on that debt service to paythe loan.
That cap rate has increased sonow they're going to take a
significant hit and on averageevery 1% is about 15% of value
of a property, roughly to giveyou a ballpark idea.
Justin Bogard (08:49):
Wow, that's a big hit, yeah.
So I'm not sure when a lot ofthis is going to come to
fruition.
I'm guessing it's going to bemore like a longer waterfall,
from starting probably last yearand probably go out another two
or three years that we'reprobably going to see, depending
on if the rates actually comedown a lot, which I don't think
they will.
So I can see this beingopportunity for people that have
(09:14):
funds that are ready to pounceon those opportunities to turn
those real estate, commercialbuildings or what have your
multifamily, large multifamilybuildings into some good
opportunity where they can getsome good buys, because I can
see some of those owners justhanding back the keys to the
bank and be like it's not even,I can't even try.
I can't even try to sell it.
Chris Seveney (09:35):
Yeah, and the reality is anyone that knows
when it's going to happen or howlong they don't?
The reality is there's so many,you know, impacts that affect,
you know, the housing, theinterest rates and everything
else.
Everyone can assume, everyonecan guess.
Everyone's like, oh, there'selection year, so this is gonna
happen.
First, that's gonna happen.
You know, nobody knows.
(09:57):
I mean we, you know, you've had, you know, a pandemic, we've
had, you know, wars going onthat have impacted things.
So I think people can read thetea leaves on things, and even
people reading the tea leaves,I'm think everything's gonna be
hunky dory, fine.
Others are like and not so much.
You can be in either camp.
The reality is, no, nobodyknows.
(10:19):
But you can just look at dataand say, hey, there's this
percent of commercial debt thatis coming do and this much is
underwater.
Oh, you know, what's gonnahappen with that debt is really
what's gonna.
And those properties is gonnabe the million dollar question.
Justin Bogard (10:34):
Yeah, I like how you brought that up, because
you're and I agree exactly whatyou're saying it's so hard to
really have a good prediction asto what's going on far out.
It's more or less like you saidyou guys gotta understand the
data and see what the trend isand make sure that you make a
direction change, if you need to, as quick as you can, because
so many people have been wrongthat have been experts at I.
(10:56):
You know that I respect andlook out to, but you know
they're really just guessing offof past experience and,
unfortunately, past experience.
This is new territory foreverybody.
I think there's a cycle likethis.
The last five or six years,because of things like you said,
you know we had a pandemic.
That was just.
You know, nobody was expectingthat obviously.
Then you had a couple wars andsupply chain issues Because of
(11:16):
all that just a trickle downeffect and had a super bullish
market in real estate for solong since the great recession.
We kind of knew there was gonnabe a correction, but we didn't
know how correction was gonnahappen or when.
But it's kind of it's kind oflike it kind of started
correcting.
I feel like the market hasstarted to correct as far as
real estate.
Chris Seveney (11:33):
It has, and you know you mentioned interest
rates as part of that.
I think the Fed, you know theyforecast out where they
anticipate you know the fed rateto be.
I think next year they expectedto be at like 4.5 or 4.75.
Which I think today is whatfought between five and a
quarter and five and a half.
Justin Bogard (11:53):
Yeah, I'm not sure what's that, but yeah,
that's alright, yeah.
Chris Seveney (11:56):
And people like, well, technically the Fed rate
doesn't impact mortgage rates,but it kind of does and it
doesn't.
You know, the last time andagain you can go back in 2005, I
think the Fed rate was at like4.75, and where were interest
rates?
Now they're about a point to apoint and a half higher, which
is typically where they are.
(12:17):
But again, they're based on tenyear treasury and you know we
not gonna go down that deep dive, yeah.
But I think the people who aresitting there like, oh, I think
interest rates are gonna go backdown to like two and a half or
three, well, if they do justrealize that the economy is in a
world of hurt if it gets downto that level, you know the feds
(12:37):
are not going.
You know they're trying tocontrol inflation and part of
that is, you know, the cost ofgoods and certain cost of
services.
So they're trying to increaseunemployment back up to four and
a half percent or wherever itis.
And then, you know, trying todecrease that cost of goods,
they're not.
If the economy is doing well,they're not gonna drop it back
down the two percent or again,because we're just gonna take
(13:00):
off again.
They're trying to control it.
And if it does shoot down tolike two and a half percent,
just realize that everythingelse is probably also probably
in a deflationary period.
And again I'm guessing, butyeah, now, based off of common
sense.
In that point of view, you know, the only reason they're gonna
(13:20):
go really low is if it's goingto be a hard landing.
Justin Bogard (13:25):
Yeah, I can't imagine an environment anytime
soon that it would get down thatlow.
But then again, you know whoare we to try to predict what's
happening, because there's justtoo many unknowns that happen in
the future that we just don'tknow about.
But yeah, what?
What when these commercialloans like this is something
that I don't know if your fundis preparing for these
(13:45):
opportunities with notperforming commercials, but
we're trying to prepare for itand we're trying to come up with
strategies and ways to thinklike, okay, when we get these
opportunities in front of usthat we can get these not
performing loans or maybe theyjust become REOs pretty quickly
and we can buy these things fora really good discount, what are
we gonna turn these into?
What are we gonna do with itafter that?
Chris Seveney (14:05):
Great question and it really is going to be
dependent, I think, on the assetitself, for example, office.
I come from commercialbackground and converting a
office building into residentialis usually not economically
viable, and I'll explain quicklywhy.
Office building is usually asquare box and you got to get
(14:26):
light into, you know, thoseareas.
To have a bedroom, it needs tohave a window.
Well, unless you're making it adonut and cutting a hole down
the middle, then you have torealize that an office building
does not have adequate water andsewer supply, as a residential
does not have enough power.
For a residential it justdoesn't make sense.
(14:46):
Now, a few things that peoplecan do is A you know try and you
know whether it's office orresidential.
You know try and rework it orupgrade it.
But you know some other optionsbesides just buying that
defaulted debt is if you can getout early enough on it, you
know, can you provide rescuefunding.
So let's say I need a milliondollars, that I'm short to do a
(15:12):
loan extension or a modificationwhere the bank says, hey, we'll
modify this or refinance it,but you got to come up with two
million dollars or a milliondollars.
Well, let's say I need twomillion dollars.
If I go to you, justin, say Ireally need two million dollars,
well, you kind of have theupper hand on that and say, okay
, if the value of the propertyis 10, I'll give you two million
(15:34):
, but I want 30% of the equity.
Justin Bogard (15:36):
Yeah, an equity play.
I was thinking you were goingto get there, yeah.
Chris Seveney (15:41):
So that's another option that you can have in
regards to some of these assets.
And when people look at, realestate is very cyclical and
people who, if you can hold forthe longer period, you know long
haul you typically win.
So let's say, you do buy anoffice building, that okay, I
(16:03):
have a 10-year horizon.
So eventually I suspect youknow this will come back in 10
years.
You know, unless it's out inthe boondocks and just like
really random you know I've seenpeople do is turn that into
self-storage.
You know as well.
So things you can do, but overa period of time, more than
likely it's going to be a wavewhere you know you might be
(16:25):
under water for a period of timebut hopefully you can come back
up and ride that wave as timemoves on.
Justin Bogard (16:31):
Yeah, when you brought up the architectural
part of taking real estatecommercial real estate and
converting it from, like, anoffice space to residential,
there was an article I read Ithink I posted about this online
where there was a big New Yorklandlord that is doing that, who
wants to turn his building intoluxury apartments.
(16:52):
Because they can see a lot ofthese, you know, autonomous
vehicles being able to pull up,kind of like.
You know, I picture this atDisney World where the train
runs through the hotel.
Yeah, Like I can picture theseshort-term taxi rides that are
made coming up, you know,through the resident building
for people just to be able totravel wherever they want and
not actually have to go outside.
So like I can see that sort ofthing happening.
(17:12):
Yeah, you're right, if youdon't figure out how to use the
space that's in the middle ofthe building, you know very well
it's going to be very difficultfor all the plumbing and HVAC
and you know well much moreElevators If you need more
elevators.
Chris Seveney (17:26):
Yeah, it's a.
Yeah, it's a, I've done it.
You know I did a project.
Actually I've done.
The last one I did was aproject in Alexandria, virginia,
called the Ornoco.
We turned it to high-end condosand this building was C-shaped.
We still had a lot of demoinvolved in the project, but it
(17:46):
was suitable.
Well, somewhat suitable.
We actually, in this building,had to take where the concrete
slab and we had to raise everyfloor by six inches to meet
handicap accessibility, wow.
So we basically had to build itup on two by sixes across.
And let's see it was.
It was at 60 units, 60 condounits averaging about 2,000
square feet.
So I mean, it was a major,major renovation.
(18:10):
You know, renovation and a lotof work to do, yeah, but we've
looked at others, likeespecially in downtown DC, and
it's just the numbers.
You know, typically they justdon't work, fortunately.
Justin Bogard (18:23):
Yeah, so you're.
When you did that stuff wereyou?
Were you based out of DC?
Yeah, Like in the Washington DCarea.
Chris Seveney (18:31):
Yeah, I was working for a local real estate
developer that was doing it andyou know they were.
They got very creative becauseeveryone else was looking at
this ugly office building thatliterally was on the water.
There was a park in betweenthat and the Potomac River.
So where it made sense is youcould get a premium for those
units where you know the topunit sold for about $1,800 a
(18:56):
square foot.
They give you an idea, for youknow what the unit sold for.
They sold for anywhere from1,000 to 1,800 square foot, and
this was back in 2014.
So which, at the time, I thinkthe high in the market in the
city was close to like 900.
So they were really pushing theenvelope on doing it and the
only way they made the numberswork is because they could get
(19:18):
such a premium price for thoseunits.
Justin Bogard (19:22):
Is the DC area pretty pricey and lease or rent
payments for commercial stuffcompared to other major cities
in the US?
Chris Seveney (19:30):
Oh, it's, you know there's what's called K
Street, which is where all theattorneys and law firms are.
Yeah, so DC is astronomical.
On housing and on officeRentals are, I think one of the
last time I checked where it wasa little over, I think $5 a
square foot for an apartment.
If you have thousands of squarefoot apartment, pay about $5
(19:51):
grand.
Wow, I want to say office space, depending on location, is
anywhere from like 40 to 90square foot.
Yeah, it's because, again, lookwho's in DC.
You have the federal government, all the lobbyists.
Yeah, Everybody wants to be asclose as possible.
Justin Bogard (20:07):
Yeah, no, that makes sense it.
Just when you were talkingabout that I was like, yeah, I
think because you hadn'tmentioned that to me before how
expensive it was and I've neverlived there so I never knew.
I think Richard spent some timethere so he had told me it was
expensive too.
But you know I have no.
I live in good old.
You know the crossroads ofIndiana here, so that it's a lot
different.
Mark, there's not a lot ofcompanies that want to be out
(20:29):
here.
Chris Seveney (20:30):
Yeah, it's different, but it's also again,
it's going to be expensive.
And the other component to itwhere it's going to cost you is
you know how many companies areexperienced in how to do it.
You know perfect example is Upin Boston, for example, most
buildings are built with steelconstruction.
Down in DC, most buildings areconcrete.
(20:50):
Okay, I want to build abuilding in DC and I want to
build it out of steel.
In Boston it's cheaper becauseeveryone does steel.
In DC it's more expensivebecause everyone does concrete.
You have less competition.
So when you think about oh, Iwant to go do this, well, I got
to hire a contractor.
If they know there's not a lotcompetition, I'm the only one
who can go do this type of work.
(21:11):
And of course, they're gonnacharge a premium also to you
know to do that work, especiallyif they're busy.
Justin Bogard (21:21):
Switching gear slightly, so I read a couple
articles recently that I didn'tpay attention to until I started
reading some headlines more andmore, and it was about Bank
jobs that have been cut in 2023.
I think it was something over60,000 jobs with the the major
banks that have been that theyhave cut jobs.
So do you think that's atelltale sign of the banks are
(21:44):
having having some issues withWith their profitability?
Chris Seveney (21:49):
Yes.
So I would look at banks andpeople realize too you know
banks, especially on thecommercial side, banks are a
primary lender, but even on theresidential there's a lot of
other non-bank traditionallenders and how much they're
cutting Staff and actually goingout of business or closing shop
.
So you're seeing a significantdecrease in Jobs and a the
(22:15):
mortgage industry, because who'sgetting loans?
And then, like you said, peoplelook at the residential side of
things and say, oh, not a lotof homes or transactions.
That's happening on commercialand multifamily as well.
There's a bid-ask spread of theseller needs this much and the
buyer only Wants to give this.
Much is the same, especially inthis interest rate environment.
(22:35):
But it's a tug of war wherethere's not a lot of
transactions happening.
Well, yeah, think about howmany people are tied to a
transaction.
You have bank the one, you knowhow many people with the bat at
that lender bank the titlecompany and so forth and so on.
There's a lot of peopleinvolved and you're seeing those
Aspects or those areas cuttinga lot of jobs.
Justin Bogard (22:55):
I In that same article that I read and I think
I read this a few days ago Ithought I read there was over a
quarter of a million tech jobslost in 2023 as well.
Chris Seveney (23:07):
Yeah, you know that, yeah, the tech industry.
Have a family member who's intech and actually they were in
the mortgage tech and thecompany they were with literally
just shut down Because theywere doing a lot of the lines of
credit that were like noappraisal.
They do kind of like online.
Those companies, you know,basically are just dead in the
water today.
But you know, people look at,okay, facebook, amazon, tesla,
(23:33):
google, like the big three orfive I think somebody mentioned
to me like big three or fivetech companies are the only ones
that made money last year.
You know everyone else in techand I follow a woman online who
raises money for venture capital, which is all in the tech space
and it was a statistic.
It was.
I don't remember the numbers,but the number of tech failures
(23:55):
last year and a number ofcompanies that have just
shuttered is like in thethousands because of, you know,
not being able to raise moneyand just the interest rates.
So the tech is also reallytaking a beating.
Justin Bogard (24:09):
Do you, do you correlate some of that with the
fact that so many tech companiesstarted up during the COVID
time period?
Or maybe we had an inflationand big influx of tech companies
and now we've kind of reducedthe fat a little bit of, you
know, non-essential ones?
Chris Seveney (24:27):
I think there's two pieces.
That one is, yes, during theCOVID, but also, you got to
remember, the government printedI don't even know how many
trillions of dollars at very lowinterest rates.
Yeah, so a lot of companieswere like, hey, I'm just going
to, I have this money now I'mgoing to go invest it in all
these startups and all theseareas.
And now you're seeing thosecompanies being a lot more
(24:48):
selective and where they'reinvesting.
Justin Bogard (24:51):
Yeah.
Chris Seveney (24:52):
You know, three, four years ago, vc had money
flowing in like there was notomorrow.
Now you look at it and theyhave completely dried up, and a
good example is that I'll use islike look at those NFTs, those
non-fungible tokens.
I mean those.
Basically, people were startingcompanies or right nose things,
and they were selling forthousands or tens of thousands
(25:12):
of dollars for just a piece ofdigital art that really had no
value.
Now what's happened to them?
They're like baseball cards,they're basically worthless, and
so, yeah, I'll use that as asimilar scenario.
Justin Bogard (25:24):
Funny image in baseball cards.
My dad and I happened to lookat some of our some of our full,
full set of tops baseball cardsfrom like the mid 80s and stuff
and we were reminiscing aboutit and we were just twining
around and looking at the valuesand stuff and you're right, the
values aren't anythingastronomical like you would
think.
You know, with 30, 30 to 40year old, you know baseball
cards.
That's just kind of funny howyou brought that up compared to
(25:46):
NFTs.
So what is going on with 70investments?
I've, obviously I follow you.
You're my friend, yep, and Iget to talk to you.
You know, at least once a monthwe get to talk, if not more,
and so I know that you havedefinitely grown a lot this year
as far as the expansion ofpeople that work with you guys
(26:08):
and growing your fund and allthe you know the asset
management part of what you do.
So what?
What has this 2023 been likefor 70 investments?
Chris Seveney (26:16):
So you know, 2023 , a lot of people will look back
at 2023 and be like, oh man,what a hard year, difficult year
.
And you know, I thought thesame thing and then I started.
You know, I read the book overbreak the gap in the game Great
book, by the way where it reallytells you a focus on everything
you gained.
And you know, we went from, atthe beginning of 2023, from a $5
(26:36):
million company to over a $20million company at the end of
the year.
We have over 500 investorswithin our fund.
So we are continuing to growand, you know, raise money to
invest in performing andnon-performing defaulted paper.
And you know we're looking at2024 is another good year.
And you know, last year in thespace, there was a lot of pivots
(26:59):
.
You know, early on in the year,you know we were at a point
where, oh, we're trying to buyloans early on and it was
difficult.
And then, towards the summerand the end of the year now, all
of a sudden, it's like, wow,we've got all these loan deals
coming in and it's trying toraise money to fund those deals.
So, overall, I look at it, asyou know, being a successful
(27:21):
year.
Of course, there's other thingsyou'd like to look and do
better.
Interestingly enough, I'll sharethis with you because I was
doing a, you know, a recordingfor some people in one of my
membership groups about, youknow, setting a one year and
three year goal, and I was usingthe template from 2020,
actually, and that I had puttogether for my own personal
(27:42):
goals and had a three year goalwhere I wanted to be at the end
of 2023.
And it was, you know, havingbought over 750 notes, which I
think I'm pretty, I think I'mthere, I doubled the amount of
money that I've raised.
But the big thing, or my big,hairy, audacious goal, was I
wanted to leave my W2 to workfull time and run my own company
(28:02):
, which, fortunately, I was ableto do that in 2022.
So it was a year early and itwas interesting because I didn't
even notice I had, I forgot Ihad this actually, and I went
back and pulled it out and it'skind of like dusted off.
I'm like wow, actually likecheck the box on some of these
things.
So that was very I don't thinkit made me feel very good.
(28:23):
That's his best way.
Justin Bogard (28:26):
Well, you should.
It's in a lot of people.
I don't think they knew thepeople that know you in the
space.
They might not have known thatyou still had a W2 job because
it seemed like you were so fullyactive in the real estate space
and I actually had forgottenthat you still had a full time
job till you told me when youdid finally quit the W2 job.
But it's just, it is impressivehow much you're able to have
system and processes and allthese efficiencies to help you
(28:49):
grow to where you are today.
So congratulations, and that'sawesome to see how you guys went
from.
It seemed like this year was avery powerful year for you, at
least noticing it, at least froman online perspective.
It was always that way thewhole time and I just didn't
notice it, but definitelynoticed it this year.
Chris Seveney (29:06):
Yeah, and I think part of it is.
You know, within the space, alot of people come and go and a
lot of people will chase theshiny objects.
For us, you know I'm a big topgun, you know movie buff.
You know never leave yourwingman type.
And you know that's how I lookat your investment strategy is,
(29:28):
you know, you just got toharness and focus on that
strategy because I've seenpeople who've gone out there and
you know they chase.
They went from one to chase theshort term rentals.
They've chased all these otherasset classes and it's okay to
diversify, but when you do a,you know a huge shift from one
to the other.
You know it's a big upliftingand understanding what it's
(29:52):
going to take.
Most people underestimate thatand that's where I've seen a lot
of people fail is because theyunderestimated that and they
left what they're good at.
You know, and for us, we justwant to be.
I'd rather be the best at oneor two things than be average at
five things.
Justin Bogard (30:07):
I fully agree with what you said and I've seen
it too, with people coming andgoing pretty quickly and you hit
the nail on the head, and myopinion as well is that they
don't realize how much work itis.
It's not passive to run abusiness.
It's not supposed to be passive, right, unless you are having
people run it for you.
But when you're the owneroperator, it's not passive, it
is active and it's hard work,just like anything else.
Chris Seveney (30:29):
Yeah, and the other thing I'll just mention to
that is, you know, having the,you know looking ahead and being
able to.
You know, one of the thingsthat we do a lot of is, you know
, if this than that type ofsituations okay, if this happens
, how does it impact ourbusiness, our market, our
profile and that's where havingbeen in real estate for a few
(30:53):
years for me goes shows thatexperience comes into play
understanding that.
You know, when government wasprinting all this money, I was
wrong that I thought home priceswould drop dramatically.
Yeah, I was right that interestrates were gonna shoot up and
but now that, how did that haveits impact on things?
(31:16):
People are seeing it today where, for example, I know a note
investing company that they havebank lines of credit and they
were Originating commercialloans at, you know, 8% because
they were dead.
Was it 5%?
But their 5% was floating.
They're lending at a fixed rate.
Yeah, now that their floatingdebt is now at 11 and they're
(31:37):
getting 8%, they're like, oh,now what do we do?
So?
And they can't sell the loansor they'll sell them at a loss.
So they've got their hands tied.
So for people, no matter whatyou invest in now play out every
single scenario in your head,even though, even if it Doesn't
happen, if it could happen, playit out and how are you prepared
(31:58):
?
Or what are some of the steps,and you don't need the
full-blown plan.
But if it happens, it's likeokay, here's what I would need
to do, or here's how I need tobe defensive with my business,
because it can take a companydown, and I've seen it Happen,
so you just need to be careful.
Justin Bogard (32:15):
Yeah, you're right, it's, it's scary, and
thanks.
Thanks for mentioning all that.
Dude, we are out of time fortoday, so thank you for being on
the first episode of season 6on the be the bank podcast.
I'm Justin Bogard, my friendhere, chris 70, founder of 7e
investments.
What, what's your website?
Is it 70 investments, calm.
Chris Seveney (32:33):
Yep, the number 7 , the letter e investments calm
cool.
Justin Bogard (32:36):
Check him out.
Check out.
It's fun.
Check out.
They do have a podcast and theyhave a group of people that
they that they do webinars to.
If you want to be part of thatgroup, you can reach out to them
and you can.
I'm sure you can find all theinformation on your website.
Chris Seveney (32:49):
Yep.
Everything's on the websitecool.
Justin Bogard (32:51):
All right, brother.
Well, it's good to see, is goodtalking with you, and I will
see the rest.
You guys on episode number two,don't forget to check out the
video stream of this on ourYouTube channel, the American
note buyers YouTube channel.
Until then, I'll see you guyslater.
See you, chris.
Thank you.
Narrator (33:09):
Thanks for listening to be the bank.
We hope you learned somethingfrom today's show.
If you enjoyed this episode,please rate and review us.
Plus, check out our Channel onYouTube and follow us on
Facebook and Twitter at be thebank, and on Instagram at be the
bank podcast.
Be the bank is sponsored byAmerican note buyers.
Thanks again for listening you.
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