September 13, 2023 • 38 mins
Picture yourself stepping into the shoes of a billionaire investor, navigating market trends with an asset-class agnostic approach. That's exactly what we uncover with our esteemed guest, Ben Fraser of Aspen Funds and the Invest Like a Billionaire podcast co host, revealing the unique strategies applied by his investment fund. Adhering to a family-office approach, Ben and his team deploy their own capital across varying asset classes, leveraging the significance of timing in investment decisions. We survey the landscape of the multi-family real estate sector, exploring when the deals might start to make sense again.
Dive deeper into the intricacies of multi family investments, a terrain of great potential for those who can aggregate deals. With Ben Fraser at our side, we scrutinize the consequences of the fastest rise of interest rates in history, the labor market's role in inflation, and explore the endurance potential of our economy. This part of the conversation lifts the veil on the challenges and rewards that come with this unique investment avenue.
Lastly, we unmask the opportunities presented by the different asset classes of the Aspen Fund for this year. If you've ever felt restricted by income barriers in the accreditation process, brace for potential change as we tackle the proposed bill that could allow passing a test to achieve accredited status, opening up access to private investments. We also delve into the new regulations and reporting requirements for private fund advisors and what this could mean for investors. Topping it off, we tap into Ben's experience with converting retail-focused AC to climate-controlled storage, a sector replete with potential for the discerning investor. Hop in for this journey of illuminating insights from an industry leader.
To learn more about Ben Fraser:
1. https://aspenfunds.us/
2. https://www.thebillionairepodcast.com/
3. https://www.linkedin.com/in/benwfraser/
4. https://podcasts.apple.com/us/podcast/invest-like-a-billionaire-the-alternative/id1587171662
To learn more about Jonathan's recession resilient mobile home park real estate Fund, as our next Fund raise is $50 million only for accredited investors: https://www.midwestparkcapital.com/
To learn more about Jonathan's highest level business growth consulting and fractional CMO services. And upcoming group zoom entrepreneur masterminds:
https://www.revenueascend.com/consulting/
Sign up to get on the list for the World's Most Exclusive Social Networking App: https://www.prestigesocialapp.com/
New Kava beverage, it's buzzy not boozy (sign up to potentially win a year supply for free):
https://www.drinkwowipop.com/
To those looking to potential exit or sell their business or talk about potential business roll up partnerships:
https://www.businesscashout.com/
https://linktr.ee/jonathantuttle
#privateequity #entreprenuer #venturecapital #sovereignwealthfund #capital #businessgrowth #startup #realestate #entreprenuership #accreditedinvestors #familyoffices #UHNW #billionaire #centimillionaire
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
It's a pretty massive problem that a lot of banks are
trying to figure out.
Do we just extend and pretend?
Do we just extend thematurities of these loans and
hope that they can build up netinterest income or net operating
income to service the debt?
Well, meanwhile we're having ina lot of markets negative rent
growth, so rent declines.
(00:20):
That's putting downwardpressure on net operating income
.
We're having really highoperating expenses increases.
Especially insurance is goingup.
Speaker 2 (00:32):
Welcome to the Ultra High Net Worth podcast, which is
a global community of the mostsuccessful and their insights.
We want our families toflourish, collaborate and create
a better world for all.
This podcast is a trustedresource to learn from each
other, navigate the mostimportant global issues and find
life changing opportunities.
On the host, jonathan Tuttle,the founder at Midwest Park
(00:56):
Capital, a boutique mobile homepark.
Real Estate Fund Revenue Send,a leading digital consulting and
fractional CMO agency.
Business.
Cash Out, a boutique M&A firmfocused on service-based
businesses, and a part of thefounding team at Walleypop, a
mood enhancing cove of beverage.
This episode is sponsored byPrestige, the world's most
(01:17):
exclusive social networking app.
All links are in the show notesbelow.
Enjoy the show, please likecomment.
Share this podcast with yourfriends.
Thanks for listening.
Welcome to the very firstepisode of Ultra High Net Worth
podcast.
Today I have a fantastic guestand fits perfectly with the
whole symmetry of the show.
(01:37):
It's Ben Fraser from AspenFunds and also Invest Like a
Billionaire podcast.
Welcome to the first episode.
Speaker 1 (01:44):
Yeah, thanks for having me on.
Jonathan is going to be fun.
Speaker 2 (01:47):
Yeah, it's going to be exciting.
It's going to be perfectlyfitting because it's a very
similar demographic to yourpodcast and what your fund is.
Do you just want to give alittle background about yourself
?
Speaker 1 (01:56):
Yeah, sure.
So we have a podcast calledInvest Like a Billionaire, and
it's truly trying to identifyand learn from the ultra-wealthy
investors A lot of ones thatI'm sure you're going to have on
this show and how are theyinvesting?
How are they investingdifferently than just the
average retail investor, what wecall them, just individual
investors that aren't quite atthe family office level, but we
(02:19):
want to take the best tacticsand strategies and tools that
they're using and apply it in asmaller scale, and so that's our
whole focus.
That's what we spend a lot oftime doing, and we also operate
and run funds in differentverticals, so I'm actually the
Chief Investment Officer ofAspen Funds and really boots on
the ground, so the education isfun, but it's actually a
(02:41):
secondary job for me.
Speaker 2 (02:44):
Nice, nice.
Yeah, I recommend listening tothe podcast.
It's pretty fascinating becauseyou guys have a diverse.
It's not just one, because alot of the you know if you see a
lot of these podcasts it's justone same topic over and over.
But there's obviously, with thebest thing, you want to be
diversified and have see whereemerging trends are
opportunities, and you guys do agood job of covering different
things.
What are some of your kind offavorite opportunities?
(03:06):
Let's say, because it soundsweird, we're almost going to
2024 now what do you see as someof the best opportunities going
forward in the early next year?
Speaker 1 (03:13):
Yeah, you know, you kind of mentioned it, but our
approach is a little bitdifferent than some, right?
So a lot of operators orsponsors that are putting
together these private equitydeals or real estate deals or
oil and gas deals, they'refocused on that singular asset
class, that singular business,and we really chose several
years ago to have a differentapproach and really be what we
(03:37):
call asset class agnostic, right, so we're not locked into one
asset class, because inevitably,asset classes go in cycles.
Right, there's really goodtimes to be in certain asset
classes and then there's not sogood times to be in asset
classes, and we're seeing thisright now.
You know, even in thecommercial real estate space and
other asset classes, that youknow there's kind of these booms
(03:58):
and busts, right, and asinvestors you don't want to have
all your eggs in one basket andyou want to have that
diversification.
But you also want to invest inthe tides, right, you want to
invest in where do you have thetailwinds behind your back?
You're going to help youdirectionally outperform the
market because you're in theareas that are kind of poised to
(04:19):
do better than others, and sowe kind of take more of a
family-office approach in thatpart of the motivation for us to
utilize this model was todeploy our own capital, and so
we have four partners and thisis really our own portfolio
allocation strategy is we investalongside all of our investors
in every deal we do and reallyto get that broader exposure but
(04:42):
then also not being locked intoone asset class.
So that's the long way to answer.
You know your simple question,which is where we see
opportunities.
But it's important becauseinvestors we in tune of
understand that timing isimportant.
But a lot of people believethat you can't time the markets
right and there is a certainelement to like you can't like.
(05:02):
Day trading is a hard thing todo, right, you can't.
What's the market going to dotoday?
I don't know, but directionally, where is the economy going and
where are the fundamentalsupply and demand?
You know dissonances.
Where there's actuallyopportunity in the market that
we can capture as investors andplay into a longer term theme,
those can be identified andthose can be taken advantage of
as investors.
(05:22):
So that's what we're looking for.
We're seeing thoseopportunities selectively, still
in multi-family, so it's harderand harder to find deals.
But I think we're kind ofgetting close to the point where
the deals are going to startmaking, be making sense again,
right, and what's really, what'sreally interesting is I saw a
quote today actually on usuallylike the best times to be buying
(05:47):
real estate and in a certainasset class, it's usually when
there's not a lot of excitementabout it and when the credit has
really tightened up and it'shard to get financing for deals,
that's usually actually thebest time to be buying right,
because there's kind of adislocation in the market.
It's a little bit harder to getdeals done.
The worst time to be buying iswhen it's really easy to get
(06:07):
really high leverage.
Everyone's talking about anasset class and everyone's in it
right.
So it's this kind of contrarianinvestment approach and so we
are seeing some opportunitiesbecause on a long-term scale not
even that long-term, I think,two to four years we're going to
be in a major housing shortage.
(06:28):
That we're already kind of inand I've been in for a while.
But it's going to beexacerbated because a lot of the
new construction, newdevelopment, has been kind of
falling off a cliff this yearbecause of higher interest rates
and so we're kind of justcontinuing to build this big
lack of supply.
We're very, very bullish onindustrial right now it's
(06:49):
probably our number one realestate vertical.
If you look at all commercialreal estate asset classes since
the beginning of the year,values-wise it's probably been
the least impacted by theinterest rates.
Industrial it is, and we kind ofbelieve we're at the beginning
of kind of we call phase 2.0industrial boom, where the last
one was created by e-commerceright, the last industrial boom
(07:14):
over the past decade has beenreally driven by growth and
e-commerce and that's notnecessarily stopping, but the
growth is slowing in that.
And the next kind of wave thatwe believe is really going to be
driven by manufacturing,reshoring manufacturing back to
the US and bringing back moreinventory, warehousing of kind
of critical components andthings in the supply chain.
(07:35):
And then, outside of realestate, we're very, very bullish
on fossil fuels, right, andthat that one might be confusing
to people because, hey, wedon't need fossil fuels anymore,
we're going all electric andalternative energy sources.
But there's kind of a big gapbetween now and then, and
probably many decades betweennow and then, and in the short
(08:00):
term we're creating a potentialmassive energy crisis because
we're not investing in newsupply of fossil fuels and we
need this.
It's the kind of core commodityof so many parts of our
industry manufacturing,transportation that it's over
the next couple of years.
We think prices have a lot ofroom to run to the upside.
Speaker 2 (08:22):
Yeah, I agree with that a lot.
That's seven minutes.
I have three e-commerce storesmyself, so one of my two
partners are in the US and DutchShell places, so that's you
know.
E-commerce has been a huge boomfor Dutch Shell.
And then with the fossil fuels,the US wants to get everything
to.
You know everyone drivingTeslas, but the infrastructure
is not set up.
(08:43):
But like probably I heard likemaybe like 2045, 2050, something
like that Like it's a long waysout, Like it's just a huge gap
there.
What is what's your thoughts on,like other alternative assets?
Well, say, it's like SimonMobile Home Parks and I saw you
have a couple of mobile homepark guys in the past few
(09:04):
episodes.
What's kind of your thoughts onthat niche?
Because it's kind of verycomfortable.
If you look at Green Streetdata and you mentioned
industrial In the last few yearsbeen industrial, mobile home
parks and self storage is likethree of the top performing
asset classes and just on theGreen Street data, institutional
data what's kind of yourthoughts on that, If you guys
ever explored that at all, or isthat just because it's
obviously an alternative?
Yeah, absolutely.
Speaker 1 (09:26):
We've not directly sponsored any mobile home park
investments.
I know a lot of operators thatare in that space.
I'm also very bullish on itright.
I think it plays into a lot ofthemes, one being lack of
affordable housing.
I think that's going tocontinue to be a massive issue
that we need to solve as acountry, and we're not doing a
great job of that.
(09:47):
You know, all the newconstruction that's coming
online is generally at thehigher end of the market because
they have to make a profit in.
The fixed overhead costs oftraditional construction are
prohibitive to build those entrylevel homes.
And from a capital marketstandpoint, my understanding of
the mobile home space is thatit's pretty fragmented.
(10:08):
Whereas multi-family ispredominantly institutionally
owned, mobile home parks arepredominantly pop-owned.
So there's a lot offractionalization and create
some opportunity if you canaggregate that.
The challenge is it's difficultto find deals, and some of the
deals that do come to markettrade for very, very aggressive
(10:30):
pricing.
So I'm not in the market toknow what's going on and on the
pricing side of it, but from anasset class standpoint I think
there's a lot of opportunitythere for sure.
Speaker 2 (10:42):
What do you think the rates are going?
Because obviously the rateshave been such the game changer
for this year because of thatchange it's been just a night
and day difference between lastyear and this year and the shack
and putting the market.
Where do you see the rates kindof settling, after all the debt
settles.
Speaker 1 (10:58):
Yeah, well, I think we're here in the first episode,
so we don't want to dateourselves and people go back and
listen to this later.
So we're at the, you know, inSeptember 2023, so we can date
it.
Yeah, I give that time stamp.
Yeah, we got a time stampbecause things will probably
change over the next year.
But yeah, I mean, we've seenthe fastest rise of interest
rates in history and I don'tthink we've yet to see the full
(11:23):
consequences of that in themarket.
Right, it's happened so fast.
It's difficult for the market todigest what that means and what
the real impacts are.
We potentially saw a little bitof breakage happening in the
banking industry.
I think some of that's beensettled.
But I think there's a lot ofchallenges facing several areas
(11:45):
of the economy, and you knowright now where interest rates.
You know a prime is over 8%,you know, and the yield curve is
massively inverted, which isnot a good thing, and so where
do rates go from now?
I mean, if you believe thefutures curve, you know, maybe a
year from now we're 100 basispoints lower than we are right
(12:05):
now.
I think SOFR is about 5%, theFed Funds Rate is about five and
a quarter, and so maybe we dropdown to low fours.
But part of the challenge andpart of the, you know issue that
I see going forward in theshort term is the main reason
(12:26):
that the Fed is increasing itsrates is inflation right, and
we've had higher inflation thanthey're comfortable with and
they've stuck very firmly towant to hit their guidance
target of 2%.
Well, that's a noble goal, butI think in the short term that's
a couple of years they're goingto have a very difficult time
(12:47):
getting back to that number fora few reasons.
One, we have a massive laborshortage and this is kind of,
you know, post COVID, a lot ofpeople left the workforce, so a
lot of kind of retiring babyboomers, you know, left and
retired early.
And then a lot of kind of dualincome families because of all
(13:09):
the extra you know incentivesgoing on and the job market was
super hot, kind of went tosingle income families and so
once staying home now.
So we're sitting in a lot ofemployment under 4% and that
puts a massive amount ofpressure on the kind of wages
and wages are, you know,inflating very, very high right
(13:30):
now, very quickly, and so itputs a lot of pressure on, you
know other parts of the economyand inflation is.
Consumer spending excuse me isone of the core drivers of GDP
growth and so we have a lot ofpressure on the labor market.
I don't think it's going to getloose anytime soon.
We're seeing some layoffs,especially in tech, but as a
(13:51):
percentage of the whole economyand you know it's still very,
very low.
I think there's now, right now,more job openings than people
looking for jobs and we stillhave that issue right a year
into this really unique economyof these higher industries.
So that's going to keep puttingpressure on inflation.
Meanwhile, you know we'll havetime to probably dig into all
(14:13):
the things going on in energyright now.
But if you know, there's a fewthings that could just kind of
get tipped off and we go back toreally high.
You know energy prices, youknow gas prices.
That puts a lot of pressure onCPI.
So I think we're still kind ofwe got inflation on this
downward trend, but to kind ofget it down where they really
(14:33):
wanted to stay there, it's goingto take a lot longer than I
think anyone really wants toadmit it's going to take.
So what does that mean forinterest rates?
I think it's going to forcethem to have to keep interest
rates higher for longer.
So whenever we're doing dealsor we're underwriting deals,
we're making that assumptionright there, right.
So actually, you know, going tobe higher than they are right
(14:54):
now, you know, and it's going tobe longer than we want it.
So that makes it difficult tomake deals work because, you
know, I think those are, youknow, pretty conservative
assumptions.
But I also think that's theworld that we may be going into
right, this kind of muddlethrough, you know, economy.
We have some very strong partsof the economy, some kind of
weaker parts of the economy.
(15:14):
It's this kind of oscillation,you know, in the market trying
to find itself.
So very again, a very longanswer to your simple question,
but I think we're going to startto see some breakage here
pretty soon.
The biggest area I see, justbecause of my focus on
commercial road state, is a lotof these, this bridge debt that
is coming due over the next 12months, right, so you're
(15:37):
probably very aware of thiswhere over the past several
years, most of the multi-familyespecially was purchased with
bridge debt and so this was veryhigh leverage financing,
generally between 80 and 90%financing.
These were non-recourse loansthat are very attractive to
operators, but they generallywere floating rate interest
(16:00):
rates, right, which at thatpoint no one cared about,
because we're 3% interest rateshigher than 4% forever.
And all of a sudden, all ofthese, these deals, are now
having a service interest ratesof 9%, 10%.
And there is a ratings agency,fitch, that came out recently
and forecasted, you know, allthe loans that are maturing in
(16:23):
2023, only, you know, 25% ofthose loans would not meet debt
service coverage requirements torefinance.
I mean, there's not enoughincome being generated at the
property level to even getrefinanced out of their first
mortgage.
What does that mean?
One, the equity is alreadywiped in those deals and people
don't know it yet, you know.
(16:44):
And then, two, there's a bigkind of looming problem that is
going to have to be addressed atsome point.
Right, because if it kind ofhappens in a one-off way, banks
will kind of deal with it as itcomes and it's not going to kill
the market, but it's kind of apretty massive problem that a
lot of banks are trying tofigure out.
Do we just extend and pretend,right?
(17:05):
Do we just extend the maturitiesof these loans and hope that
they can build up, you know netinterest income or net operating
income to service the debt.
Well, meanwhile we're having,like in a lot of markets, rent
growth, negative rent growth,right, so rent declines, so
that's putting downward pressureon net operating income and
(17:25):
we're having really highoperating expenses increases.
Especially insurance is goingup.
So you're having these likethree factors that are
compressing margins and puttinga lot of pressure on some of
these deals in the short term,which is why I think there's
going to be a lot of opportunityyou know, hitting the market
here pretty soon and youreferenced before we hit record,
we just did an episode talkingabout there's, I think, just the
(17:48):
articles that we were readingover $200 billion.
This is just a few weeks agothat this article came out.
That has been that is beingraised right now very large
private equity funds to scoop up, to stress, commercial real
estate, right, and they're justwaiting to pounce on these deals
.
So this is weird and crazything is going on in the market
(18:10):
right now.
Speaker 2 (18:12):
Yeah, it's like you said.
They're all compounding and thething finding deals is all the
sellers had these offers lastyear because the rates were so
low and then they had theexpectation, the mindset
especially at least the mom andpop, at least non-sophisticated,
which I deal more with oh myprice is this, because that's
what they were telling me lastyear.
Well, the rates were also halfoff.
So that equity and thatexpectation they're like they
(18:35):
assume that they could get thatprice forever because but those
offers are getting resended andwhat you're saying, a lot of
people are buying, like just toomany people are buying deals in
the fore and trying to do likethis two-year, like you said,
and now everything's compounding, like, well, we thought we'd
get exited out, so it's going tobe opportunity, but also I
think there's going to be some Iguess you can call it chaos and
(18:57):
then we're going to get withsome of these deals that the
banks can't figure out.
And your episode was talkingabout the office space.
Like I'm working a big trendnow as a digital man.
It's like coming out intoMexico, work for a month and
it's you know, that's kind oflike this is my office right now
.
Right, so you know.
It's just you know trends of ifyou could work online, you
(19:18):
could get all your work done.
It's that's becoming like moreattractive to people.
You know nowadays.
What was one of your favoriteepisodes?
Guests Like I know it's like.
I know you had like 100 anddon't call me like 105 or 120
episodes.
What was your favorite withoutlike, because I know it's maybe
even found somebody but likewhat was your favorite, most
intriguing guest that you hadfrom episode?
Speaker 1 (19:38):
Oh man, that's hard to put me on the spot here.
You know some of my favorite.
A couple of them I love likethe macro conversations, and so
we've had a John Chang onearlier this year.
We're trying to get it back onagain.
He's the kind of senior vicepresident over economic research
(19:58):
at Marcus and Milichap and Ijust love his perspective.
They're talking kind of bigpicture and we do a lot of
really fun interviews with, likeother passive investors.
So I really enjoy those.
One of them we had recently Ireally enjoy is Justin Donald.
He's the lifestyle investorgreat podcast he runs.
That's a really fun, really funepisode.
(20:18):
Honestly, we do so many I kindof forget who's kind of been
recently.
But those are some, some onesthat come to mind.
Speaker 2 (20:27):
Nice, nice.
Yeah, I'm just curious becauseI kind of plucked for your show.
But it's cool to have that onething about being in a podcast,
get to see other people'sperspectives and get to access
to a lot of people.
So I've been in 60 episodesmyself and then I was like you
know, I'm going to start my own.
Speaker 1 (20:42):
Exactly.
Speaker 2 (20:42):
It's like at least I can control it.
You know the flow of like theepisodes and communication.
So what's kind of your goalsfor asking fun?
What's kind of like the?
Is it like you guys going tobuild up style to big PE firm?
Or was it kind of keep it likea boutique between your partners
?
Or what's kind of like yourfive year, 10 year plan with
your phone?
Speaker 1 (21:03):
Yeah, I mean, we've been going over 10 years at this
point and you've had greatgrowth and we have pretty big
goals that we've set.
But for us, it's not aboutnecessarily just growing fast
and growing, you know, for nopurpose.
We do have a real mission andvision to help, you know,
accredited investors and folksjust that, the ones you're
(21:23):
working with to be able to haveaccess to opportunities that
they otherwise wouldn't.
And, you know, with the changesin the jobs act 2012, it's
really changed the game forinvestors that they have now
access to the types of deals,opportunities, asset classes
they never had before.
And so we actually think we'reon the very early stages of a
(21:45):
pretty big shift of capitalmarkets, you know, to the
private market.
We've already seen that happenover the past decade, but I
think we're still a lot more ofthat market shift, right.
And so, yeah, I mean, our goalis continue to do good deals and
deals we believe in.
You know, part of this strategy,the way we've set it up, is our
own legacy strategy of theirown capital right.
(22:05):
So we want to be doing dealsfor a long time and have people
invest alongside of us.
But, yeah, the education pieceof it is not anything I ever
imagined we'd do.
Right, we didn't start thepodcast, or we started two years
ago, and religious has a wayfor us to share market insights
and talk about things we'reseeing, and so it's been really
(22:27):
fun because it's not anything Iimagined.
You know I'd be doing this kindof education or conversations
around, but definitely built apassion for it, so it's been
really fun.
Speaker 2 (22:40):
Nice.
Yeah, it's a good podcast.
When you're talking about the506, it was in 2012.
I met Robert Addergrande, Ithink he said he had the very
first like PPM for raisingcapital, like you knew, like
Obama was going to pass it, andhe's like there's something like
they knew like what was goingto happen, like they were
(23:00):
literally the first one to dolike a private placement in the
506.
He raised like 250 million.
I was like crazy.
He didn't like a week, he said.
But he's, he was a former ofPfizer, former CEO like all
these billion dollar pluscompanies.
We knew all the doctors and hisyou know distributors and
everything.
(23:20):
So that was his like you knowaudience and he was a CEO of a
couple of like billion dollarcompanies.
That helped a lot.
But, yeah, that definitelyhelps, yeah, but it's pretty
cool that, yeah, the 506.
And then I got the crowdfunding.
I remember the first came out.
I was like this is pretty cool.
Like you know, they're actuallyopening up a lot more.
Accredited Vester status is alot more if you have some kind
of financial background.
I don't know the exactstipulations, but it's like I
(23:42):
think if you have series, one ofthe series series the series
seven or 63, I believe it's 63.
Speaker 1 (23:49):
Okay.
Speaker 2 (23:50):
Yeah, so they're opening up to more people.
And when they originally cameout with that, I think you know,
obviously, with inflation,going back to inflation, 200,000
was a lot of money.
I think it was like 1979 orsomething like that.
It was my first came out withthe late 70s or early 80s and so
200,000 back then what I don'tknow the calculator probably
half million, you know.
Speaker 1 (24:10):
So big difference.
Yeah, it definitely seemed tobe trending that direction.
You know, it's kind ofinteresting because there's a
bill right now to pass, Ifigured from the center of the
house but to where you canactually take a test and not
even like one of the traditionalfinancial tests.
But just you know, do youunderstand the basics of
(24:31):
investing and you know theactual test that anybody could
take and become accredited,whether they make a lot of money
or don't, and that's on thetable, which is pretty
interesting because that wouldexpand even further.
But on the flip side of it, wejust saw something that did get
passed that puts a pretty bigonus of new reporting
requirements, of newtransparency guidelines on
(24:53):
private fund advisors, which ismostly kind of hedge funds, and
puts a lot more kind ofoperational load, you know,
reporting compliance, on them.
So that's you know.
I kind of see both happeningright, because you know we may.
If we kind of go through apretty decent dip here on some
(25:13):
of these deals, that equity getswiped, investors get mad.
There's some lawsuits, there's,you know, already, some things
that are happening in the marketthat are interesting right.
Some of the bad actors are kindof being revealed.
I think it's going to create alittle bit of heartburn, right,
with some investors and like,hey, I was promised all of this
and it didn't turn out that way.
So that may create a little bitmore emphasis from the, you
(25:39):
know, politicians to put moreregulation, reporting,
compliance in the space and I'mgenerally not a huge proponent
of that.
But, you know, to some degree Ithink that that could be
helpful just to increase, youknow, trust for the individual
investors, increase transparency, which is kind of a knock for
(25:59):
alternatives.
But, yeah, it does seem that thetrend generally is kind of
going that direction to createmore access, open it up to more
people.
And, you know, if you look atone of my favorite sources on
finding data on theultra-wealthy is Tiger 21,.
Right, these are ultra high networth folks that are in this
(26:21):
group and they generally post ona quarterly basis.
You know what's the overallallocation pie right of all the
members across different assetclasses, and it changes, you
know, from quarter to quarter alittle bit, but predominantly
it's 50% alternatives, 25%public markets and 25% lots of
(26:43):
other stuff, and that seems apretty common theme, even as you
go into, you know, biggerinstitutional money like family
offices, endowments, pensions,etc.
That there's usually a prettybig allocation to these private
alternatives, and so that's whatthe ultra-wealthy are doing,
and now you know the averageaccredited investors having more
(27:04):
access to those.
So I do think there's going tobe a continued kind of trend
toward that.
Speaker 2 (27:10):
Yeah, I agree with that too, that sentiment.
It's just the fact thataccredited have access to these
deals which we've never accessedit before.
It's a good thing they allowthat.
You know it was a game changerfor the average person, kind of
bump up to the qualifiedpurchaser.
You know the next level.
And so what are you some of thefunds or some of the asset
classes you're going to befocused on with the Aspen fund
(27:30):
this year?
Is it going to be mostly likepercentage-wise?
Is it going to be like halfcommercial or multi-family?
What's kind of your allocationyou're thinking for the next
year?
Speaker 1 (27:39):
Yeah, so we have kind of three primary funds that we
run.
One is our debt fund, so it'sbuying mortgage notes.
We've been doing that for along time.
And then we have our oil andgas fund and so usually raised
for one fund a year.
That's going to be probably ourbiggest allocation this year,
so we're kind of the tail end ofthat raise.
(28:01):
And then we have our realestate fund and we kind of
consolidate all of our dealsinto one fund, so kind of a
diversified portfolio.
And again, asset classes varybut we're doing some multi
family, we're doing someindustrial, we're doing a little
bit of storage and retail.
We're kind of our fourverticals there.
So you know, it'll probably bean even mix between those three,
(28:27):
with the bigger one beingprobably oil and gas, just given
the level of opportunity inthat space right now.
Speaker 2 (28:35):
Yeah, the soft storage.
I like that and that's true.
You're seeing a lot ofconversions where it's retail.
Could you put it on both?
They'll do like a retail, likea major, let's say, like a
regional supermarket, a lab.
They bring in and make an AC,focused at least in the Midwest.
I see a lot where they bring inand make it soft storage.
Have you guys done some ofthose conversions like that, or
are you guys just buying mompops?
Speaker 1 (28:56):
We have.
Yeah, I mean, I think that'sthe real play, because if you go
to kind of a traditionalstabilized self storage deals
being operated by a major, it'snot value add You're going to be
paying such a hefty penny forthose.
But the conversions are reallyinteresting.
So we actually are justfinished construction of one of
our conversions.
We're actually taking it tomarket right now just to kind of
(29:17):
see values and see if it makessense to sell.
But it's looking like it'sgoing to be a home run, just
because the basis for convertingkind of existing is actually
that vacant retail strip centerin a really good area of town,
right by two main highways,great visibility, but just sad,
empty and converted to climatecontrolled storage the only
(29:40):
climate controlled storage inthe area.
And we're starting to lease itup, which is great.
But the least step takes a longtime of storage because it's
you know, it's one two Tuesdays.
We have, I think, 900 plusunits in this property, so it's
pretty large.
But the value that we createdby kind of converting this
(30:00):
property from retail to storagehas created a whole lot more
value to investors, just on thepotential.
So it's a really cool strategy.
There are sometimes hard to find, but when you find a good one
in a really good area and thething about storage is so
different than every other assetclasses is, you know real
estate is local right.
(30:21):
Real estate happens in thelocal market.
But self storage is a wholeother level.
It's not just local, it's hyperlocal right and you have to all
your data centers around thatkind of five to seven mile
radius and that's what you'recompeting against, because the
users of self storage generallydon't want to drive more than 10
minutes to the storage facility, right?
(30:43):
That's just kind of the natureof the product and so your
competition is in that reallyhyper local market and that's
what you're evaluating.
When you're looking at storageversus multi-family, it could be
a little bit broader.
You know your class ABC, yourdifferent vintages, different
types of tenants, but storageit's a whole other level.
So it's it's really matters atthat level.
Speaker 2 (31:06):
Yeah, I have a friend who wants to get some out.
He says that.
I think it's a funny quote.
He's like your biggestcompetitors is a trash can.
Speaker 1 (31:14):
Yeah, there you go.
Yeah, it's so funny.
Speaker 2 (31:15):
Do I want to wear it or do I keep it?
Yeah, do I keep it in there for20s Average what?
22 months for retail percentand 24 months approximately for
that's for like the length ofthe average length of lease?
Speaker 1 (31:28):
That's a good question.
National, I don't know what thenumber is.
It sounds about right.
And you know, obviously we'rejust leasing up our stores is
only been leasing for a couplemonths.
We don't have that dataanecdotally on that property,
but I think that sounds aboutright.
It's pretty sticky right Onceyou get somebody in and you kind
of price at a point where it's$100 a month.
Yeah, you know it's not enoughto where you know that's
(31:52):
breaking the bank.
And if you increase that $100by 10% year over year it's only
$10 more.
You know, from your top linethat's 10% on the whole thing,
which is huge.
But from the consumerstandpoint it's not that
meaningful, right?
So the stickiness factor isvery high in storage.
Although it's really interestingat a national level we're
(32:13):
actually seeing vacancy trendinghigher than we've seen in the
past.
So it's kind of been vacancyhas been low, low, low, low, low
, really high occupancy.
All of a sudden we're startingto see that tail off a little
bit.
So it's kind of a.
I'm talking with some biggerself storage operators in the
space and they're kind of seeingthe same thing and saying we're
not quite sure what's happeningin the market.
(32:33):
What we think is happening is,you know, a lot of times,
storage activities driven by,you know, transition points in
the economy.
So, whether we're really goodand people are, you know, moving
a lot so they needed somestorage space or things are not
going so well.
So there's people that aredownsizing and they're kind of
(32:54):
putting things in storagebecause they need a smaller
house.
Well, kind of in this likeprecipice of people don't know
what to expect or what's goingto happen, and there's, I think,
been like a 70 or 80% decreasein, you know, new homes being
purchased and transacted on thisyear.
So it's just been a slow marketwhich I think has resulted in
slower, you know, leasingactivity.
(33:16):
This is in self storagespecifically, but it's, I think,
from an asset class standpointit's a great asset class with
some pretty strong, you know,reasons to like it.
Speaker 2 (33:30):
Yeah, I agree with that.
I've always been a fan of it.
It's anything with a mom andpop, because you know
alternatives.
That's where the arbitrage is,because a lot of times they
don't know how to operateefficiently.
It's they don't use technologyto their advantage and just
maximization of proper loss.
So like if you look at the, youknow, if you look at the books,
a lot of times they'll havelike a kid's salary is on there,
like, oh, what's this?
(33:50):
Oh it's my daughter's, son'ssalary, and so okay, that's,
let's red line out and we takeit over.
Speaker 1 (33:57):
So yeah, it's so funny we're doing the
competitive research for thisone property.
I mean you wouldn't see theseproperties and laugh.
I mean they're just, they're sojunky, they look like just,
they look pretty close to thetrash heap anyway.
But then you go and you liketalk about, you're trying to get
a sense of are these like welloccupied?
You have a lot of room, are youkind of pretty well-easted up
(34:21):
and one of the managers on sitepulls out this little yellow
notepad and it just hadhandwritten names of, yeah,
we're fully-stupped, and we gothere like 15 people on a wait
list and the wait list was onthis yellow pad of people that
had just come in.
It's like that's their trackingsystem right and how they're
tracking their leads and what'sso interesting about you see,
(34:41):
the mom and pop is the focus formom and pops generally is
occupancy right.
They think if they just it's100% occupied then they're
winning.
But generally if you're 100%occupied that means you have a
raise in price Pricing is toolow, right, Because it means
you're not competitive enoughand you want to almost kind of
thread that needle of.
I want a little bit of vacancy,because I want to be pushing
(35:04):
the limits on pricing as much asI can to optimize where the
market's at and without goingtoo far, right.
So that's the interesting thingabout self-storage is because
the contracts usually a month tomonth, you can be changing
pricing pretty dynamically andget a sense of where the
market's at without breaking themodel.
(35:27):
So that's another cool aspectof it as well.
Speaker 2 (35:31):
Yeah yeah, that's very similar in mobile home
parks.
Here's the books and like rentmanager.
Well, rent manager is like atool.
People in the office are onlineshowing the rents being
collected, but a lot of timesthis piece of paper and here's
the books it's literally likeold school binders and stuff
like that.
Right, you know, just even thedue diligence, six match a week,
(35:53):
just because you're like, oh mygosh, I got to go through all
this.
Good thing I don't do it likeall the underwriting, I have
somebody do that because that'sgot to be a pain.
Look at all the pieces of paperon the handwriting and
scribbles.
So what's having personal goalsfor you in the next five years?
Speaker 1 (36:09):
Yeah, personal goals, some of the chief investment
officer and just continuing todo more better deals.
I mean, that's really whatwe're doing.
We're on a fun growth path.
So get a, get a, hire a lot ofcool people and really we're
trying to build a brand that hasa great reputation for finding
(36:29):
best in class deals and helpinglead the charge and alternative
investment space.
So we're very big believers inwhat these kind of deals can
provide from a risk adjustedreturn standpoint and
diversification standpoint, andI just want to get more people
in the boat.
So, yeah, I got four kids onthe really personal side and so
(36:51):
having some fun times there andtrying to be building the
business and being a presidentat the same time.
So those are.
Those are always, you know,sometimes competing priorities,
but trying to have a goodintegration of work life.
Speaker 2 (37:06):
Yeah, I love it.
Yeah, that's very cool.
And then, as we wrap this up,working people find you from the
podcast, the fund or anythingother projects you're working on
.
Speaker 1 (37:15):
Yeah, I appreciate that.
So our podcast is invest like abillionaire.
If I any platform you can go tothe billion or podcastcom,
check it out.
And then our private equityfirm is Aspen funds, so
aspenfundsus.
You can check us out there andsee what we've got going on.
Speaker 2 (37:34):
Well, I appreciate it .
It was a great conversation.
I like how you really brokeeverything down to like a macro
levels and a lot of datainsights, and I'll put all your
links below and thank you somuch, ben, for being on the
podcast.
Speaker 1 (37:46):
Thanks, jonathan, it was really fun.
Speaker 2 (37:47):
Thank you.
Hey, it's Jonathan.
Make sure to download andlisten weekly as I bring the top
guests in the ultra high networth niche, sharing their best
insights and providing exclusiveresources.
Finally, I get a lot of peopleasking me to help them one on
one.
Yes, I can, but it's verylimited.
Go to a revenue assign forbusiness and CMO consulting For
(38:11):
real estate investing.
Go to Midwest Park Capitalcomand those looking to invest in
service based business rollupsgo to business cash outcom.
All links are included below.
Please like, comment and sharethis podcast with your friends.
Thanks for listening.
It's a pretty massive problem that a lot of banks are
trying to figure out.
Do we just extend and pretend?
Do we just extend thematurities of these loans and
hope that they can build up netinterest income or net operating
income to service the debt?
Well, meanwhile we're having ina lot of markets negative rent
growth, so rent declines.
(00:20):
That's putting downwardpressure on net operating income
.
We're having really highoperating expenses increases.
Especially insurance is goingup.
Speaker 2 (00:32):
Welcome to the Ultra High Net Worth podcast, which is
a global community of the mostsuccessful and their insights.
We want our families toflourish, collaborate and create
a better world for all.
This podcast is a trustedresource to learn from each
other, navigate the mostimportant global issues and find
life changing opportunities.
On the host, jonathan Tuttle,the founder at Midwest Park
(00:56):
Capital, a boutique mobile homepark.
Real Estate Fund Revenue Send,a leading digital consulting and
fractional CMO agency.
Business.
Cash Out, a boutique M&A firmfocused on service-based
businesses, and a part of thefounding team at Walleypop, a
mood enhancing cove of beverage.
This episode is sponsored byPrestige, the world's most
(01:17):
exclusive social networking app.
All links are in the show notesbelow.
Enjoy the show, please likecomment.
Share this podcast with yourfriends.
Thanks for listening.
Welcome to the very firstepisode of Ultra High Net Worth
podcast.
Today I have a fantastic guestand fits perfectly with the
whole symmetry of the show.
(01:37):
It's Ben Fraser from AspenFunds and also Invest Like a
Billionaire podcast.
Welcome to the first episode.
Speaker 1 (01:44):
Yeah, thanks for having me on.
Jonathan is going to be fun.
Speaker 2 (01:47):
Yeah, it's going to be exciting.
It's going to be perfectlyfitting because it's a very
similar demographic to yourpodcast and what your fund is.
Do you just want to give alittle background about yourself
?
Speaker 1 (01:56):
Yeah, sure.
So we have a podcast calledInvest Like a Billionaire, and
it's truly trying to identifyand learn from the ultra-wealthy
investors A lot of ones thatI'm sure you're going to have on
this show and how are theyinvesting?
How are they investingdifferently than just the
average retail investor, what wecall them, just individual
investors that aren't quite atthe family office level, but we
(02:19):
want to take the best tacticsand strategies and tools that
they're using and apply it in asmaller scale, and so that's our
whole focus.
That's what we spend a lot oftime doing, and we also operate
and run funds in differentverticals, so I'm actually the
Chief Investment Officer ofAspen Funds and really boots on
the ground, so the education isfun, but it's actually a
(02:41):
secondary job for me.
Speaker 2 (02:44):
Nice, nice.
Yeah, I recommend listening tothe podcast.
It's pretty fascinating becauseyou guys have a diverse.
It's not just one, because alot of the you know if you see a
lot of these podcasts it's justone same topic over and over.
But there's obviously, with thebest thing, you want to be
diversified and have see whereemerging trends are
opportunities, and you guys do agood job of covering different
things.
What are some of your kind offavorite opportunities?
(03:06):
Let's say, because it soundsweird, we're almost going to
2024 now what do you see as someof the best opportunities going
forward in the early next year?
Speaker 1 (03:13):
Yeah, you know, you kind of mentioned it, but our
approach is a little bitdifferent than some, right?
So a lot of operators orsponsors that are putting
together these private equitydeals or real estate deals or
oil and gas deals, they'refocused on that singular asset
class, that singular business,and we really chose several
years ago to have a differentapproach and really be what we
(03:37):
call asset class agnostic, right, so we're not locked into one
asset class, because inevitably,asset classes go in cycles.
Right, there's really goodtimes to be in certain asset
classes and then there's not sogood times to be in asset
classes, and we're seeing thisright now.
You know, even in thecommercial real estate space and
other asset classes, that youknow there's kind of these booms
(03:58):
and busts, right, and asinvestors you don't want to have
all your eggs in one basket andyou want to have that
diversification.
But you also want to invest inthe tides, right, you want to
invest in where do you have thetailwinds behind your back?
You're going to help youdirectionally outperform the
market because you're in theareas that are kind of poised to
(04:19):
do better than others, and sowe kind of take more of a
family-office approach in thatpart of the motivation for us to
utilize this model was todeploy our own capital, and so
we have four partners and thisis really our own portfolio
allocation strategy is we investalongside all of our investors
in every deal we do and reallyto get that broader exposure but
(04:42):
then also not being locked intoone asset class.
So that's the long way to answer.
You know your simple question,which is where we see
opportunities.
But it's important becauseinvestors we in tune of
understand that timing isimportant.
But a lot of people believethat you can't time the markets
right and there is a certainelement to like you can't like.
(05:02):
Day trading is a hard thing todo, right, you can't.
What's the market going to dotoday?
I don't know, but directionally, where is the economy going and
where are the fundamentalsupply and demand?
You know dissonances.
Where there's actuallyopportunity in the market that
we can capture as investors andplay into a longer term theme,
those can be identified andthose can be taken advantage of
as investors.
(05:22):
So that's what we're looking for.
We're seeing thoseopportunities selectively, still
in multi-family, so it's harderand harder to find deals.
But I think we're kind ofgetting close to the point where
the deals are going to startmaking, be making sense again,
right, and what's really, what'sreally interesting is I saw a
quote today actually on usuallylike the best times to be buying
(05:47):
real estate and in a certainasset class, it's usually when
there's not a lot of excitementabout it and when the credit has
really tightened up and it'shard to get financing for deals,
that's usually actually thebest time to be buying right,
because there's kind of adislocation in the market.
It's a little bit harder to getdeals done.
The worst time to be buying iswhen it's really easy to get
(06:07):
really high leverage.
Everyone's talking about anasset class and everyone's in it
right.
So it's this kind of contrarianinvestment approach and so we
are seeing some opportunitiesbecause on a long-term scale not
even that long-term, I think,two to four years we're going to
be in a major housing shortage.
(06:28):
That we're already kind of inand I've been in for a while.
But it's going to beexacerbated because a lot of the
new construction, newdevelopment, has been kind of
falling off a cliff this yearbecause of higher interest rates
and so we're kind of justcontinuing to build this big
lack of supply.
We're very, very bullish onindustrial right now it's
(06:49):
probably our number one realestate vertical.
If you look at all commercialreal estate asset classes since
the beginning of the year,values-wise it's probably been
the least impacted by theinterest rates.
Industrial it is, and we kind ofbelieve we're at the beginning
of kind of we call phase 2.0industrial boom, where the last
one was created by e-commerceright, the last industrial boom
(07:14):
over the past decade has beenreally driven by growth and
e-commerce and that's notnecessarily stopping, but the
growth is slowing in that.
And the next kind of wave thatwe believe is really going to be
driven by manufacturing,reshoring manufacturing back to
the US and bringing back moreinventory, warehousing of kind
of critical components andthings in the supply chain.
(07:35):
And then, outside of realestate, we're very, very bullish
on fossil fuels, right, andthat that one might be confusing
to people because, hey, wedon't need fossil fuels anymore,
we're going all electric andalternative energy sources.
But there's kind of a big gapbetween now and then, and
probably many decades betweennow and then, and in the short
(08:00):
term we're creating a potentialmassive energy crisis because
we're not investing in newsupply of fossil fuels and we
need this.
It's the kind of core commodityof so many parts of our
industry manufacturing,transportation that it's over
the next couple of years.
We think prices have a lot ofroom to run to the upside.
Speaker 2 (08:22):
Yeah, I agree with that a lot.
That's seven minutes.
I have three e-commerce storesmyself, so one of my two
partners are in the US and DutchShell places, so that's you
know.
E-commerce has been a huge boomfor Dutch Shell.
And then with the fossil fuels,the US wants to get everything
to.
You know everyone drivingTeslas, but the infrastructure
is not set up.
(08:43):
But like probably I heard likemaybe like 2045, 2050, something
like that Like it's a long waysout, Like it's just a huge gap
there.
What is what's your thoughts on,like other alternative assets?
Well, say, it's like SimonMobile Home Parks and I saw you
have a couple of mobile homepark guys in the past few
(09:04):
episodes.
What's kind of your thoughts onthat niche?
Because it's kind of verycomfortable.
If you look at Green Streetdata and you mentioned
industrial In the last few yearsbeen industrial, mobile home
parks and self storage is likethree of the top performing
asset classes and just on theGreen Street data, institutional
data what's kind of yourthoughts on that, If you guys
ever explored that at all, or isthat just because it's
obviously an alternative?
Yeah, absolutely.
Speaker 1 (09:26):
We've not directly sponsored any mobile home park
investments.
I know a lot of operators thatare in that space.
I'm also very bullish on itright.
I think it plays into a lot ofthemes, one being lack of
affordable housing.
I think that's going tocontinue to be a massive issue
that we need to solve as acountry, and we're not doing a
great job of that.
(09:47):
You know, all the newconstruction that's coming
online is generally at thehigher end of the market because
they have to make a profit in.
The fixed overhead costs oftraditional construction are
prohibitive to build those entrylevel homes.
And from a capital marketstandpoint, my understanding of
the mobile home space is thatit's pretty fragmented.
(10:08):
Whereas multi-family ispredominantly institutionally
owned, mobile home parks arepredominantly pop-owned.
So there's a lot offractionalization and create
some opportunity if you canaggregate that.
The challenge is it's difficultto find deals, and some of the
deals that do come to markettrade for very, very aggressive
(10:30):
pricing.
So I'm not in the market toknow what's going on and on the
pricing side of it, but from anasset class standpoint I think
there's a lot of opportunitythere for sure.
Speaker 2 (10:42):
What do you think the rates are going?
Because obviously the rateshave been such the game changer
for this year because of thatchange it's been just a night
and day difference between lastyear and this year and the shack
and putting the market.
Where do you see the rates kindof settling, after all the debt
settles.
Speaker 1 (10:58):
Yeah, well, I think we're here in the first episode,
so we don't want to dateourselves and people go back and
listen to this later.
So we're at the, you know, inSeptember 2023, so we can date
it.
Yeah, I give that time stamp.
Yeah, we got a time stampbecause things will probably
change over the next year.
But yeah, I mean, we've seenthe fastest rise of interest
rates in history and I don'tthink we've yet to see the full
(11:23):
consequences of that in themarket.
Right, it's happened so fast.
It's difficult for the market todigest what that means and what
the real impacts are.
We potentially saw a little bitof breakage happening in the
banking industry.
I think some of that's beensettled.
But I think there's a lot ofchallenges facing several areas
(11:45):
of the economy, and you knowright now where interest rates.
You know a prime is over 8%,you know, and the yield curve is
massively inverted, which isnot a good thing, and so where
do rates go from now?
I mean, if you believe thefutures curve, you know, maybe a
year from now we're 100 basispoints lower than we are right
(12:05):
now.
I think SOFR is about 5%, theFed Funds Rate is about five and
a quarter, and so maybe we dropdown to low fours.
But part of the challenge andpart of the, you know issue that
I see going forward in theshort term is the main reason
(12:26):
that the Fed is increasing itsrates is inflation right, and
we've had higher inflation thanthey're comfortable with and
they've stuck very firmly towant to hit their guidance
target of 2%.
Well, that's a noble goal, butI think in the short term that's
a couple of years they're goingto have a very difficult time
(12:47):
getting back to that number fora few reasons.
One, we have a massive laborshortage and this is kind of,
you know, post COVID, a lot ofpeople left the workforce, so a
lot of kind of retiring babyboomers, you know, left and
retired early.
And then a lot of kind of dualincome families because of all
(13:09):
the extra you know incentivesgoing on and the job market was
super hot, kind of went tosingle income families and so
once staying home now.
So we're sitting in a lot ofemployment under 4% and that
puts a massive amount ofpressure on the kind of wages
and wages are, you know,inflating very, very high right
(13:30):
now, very quickly, and so itputs a lot of pressure on, you
know other parts of the economyand inflation is.
Consumer spending excuse me isone of the core drivers of GDP
growth and so we have a lot ofpressure on the labor market.
I don't think it's going to getloose anytime soon.
We're seeing some layoffs,especially in tech, but as a
(13:51):
percentage of the whole economyand you know it's still very,
very low.
I think there's now, right now,more job openings than people
looking for jobs and we stillhave that issue right a year
into this really unique economyof these higher industries.
So that's going to keep puttingpressure on inflation.
Meanwhile, you know we'll havetime to probably dig into all
(14:13):
the things going on in energyright now.
But if you know, there's a fewthings that could just kind of
get tipped off and we go back toreally high.
You know energy prices, youknow gas prices.
That puts a lot of pressure onCPI.
So I think we're still kind ofwe got inflation on this
downward trend, but to kind ofget it down where they really
(14:33):
wanted to stay there, it's goingto take a lot longer than I
think anyone really wants toadmit it's going to take.
So what does that mean forinterest rates?
I think it's going to forcethem to have to keep interest
rates higher for longer.
So whenever we're doing dealsor we're underwriting deals,
we're making that assumptionright there, right.
So actually, you know, going tobe higher than they are right
(14:54):
now, you know, and it's going tobe longer than we want it.
So that makes it difficult tomake deals work because, you
know, I think those are, youknow, pretty conservative
assumptions.
But I also think that's theworld that we may be going into
right, this kind of muddlethrough, you know, economy.
We have some very strong partsof the economy, some kind of
weaker parts of the economy.
(15:14):
It's this kind of oscillation,you know, in the market trying
to find itself.
So very again, a very longanswer to your simple question,
but I think we're going to startto see some breakage here
pretty soon.
The biggest area I see, justbecause of my focus on
commercial road state, is a lotof these, this bridge debt that
is coming due over the next 12months, right, so you're
(15:37):
probably very aware of thiswhere over the past several
years, most of the multi-familyespecially was purchased with
bridge debt and so this was veryhigh leverage financing,
generally between 80 and 90%financing.
These were non-recourse loansthat are very attractive to
operators, but they generallywere floating rate interest
(16:00):
rates, right, which at thatpoint no one cared about,
because we're 3% interest rateshigher than 4% forever.
And all of a sudden, all ofthese, these deals, are now
having a service interest ratesof 9%, 10%.
And there is a ratings agency,fitch, that came out recently
and forecasted, you know, allthe loans that are maturing in
(16:23):
2023, only, you know, 25% ofthose loans would not meet debt
service coverage requirements torefinance.
I mean, there's not enoughincome being generated at the
property level to even getrefinanced out of their first
mortgage.
What does that mean?
One, the equity is alreadywiped in those deals and people
don't know it yet, you know.
(16:44):
And then, two, there's a bigkind of looming problem that is
going to have to be addressed atsome point.
Right, because if it kind ofhappens in a one-off way, banks
will kind of deal with it as itcomes and it's not going to kill
the market, but it's kind of apretty massive problem that a
lot of banks are trying tofigure out.
Do we just extend and pretend,right?
(17:05):
Do we just extend the maturitiesof these loans and hope that
they can build up, you know netinterest income or net operating
income to service the debt.
Well, meanwhile we're having,like in a lot of markets, rent
growth, negative rent growth,right, so rent declines, so
that's putting downward pressureon net operating income and
(17:25):
we're having really highoperating expenses increases.
Especially insurance is goingup.
So you're having these likethree factors that are
compressing margins and puttinga lot of pressure on some of
these deals in the short term,which is why I think there's
going to be a lot of opportunityyou know, hitting the market
here pretty soon and youreferenced before we hit record,
we just did an episode talkingabout there's, I think, just the
(17:48):
articles that we were readingover $200 billion.
This is just a few weeks agothat this article came out.
That has been that is beingraised right now very large
private equity funds to scoop up, to stress, commercial real
estate, right, and they're justwaiting to pounce on these deals
.
So this is weird and crazything is going on in the market
(18:10):
right now.
Speaker 2 (18:12):
Yeah, it's like you said.
They're all compounding and thething finding deals is all the
sellers had these offers lastyear because the rates were so
low and then they had theexpectation, the mindset
especially at least the mom andpop, at least non-sophisticated,
which I deal more with oh myprice is this, because that's
what they were telling me lastyear.
Well, the rates were also halfoff.
So that equity and thatexpectation they're like they
(18:35):
assume that they could get thatprice forever because but those
offers are getting resended andwhat you're saying, a lot of
people are buying, like just toomany people are buying deals in
the fore and trying to do likethis two-year, like you said,
and now everything's compounding, like, well, we thought we'd
get exited out, so it's going tobe opportunity, but also I
think there's going to be some Iguess you can call it chaos and
(18:57):
then we're going to get withsome of these deals that the
banks can't figure out.
And your episode was talkingabout the office space.
Like I'm working a big trendnow as a digital man.
It's like coming out intoMexico, work for a month and
it's you know, that's kind oflike this is my office right now
.
Right, so you know.
It's just you know trends of ifyou could work online, you
(19:18):
could get all your work done.
It's that's becoming like moreattractive to people.
You know nowadays.
What was one of your favoriteepisodes?
Guests Like I know it's like.
I know you had like 100 anddon't call me like 105 or 120
episodes.
What was your favorite withoutlike, because I know it's maybe
even found somebody but likewhat was your favorite, most
intriguing guest that you hadfrom episode?
Speaker 1 (19:38):
Oh man, that's hard to put me on the spot here.
You know some of my favorite.
A couple of them I love likethe macro conversations, and so
we've had a John Chang onearlier this year.
We're trying to get it back onagain.
He's the kind of senior vicepresident over economic research
(19:58):
at Marcus and Milichap and Ijust love his perspective.
They're talking kind of bigpicture and we do a lot of
really fun interviews with, likeother passive investors.
So I really enjoy those.
One of them we had recently Ireally enjoy is Justin Donald.
He's the lifestyle investorgreat podcast he runs.
That's a really fun, really funepisode.
(20:18):
Honestly, we do so many I kindof forget who's kind of been
recently.
But those are some, some onesthat come to mind.
Speaker 2 (20:27):
Nice, nice.
Yeah, I'm just curious becauseI kind of plucked for your show.
But it's cool to have that onething about being in a podcast,
get to see other people'sperspectives and get to access
to a lot of people.
So I've been in 60 episodesmyself and then I was like you
know, I'm going to start my own.
Speaker 1 (20:42):
Exactly.
Speaker 2 (20:42):
It's like at least I can control it.
You know the flow of like theepisodes and communication.
So what's kind of your goalsfor asking fun?
What's kind of like the?
Is it like you guys going tobuild up style to big PE firm?
Or was it kind of keep it likea boutique between your partners
?
Or what's kind of like yourfive year, 10 year plan with
your phone?
Speaker 1 (21:03):
Yeah, I mean, we've been going over 10 years at this
point and you've had greatgrowth and we have pretty big
goals that we've set.
But for us, it's not aboutnecessarily just growing fast
and growing, you know, for nopurpose.
We do have a real mission andvision to help, you know,
accredited investors and folksjust that, the ones you're
(21:23):
working with to be able to haveaccess to opportunities that
they otherwise wouldn't.
And, you know, with the changesin the jobs act 2012, it's
really changed the game forinvestors that they have now
access to the types of deals,opportunities, asset classes
they never had before.
And so we actually think we'reon the very early stages of a
(21:45):
pretty big shift of capitalmarkets, you know, to the
private market.
We've already seen that happenover the past decade, but I
think we're still a lot more ofthat market shift, right.
And so, yeah, I mean, our goalis continue to do good deals and
deals we believe in.
You know, part of this strategy,the way we've set it up, is our
own legacy strategy of theirown capital right.
(22:05):
So we want to be doing dealsfor a long time and have people
invest alongside of us.
But, yeah, the education pieceof it is not anything I ever
imagined we'd do.
Right, we didn't start thepodcast, or we started two years
ago, and religious has a wayfor us to share market insights
and talk about things we'reseeing, and so it's been really
(22:27):
fun because it's not anything Iimagined.
You know I'd be doing this kindof education or conversations
around, but definitely built apassion for it, so it's been
really fun.
Speaker 2 (22:40):
Nice.
Yeah, it's a good podcast.
When you're talking about the506, it was in 2012.
I met Robert Addergrande, Ithink he said he had the very
first like PPM for raisingcapital, like you knew, like
Obama was going to pass it, andhe's like there's something like
they knew like what was goingto happen, like they were
(23:00):
literally the first one to dolike a private placement in the
506.
He raised like 250 million.
I was like crazy.
He didn't like a week, he said.
But he's, he was a former ofPfizer, former CEO like all
these billion dollar pluscompanies.
We knew all the doctors and hisyou know distributors and
everything.
(23:20):
So that was his like you knowaudience and he was a CEO of a
couple of like billion dollarcompanies.
That helped a lot.
But, yeah, that definitelyhelps, yeah, but it's pretty
cool that, yeah, the 506.
And then I got the crowdfunding.
I remember the first came out.
I was like this is pretty cool.
Like you know, they're actuallyopening up a lot more.
Accredited Vester status is alot more if you have some kind
of financial background.
I don't know the exactstipulations, but it's like I
(23:42):
think if you have series, one ofthe series series the series
seven or 63, I believe it's 63.
Speaker 1 (23:49):
Okay.
Speaker 2 (23:50):
Yeah, so they're opening up to more people.
And when they originally cameout with that, I think you know,
obviously, with inflation,going back to inflation, 200,000
was a lot of money.
I think it was like 1979 orsomething like that.
It was my first came out withthe late 70s or early 80s and so
200,000 back then what I don'tknow the calculator probably
half million, you know.
Speaker 1 (24:10):
So big difference.
Yeah, it definitely seemed tobe trending that direction.
You know, it's kind ofinteresting because there's a
bill right now to pass, Ifigured from the center of the
house but to where you canactually take a test and not
even like one of the traditionalfinancial tests.
But just you know, do youunderstand the basics of
(24:31):
investing and you know theactual test that anybody could
take and become accredited,whether they make a lot of money
or don't, and that's on thetable, which is pretty
interesting because that wouldexpand even further.
But on the flip side of it, wejust saw something that did get
passed that puts a pretty bigonus of new reporting
requirements, of newtransparency guidelines on
(24:53):
private fund advisors, which ismostly kind of hedge funds, and
puts a lot more kind ofoperational load, you know,
reporting compliance, on them.
So that's you know.
I kind of see both happeningright, because you know we may.
If we kind of go through apretty decent dip here on some
(25:13):
of these deals, that equity getswiped, investors get mad.
There's some lawsuits, there's,you know, already, some things
that are happening in the marketthat are interesting right.
Some of the bad actors are kindof being revealed.
I think it's going to create alittle bit of heartburn, right,
with some investors and like,hey, I was promised all of this
and it didn't turn out that way.
So that may create a little bitmore emphasis from the, you
(25:39):
know, politicians to put moreregulation, reporting,
compliance in the space and I'mgenerally not a huge proponent
of that.
But, you know, to some degree Ithink that that could be
helpful just to increase, youknow, trust for the individual
investors, increase transparency, which is kind of a knock for
(25:59):
alternatives.
But, yeah, it does seem that thetrend generally is kind of
going that direction to createmore access, open it up to more
people.
And, you know, if you look atone of my favorite sources on
finding data on theultra-wealthy is Tiger 21,.
Right, these are ultra high networth folks that are in this
(26:21):
group and they generally post ona quarterly basis.
You know what's the overallallocation pie right of all the
members across different assetclasses, and it changes, you
know, from quarter to quarter alittle bit, but predominantly
it's 50% alternatives, 25%public markets and 25% lots of
(26:43):
other stuff, and that seems apretty common theme, even as you
go into, you know, biggerinstitutional money like family
offices, endowments, pensions,etc.
That there's usually a prettybig allocation to these private
alternatives, and so that's whatthe ultra-wealthy are doing,
and now you know the averageaccredited investors having more
(27:04):
access to those.
So I do think there's going tobe a continued kind of trend
toward that.
Speaker 2 (27:10):
Yeah, I agree with that too, that sentiment.
It's just the fact thataccredited have access to these
deals which we've never accessedit before.
It's a good thing they allowthat.
You know it was a game changerfor the average person, kind of
bump up to the qualifiedpurchaser.
You know the next level.
And so what are you some of thefunds or some of the asset
classes you're going to befocused on with the Aspen fund
(27:30):
this year?
Is it going to be mostly likepercentage-wise?
Is it going to be like halfcommercial or multi-family?
What's kind of your allocationyou're thinking for the next
year?
Speaker 1 (27:39):
Yeah, so we have kind of three primary funds that we
run.
One is our debt fund, so it'sbuying mortgage notes.
We've been doing that for along time.
And then we have our oil andgas fund and so usually raised
for one fund a year.
That's going to be probably ourbiggest allocation this year,
so we're kind of the tail end ofthat raise.
(28:01):
And then we have our realestate fund and we kind of
consolidate all of our dealsinto one fund, so kind of a
diversified portfolio.
And again, asset classes varybut we're doing some multi
family, we're doing someindustrial, we're doing a little
bit of storage and retail.
We're kind of our fourverticals there.
So you know, it'll probably bean even mix between those three,
(28:27):
with the bigger one beingprobably oil and gas, just given
the level of opportunity inthat space right now.
Speaker 2 (28:35):
Yeah, the soft storage.
I like that and that's true.
You're seeing a lot ofconversions where it's retail.
Could you put it on both?
They'll do like a retail, likea major, let's say, like a
regional supermarket, a lab.
They bring in and make an AC,focused at least in the Midwest.
I see a lot where they bring inand make it soft storage.
Have you guys done some ofthose conversions like that, or
are you guys just buying mompops?
Speaker 1 (28:56):
We have.
Yeah, I mean, I think that'sthe real play, because if you go
to kind of a traditionalstabilized self storage deals
being operated by a major, it'snot value add You're going to be
paying such a hefty penny forthose.
But the conversions are reallyinteresting.
So we actually are justfinished construction of one of
our conversions.
We're actually taking it tomarket right now just to kind of
(29:17):
see values and see if it makessense to sell.
But it's looking like it'sgoing to be a home run, just
because the basis for convertingkind of existing is actually
that vacant retail strip centerin a really good area of town,
right by two main highways,great visibility, but just sad,
empty and converted to climatecontrolled storage the only
(29:40):
climate controlled storage inthe area.
And we're starting to lease itup, which is great.
But the least step takes a longtime of storage because it's
you know, it's one two Tuesdays.
We have, I think, 900 plusunits in this property, so it's
pretty large.
But the value that we createdby kind of converting this
(30:00):
property from retail to storagehas created a whole lot more
value to investors, just on thepotential.
So it's a really cool strategy.
There are sometimes hard to find, but when you find a good one
in a really good area and thething about storage is so
different than every other assetclasses is, you know real
estate is local right.
(30:21):
Real estate happens in thelocal market.
But self storage is a wholeother level.
It's not just local, it's hyperlocal right and you have to all
your data centers around thatkind of five to seven mile
radius and that's what you'recompeting against, because the
users of self storage generallydon't want to drive more than 10
minutes to the storage facility, right?
(30:43):
That's just kind of the natureof the product and so your
competition is in that reallyhyper local market and that's
what you're evaluating.
When you're looking at storageversus multi-family, it could be
a little bit broader.
You know your class ABC, yourdifferent vintages, different
types of tenants, but storageit's a whole other level.
So it's it's really matters atthat level.
Speaker 2 (31:06):
Yeah, I have a friend who wants to get some out.
He says that.
I think it's a funny quote.
He's like your biggestcompetitors is a trash can.
Speaker 1 (31:14):
Yeah, there you go.
Yeah, it's so funny.
Speaker 2 (31:15):
Do I want to wear it or do I keep it?
Yeah, do I keep it in there for20s Average what?
22 months for retail percentand 24 months approximately for
that's for like the length ofthe average length of lease?
Speaker 1 (31:28):
That's a good question.
National, I don't know what thenumber is.
It sounds about right.
And you know, obviously we'rejust leasing up our stores is
only been leasing for a couplemonths.
We don't have that dataanecdotally on that property,
but I think that sounds aboutright.
It's pretty sticky right Onceyou get somebody in and you kind
of price at a point where it's$100 a month.
Yeah, you know it's not enoughto where you know that's
(31:52):
breaking the bank.
And if you increase that $100by 10% year over year it's only
$10 more.
You know, from your top linethat's 10% on the whole thing,
which is huge.
But from the consumerstandpoint it's not that
meaningful, right?
So the stickiness factor isvery high in storage.
Although it's really interestingat a national level we're
(32:13):
actually seeing vacancy trendinghigher than we've seen in the
past.
So it's kind of been vacancyhas been low, low, low, low, low
, really high occupancy.
All of a sudden we're startingto see that tail off a little
bit.
So it's kind of a.
I'm talking with some biggerself storage operators in the
space and they're kind of seeingthe same thing and saying we're
not quite sure what's happeningin the market.
(32:33):
What we think is happening is,you know, a lot of times,
storage activities driven by,you know, transition points in
the economy.
So, whether we're really goodand people are, you know, moving
a lot so they needed somestorage space or things are not
going so well.
So there's people that aredownsizing and they're kind of
(32:54):
putting things in storagebecause they need a smaller
house.
Well, kind of in this likeprecipice of people don't know
what to expect or what's goingto happen, and there's, I think,
been like a 70 or 80% decreasein, you know, new homes being
purchased and transacted on thisyear.
So it's just been a slow marketwhich I think has resulted in
slower, you know, leasingactivity.
(33:16):
This is in self storagespecifically, but it's, I think,
from an asset class standpointit's a great asset class with
some pretty strong, you know,reasons to like it.
Speaker 2 (33:30):
Yeah, I agree with that.
I've always been a fan of it.
It's anything with a mom andpop, because you know
alternatives.
That's where the arbitrage is,because a lot of times they
don't know how to operateefficiently.
It's they don't use technologyto their advantage and just
maximization of proper loss.
So like if you look at the, youknow, if you look at the books,
a lot of times they'll havelike a kid's salary is on there,
like, oh, what's this?
(33:50):
Oh it's my daughter's, son'ssalary, and so okay, that's,
let's red line out and we takeit over.
Speaker 1 (33:57):
So yeah, it's so funny we're doing the
competitive research for thisone property.
I mean you wouldn't see theseproperties and laugh.
I mean they're just, they're sojunky, they look like just,
they look pretty close to thetrash heap anyway.
But then you go and you liketalk about, you're trying to get
a sense of are these like welloccupied?
You have a lot of room, are youkind of pretty well-easted up
(34:21):
and one of the managers on sitepulls out this little yellow
notepad and it just hadhandwritten names of, yeah,
we're fully-stupped, and we gothere like 15 people on a wait
list and the wait list was onthis yellow pad of people that
had just come in.
It's like that's their trackingsystem right and how they're
tracking their leads and what'sso interesting about you see,
(34:41):
the mom and pop is the focus formom and pops generally is
occupancy right.
They think if they just it's100% occupied then they're
winning.
But generally if you're 100%occupied that means you have a
raise in price Pricing is toolow, right, Because it means
you're not competitive enoughand you want to almost kind of
thread that needle of.
I want a little bit of vacancy,because I want to be pushing
(35:04):
the limits on pricing as much asI can to optimize where the
market's at and without goingtoo far, right.
So that's the interesting thingabout self-storage is because
the contracts usually a month tomonth, you can be changing
pricing pretty dynamically andget a sense of where the
market's at without breaking themodel.
(35:27):
So that's another cool aspectof it as well.
Speaker 2 (35:31):
Yeah yeah, that's very similar in mobile home
parks.
Here's the books and like rentmanager.
Well, rent manager is like atool.
People in the office are onlineshowing the rents being
collected, but a lot of timesthis piece of paper and here's
the books it's literally likeold school binders and stuff
like that.
Right, you know, just even thedue diligence, six match a week,
(35:53):
just because you're like, oh mygosh, I got to go through all
this.
Good thing I don't do it likeall the underwriting, I have
somebody do that because that'sgot to be a pain.
Look at all the pieces of paperon the handwriting and
scribbles.
So what's having personal goalsfor you in the next five years?
Speaker 1 (36:09):
Yeah, personal goals, some of the chief investment
officer and just continuing todo more better deals.
I mean, that's really whatwe're doing.
We're on a fun growth path.
So get a, get a, hire a lot ofcool people and really we're
trying to build a brand that hasa great reputation for finding
(36:29):
best in class deals and helpinglead the charge and alternative
investment space.
So we're very big believers inwhat these kind of deals can
provide from a risk adjustedreturn standpoint and
diversification standpoint, andI just want to get more people
in the boat.
So, yeah, I got four kids onthe really personal side and so
(36:51):
having some fun times there andtrying to be building the
business and being a presidentat the same time.
So those are.
Those are always, you know,sometimes competing priorities,
but trying to have a goodintegration of work life.
Speaker 2 (37:06):
Yeah, I love it.
Yeah, that's very cool.
And then, as we wrap this up,working people find you from the
podcast, the fund or anythingother projects you're working on
.
Speaker 1 (37:15):
Yeah, I appreciate that.
So our podcast is invest like abillionaire.
If I any platform you can go tothe billion or podcastcom,
check it out.
And then our private equityfirm is Aspen funds, so
aspenfundsus.
You can check us out there andsee what we've got going on.
Speaker 2 (37:34):
Well, I appreciate it .
It was a great conversation.
I like how you really brokeeverything down to like a macro
levels and a lot of datainsights, and I'll put all your
links below and thank you somuch, ben, for being on the
podcast.
Speaker 1 (37:46):
Thanks, jonathan, it was really fun.
Speaker 2 (37:47):
Thank you.
Hey, it's Jonathan.
Make sure to download andlisten weekly as I bring the top
guests in the ultra high networth niche, sharing their best
insights and providing exclusiveresources.
Finally, I get a lot of peopleasking me to help them one on
one.
Yes, I can, but it's verylimited.
Go to a revenue assign forbusiness and CMO consulting For
(38:11):
real estate investing.
Go to Midwest Park Capitalcomand those looking to invest in
service based business rollupsgo to business cash outcom.
All links are included below.
Please like, comment and sharethis podcast with your friends.
Thanks for listening.
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