Meet Mike Zlotnik: CEO, experienced real estate manager, and retired software executive. As a US patriot and former political refuge from the USSR, Mike, or “Big Mike,” has decades of experience helping clients navigate the realm of real estate, syndications, and investment strategies.
Today, we’re talking about Mike’s unique life experience entering the United States and working hard every day to achieve his dreams and goals. Mike and I will chat about the current state of the real estate market and how you can figure out where to put your money and where it will make the biggest impact.
Should you become an equity investor? Or should you be the one in the lending position? Is it the right time to invest in multifamily homes?
When should you be greedy and when should you be fearful?
Mike’s Links:
– Bigmikefund
– Tempofunding
– LinkedIn
TRANSCRIPTS:
Inflation is the friend of real estate. But what we really don’t want to see,
Because here’s the common belief you see out there is that if I want to have safety
Right now, the fear is high in that asset class. So people are shying away and that’s the best time to consider going in because of
Hello my fellow Rives. This is Chris Miles, your cashflow expert and anti financianal advisor. This show is for you, those that work so hard for your money and you’re now ready for your money to start working harder for you today. You don’t want to wait 34 years from now. You want to do it today so you can live that life that you love doing what you love. But most importantly guys, it’s not just about living a rich, it’s about living a rich life. It’s about having the ability to create more freedom in your life and be able to bless the lives of those around you too. Thank you for tuning in today guys. Thank you for allowing me to create a ripple effect in your life as well. Also, if you haven’t done this already, go check our website, money ripples.com. There’s lots of great additional information you can get there too, whether it’s about passive investing with passive income or it’s even by infinite banking, we’ve got it right there for you.
Alright guys, so I’m bringing back a return guest once more. I’m bringing back good old Mike Slotnick, also known as Big Mike due to his stature. You ever see Mike and I stand next to each other? It’s like that meme of where they have Shaquille O’Neal standing next to Kevin Hart. I’m Kevin Hart, he’s like Shaquille, so that’s why he’s Big Mike, but he’s also got a big heart. You’ll see that as well that we’re excited to have him on here today because now is he the owner of Tempo Funds Now he’s an author of his own book, which called How to Choose a Smart Real Estate Investment Fund. He’s got his own fund of course that he runs formerly from a refugee from the USSR is now American citizen. He’s definitely a patriot as well and out of Manhattan. He’s also interesting point, he’s also a girl dad for you guys that are probably also girl dads as well or girl moms. Mike is also that as well. So Mike, welcome back to our show.
Thank you Chris, honored and humble to be part of your show and both you and I when we stand next to each other. You know what movie it reminds me? It’s called The Twins Arnold Schwarzenegger and Denny Devita. I don’t mean that you look like a Denny, but the height difference is definitely noticeable, so
That’s true. It’s definitely noticeable trying to give you a hug. It’s like I have to get up on my tippy toes a little bit.
It’s all good. I just have to come down a little bit. The best way to do it, you go on stage and I’ll stand right next to it.
That’s right. There you go. That’ll work. That’s better than me trying to get up too high. It gets a little, the air gets a little thin up there. Yeah. Well, Mike, and tell us a little bit more about your family. Like I mentioned, you’re a girl dad, tell us a little bit about your girls. You got some pretty talented girls there.
Yeah, thank you kindly. Yeah, I’m blessed with three girls and a boy and I call it, well we have four monkeys and a cat, four human monkeys, of which three girls oldest and then the youngest is a King David, truly king of the house and we have a real cat. So that’s my lovely wife. We’re coming up in 25 years. We live in Brooklyn, New York from originally from Moldova, not Russia, not to be confused, the former SSR and I did come in 89, a political refugee from the evil empire of the Communist Empire. I’m a US citizen, US patriot. So that’s as far as I go.
I always plan on asking you
This question. My girls are very sorry, you asked me about girls. My girls are figure skaters, two of them professional and one of them is kind of on the top team, very proud as a dad in the Tri-state area called Skyliners on the junior level, which is one of their most prestigious levels. She just started high school. She, we are competing a lot. We’re traveling the country competing on synchronized figure skating, 16 girls on ice. She’s part of the team and it’s like anything else in life. They compete on ice for three, three and a half minutes and then they practice thousands of hours and it’s crazy how much work it takes, but that’s what it takes and teaches them great skills, discipline, hard work, all that stuff. And the crazy part, I’ll tell you this, she’s almost straight A student, God bless you and a straight A student and with all the effort and all the practice, it’s just amazing. I’m just as a dad, so proud and folks are listening. If your kids are involved in any professional sport, it makes them actually better students. That’s my 2 cents.
I love it, man. Tell us a little bit more about your perspective coming over here to the us, right? Because obviously people talk a lot about privilege and how that’s a bad thing and you shouldn’t even be happy about having a good life. I mean, what’s your perspective on that from your having you being international now you’re here today.
Yeah, thank you Chris. The easiest thing to think about this, when you come as an immigrant at least then in 89 when I came over, you have nothing in your pocket, no money at all. You have your poor, but you have the attitude of hard work. You have the attitude of great gratitude for the United States to let me come in. That’s all you need. That’s all you need. What else do I need to say from the point of view that I was very grateful for the US government to let me come in with my mother and we worked very hard for many, many years. That’s as simple as that. There’s no attitude, there’s no privilege, there’s nothing. My first job was washing dishes at Wendy’s restaurants and taking care of a salad bar and no, what I call it, there’s no such thing as privilege. The privilege is to be here. It’s the opportunity and then you work very hard and that’s the mentality. I don’t know what else to say. It’s just that simple.
Yeah, I love it, man. Well, I know a big thing on people’s minds lately, right? Is, and I know your specialty, especially in the, it could be real estate, but real estate in multifamily real estate, more like with retail and commercial in general, right? Whether it’s business retail or wolf business, retail, there’s warehousing. I mean there’s all kinds of things you’ve invested into. Obviously the last two years have just kicked commercial real estate’s butt, right? I mean, that’s been the one place that people have been losing the most money. And of course now people are scared about what’s going to happen with the banks. Will they be able to refinance? Will they just call the notes due? Are people going to go broke? Is the worst yet to come? What are your thoughts and impressions on what’s going on right now? Because I know we talked about before we got in here, commercial is a very broad sector. What they’re hearing in the news is not exactly being precise about what they’re saying.
Sure. So let’s differentiate very quick. Clearly commercial is just a broad term. There are many sub-sectors of commercial. One, let’s use an example is in a sector called industrial. She can also be batched up with commercial. That sector is doing generally pretty well. The other big sector in commercial is office. Office is struggling Class B and C office in many markets. Vacancy, post covid effects. Returning back to office is difficult, although some new projects, new developments in office class A properties with great amenities, experiential office, many of these projects are doing fine. Then you go into multifamily. So multifamily is certainly been beaten up in the last couple of years and that’s the most, it’s sort of almost like this. It’s the best contrarian investment opportunity today for most folks who follow a trend. The trend is a dangerous part to be a few years ago, let’s called a 21, 22 trend was very, very hot.
And I want to screen share a graph on what has happened in multifamily. So let folks understand kind of where it is, where it was, where it is, hopefully where it’s going. So hope you could see this. This is US multifamily and it’s trading at a pretty substantial discount from the peak. And in this graph, just so folks understand, the orange represents sales volume, while the blue line is the price per unit. And for many years we saw a great expansion. Things were going really well and things peaked in the middle of 2022. Transaction volume was high, the prices peaked, and then as Fed started to hike rakes interest rates and they did it very fast and furious, very aggressive hiking that has severely dislocated, multifamily and other parts of the commercial real estate and the multifamily market. We find ourselves with substantially lower transaction volume, very few property exchange hands, transaction volume down. And on top of that, obviously the price has fallen significantly from the peak. Now here it’s about 16% on average discount, but it very much depends on the market. Certain markets have corrected substantially more than that. So if you go look at the, call it Sunbelt, the average correction has been over 20%, 20, 25. In some cases even over 30%, obviously
Like Phoenix, right?
Yeah, Phoenix, some parts of Florida, some parts of Texas for sure. Those markets correctly substantially more. If you go look at Midwest corrections are significantly lower than that. So Midwest is probably trading in the 10, 15% range while some other markets have done way worse. So we’re sort of in this position where maybe average is around 16 to 20% and we are not at the bottom yet, but we’re beginning to form the bottom. The interest rates have bottomed out pretty clear. The Fed hasn’t started cutting, so we don’t know when the good news will be there. It’s just the delayed of a news per se. So it’s kind of a high pressure point on the deals that borrowed with floating rate, interest rate mortgages. So these deals need more liquidity to survive and to ultimately thrive. And the overall pricing is expected to reach a bottom of the market per se, somewhere in the early 2025.
But it could happen earlier or it could happen later. So investing in this asset class requires very, very careful deal selection with the right operators in the right markets at the right price. And also it requires participation through lower level of risk. So there’s a whole concept that we’ve come up with. We call how do you invest with equity like returns without equity like risk? And the concept is very powerful. It’s through mass debt, mass financing or under some circumstances preferred equity. So there’s a way to participate today without waiting for the market to reach the bottom. Another really important point, how do you know when it’s the bottom? Sometimes you sit and wait for the bottom and the bottom was already established and things started to recover. You don’t know that. But the way to play this whole concept is to do it with less risk but still get substantial upside.
I can talk more about that whole concept equity like returns without equity like risk. But again, we started with commercial real estate. I wanted to bring a picture of multifamily as one of the big assets classes that is trading at a significant discount. So for those folks who are looking to come into this strategy at a great timing now forming the bottom, we’re near the bottom or something like this. I just wanted to bring it up. This is a very powerful idea. And of course there’s no guarantees. These are future forecasts and projections and we don’t know future could be materially different from what people estimate or project.
That’s right. Well, and one thing we know for sure is that when everybody says don’t do something, that’s usually a time to do it. If they say, don’t invest in this place because it’s horrible, everybody’s saying that, then usually that’s the time to find the best deals, right?
Warren Buffet, be greedy when I was fearful and be fearful when I was greedy. Right now the fear is high in that asset class. So people are shying away and that’s the best time to consider going in because of lack of investor confidence. It’s almost the reverse. People do the reverse when everything is hot, they keep throwing more money. So on this topic, I wanted to bring this concept forward, this an everything rally right now. We are recording this in late part of May and everything rally means stock under the roof and you turn on tv. And these commentators continue to say, this is overvalued, that’s overvalued, that’s overpriced. There’s a massive Wall Street, overpricing overvaluation in my view. Again, this is my humble opinion, I’m not no expert in Wall Street, aren’t a Wall Street person, so am I certainly don’t know if can continue to rally.
You’ve got junk bond yields that are low and the prices are high and the spreads over US treasuries are very low investors overpaying for the risk. Gold, silver, precious metals is up. And then you get crypto with, I’m not saying anything, I don’t know anything about crypto. I’m not an expert at all, but it’s through the roof. So what it feels like a lot of asset classes are overvalued, overpriced people heavily in those sectors. And maybe it’s the time to consider proven diversification, taking some chips off the table where things are done well and consider going into what is disliked contrarian thinking. But that’s where the best opportunities are in my view.
That’s right. I mean that’s one thing we’ve been hearing a long time and it doesn’t help when the feds still are printing money. They backed off a little, but not a lot, not compared to what people were predicting. So we still have all this money flooding in, it’s got to go somewhere. And so it’s just driving everything up. And I know a lot of people are worried about that happening to real estate too. They’re saying, oh, it’s happened to real estate already, it’s overvalued. I’m just going to wait for it to come down. What would you say for them that say that,
Let me add this comment and I know what you meant. The US government is printing money. It’s called the fiscal policy versus the monetary policy. The fiscal policy is the US government printing dollars and spending them. And then the monetary policy where the Fed controls. So by the way, the Fed is the, through their quantitative easing and tightening, they can buy the bonds that the government can’t sell. So they have ability to influence interest rate, they have ability to influence to monetize US national debt is needed. But to make long story short, there’s significant fear that US government will have to keep increasing budget deficits every year. Why? Because the unfunded liabilities continue to pile up. You got defense, you got folks that are used to continuous, call it helicopter money giveaway, et cetera, et cetera, et cetera. So the fiscal discipline is hard to find, but there’s some control now with changes between political, let’s call it with mixed congress, between who knows what the election will look like, but at least there’s some attempt for more balanced budget with a split congress.
So my 2 cents is these deficits likely to continue, but they may be a little bit more controlled under certain circumstances. So money printing is of course inflationary, no argument on that front. So the result of that becomes what is the neutral interest rate policy? We are going to get into long discussion about where the interest rate should be fed continues to say the interest rate should be in the two to 3% range, which means that the interest rate should come down. They are in a highly restrictive of 5.5% when they are preaching two to 3%. But if the US government continues to print money, maybe the Fed will change the stance and maintain the rates of somewhat higher level to fight inflation. Who knows? But we’re certainly dealing with this permanent shift where the government has to continue to print money to be able to pay its bills.
I mean, that’s one problem I noticed we’re having right now. We just did a screen share. I’ll show you a screen share of the M two, the money supply, and I know everybody’s like, oh, the fed’s going to back off after 2020. They barely did. And so there’s still a huge amount of money supply going in. If they were really trying to be fight inflation, you’d think they’d be a little bit more aggressive on it, right?
Yeah, I mean they’re controlling certain things that they can control. They can’t control everything and number of dollars in circulation, the M two money supply is they TriMed it down a little bit, but the long-term trend of course’s going to continue to expand. So what this is all this points out that there is going to be an inflation on a long-term basis. And by the way, real estate can be a great hedge against inflation, especially multifamily and other strategies where the rent increases is your friend. The reason we experienced, by the way, significant price correction multifamily is that inflation takes years to come through. Even during hot inflation, the rent can go out by 10 11% and it’s considered to be super hot. Normal rent increases two to three 4% per year. But on the other side, the interest rates moved up million times faster. I don’t want to say million times, but many times faster, 50 times faster. They went from short bond yields were being 10 basis points to 50 basis points, sorry, to 550 basis points, 50 x
Very short from 0.1% to 5.5%, right? Yeah,
Exactly. So that is the net effect of the interest rates moving very fast, and that has had a much faster impact on the immediate pressure on these projects. However, if you give it enough time and inflation is sticky, it means rent inflation will be sticky. People will continue to earn more money as long as the incomes are there and rent inflation is there. These asset classes are great hedge against inflation on a long-term basis. So from that perspective, I actually don’t fear the fact that we’re going to see inflation. Inflation is the friend of real estate, but what we really don’t want to see are gigantic shifts, fast and furious changes. The fast and furious changes is what causes problem market dislocation. But if you just take a pause right now and look at this multifamily real estate and many other commercial asset classes, very much trade is a function of leverage, right?
Think about it for a second. And the interest rates are actually high on a cyclical basis. So credited type bank lending is 50, 55, 60% leverage is very low leverage and the buyer’s experience is they have to bring a lot more equity. So what this does is that it makes it difficult for buyers to buy. They’re forced to ask for more and more discounts. It’s a buyer’s market and the sellers don’t really have a choice. Sometimes they have to capitulate and agree to bigger discounts, but it’s a temporary measure. These interest rates, number one, even if they don’t come down a lot, this is the new norm. As new prices trade at the current levels, there’s a lot of upside that the interest rates come down, number one. Number two, obviously ability to push rent through the inflationary pressures. And number three, how do you participate in this is that you don’t need to take the risk of common equity today. You can actually do participate through mass financing, mass equity, mass debt. There’s a way to play the game with less risk and still have significant upside today without waiting for perfection in the market. Does this make sense?
Yeah, that’s exactly what I was going to go to next, right? You’ve said this a few times, right? The common belief you see out there is that if I want to have safety, I have to own it. I have to be the equity investor, so to speak. But what you’re saying is your better safety is actually to be in the lending position, and in your case, mezzanine debt mean it is almost like a second mortgage versus the first mortgage where the bank might hold the first note. Mezzanine debt could be the second note, correct?
Exactly. So two things happen. Both of these strategies, being the first lien lender and the secondary lien lender is a tremendous opportunity today. If you ask me what has changed over the last 12 to 24 months is that in the first lien space, a lot of banks withdrew and the bank volume of origination fell 50%, and the private credit origination is up 50%, roughly. Very, very significant shift, major shift where hard money lenders, private lenders are putting capital out at a higher rates than before. So there’s definitely opportunity to participate in the first end position, but even bigger opportunities to participate in the mass financing these capital needs. So a lot of people who want to play in the first, they feel level of safety and they feel that they can get higher yield without taking extra risk. In mass financing, you could get much higher yields and still take very, very measured level of risk.
So let me give you an example. You can participate in a deal where the bank is lending 60% of the capital stack. The mass is lending 15, and a common equity is doing 25. So all those numbers are up to a hundred. In many cases, mass can be even less. So you could basically be in a position where you’re taking way less risk, but you can demand returns that are commensurate. We used to be equity like returns, high teens meet to high teens without taking the risk of common equity, which was reserved. These type of returns, high teens and into twenties with equity like returns today, you can do the same through the secondary financing mass or second liens. It’s a very powerful idea. It’s a pretty simple idea. So that’s what I’m seeing out there.
Lemme see if I could paraphrase this a little bit. Even going back to a house, right? There’s a lot of people here, even if they haven’t invested in multifamily, they’ve probably bought their own home or at least known about somebody that’s bought a home. You’ve mentioned the first position debt, which is when you buy a house, you get a mortgage now. So if you use the example you just used, put 25% down on that property. So if it were a $400,000 home, you put a hundred thousand dollars down, the mortgage can come in with say 60%. That would be, I’m just trying to do the math in my head, that would be $240,000 that the first mortgage coming in, but then you’re saying there’s another one coming in the backend or another 15% for the rest of it because you needed 300,000 total for your mortgage.
So there’s another second mortgage with a higher interest rate that’s going to come on for that other 60,000. So you have two mortgages on the property that you had for $300,000 of total mortgages. You have of course a 400,000 home. Now if you want to sell that home, and let’s just say that the market doesn’t go down, if you sell it for 400,000, you hopefully get some of your a hundred thousand dollars back, but before you do or you get paid, the lenders have to get paid first. The first mortgage is the first one that gets paid, followed by the second mortgage. Then you get whatever’s left over, which is like common equity as you’re saying. So mezzanine debt is like that second mortgage saying, well, really, even if the house depreciated 40, let’s say 10%, they’re still safe with their money because their money’s good up until through that $300,000 that comes down to say three 50 from 400 to three 50, you get $50,000 back luckily. But really you’ve got this extra buffer of equity. So even if the prices do come down, you still get paid back first before the owner does, right? Yeah,
Exactly. So just to, this is a very good comparison to residential commercial works. Similarly, the concept is the same. Of course, senior lender first in mortgage gets paid first, then secondary or mass financing gets paid second, and then the common equity commercial space happens all the time, but as long as you’re doing the whole underwriting as your investment based on today’s values, not the peak values of 22, but based on today’s values, so you’re basically coming in today, let’s use an example of the property you just used where it’s a 400,000 property. Imagine before it was 20% high, it was 500,000 property. So if you’re doing this today and it’s a $400,000 purchase, and then the bank is only giving a portion and the second finance, the second lien is only giving it up to, let’s just call it 300,000 total debt between the first and the second, and it’s based on a reduced valuation of 400,000, then you are in a relatively safe position still 75% LTV before the first lien lender did that, and they charge interest rates three to 4%.
Now you’re coming in as a second. The first lien now charges 7%. If it’s a bank money, and if it’s hard money, it’s low teens, 11, 12, but you’re coming in, well, we do with mass. We charging 20%, 20% interest rate on these loans at 75% combined LTV between the first and the second. It’s a very powerful idea. It’s not that difficult to understand. It’s just done in a commercial deals in many ways. By the way, commercial foreclosure or commercial way to take over the project is easier than the residential. The protection laws for residential foreclosure in most states are much more difficult to foreclose than a commercial property because it’s a sophisticated owner, and when the process starts, the government doesn’t give them the protection mechanisms that they give an individual owner. So in the commercial space, the process is a lot more. It’s obviously done with lawyers with more professionals, but it’s a very powerful idea and it’s easy actually to execute in the commercial space if the project doesn’t go well to take over in essence.
Yeah, yeah, there’s definitely, I see a huge opportunity in that and the fact, well, and I can hear this question coming out. Let’s speak one of our final questions because I know we’re kind of running over time here, but this is important for people to understand when it comes, like you mentioned 20%, you could be charging on this mezzanine debt for these deals, do the numbers still pan out when you do that, when you lend from your fund, for example, do these people still remain profitable or is this something they wouldn’t be able to afford? They wouldn’t be able to keep paying
This debt? So I’ll give you some examples, and the way this is done is it’s done very, very smartly. So a few different scenarios. Number one, you have to underwrite really well based on car valuations and based on a business plan. Number two, you need to understand what the money is going to be used for. So if the money is used to complete value at work renovations, it helps increase the value of the property, that’s absolutely great. Number two, you can control disbursement of the capital. Number three, what we do is we set aside some of the deals we’ve done. We’ve set aside the year and a half of interest reserves.
The crazy part is we’re loaning the money. That includes interest reserves for a year and a half. Now, what we do is we don’t force ’em to pay 20% per year. Every year we do, at least with the deals we’ve done recently, we’ve done 11 current yield and 94, we give ’em a little break, we give ’em a little briefing. So 9% of cruise per year where 11 is current is paid current by a year and a half of interest reserve set aside in escrow that we control. So it’s very powerful idea if you do it the right way. In addition, of course, you need to understand what’s the exit strategy. So you can make a loan without understanding how they’re going to repay, and it means either they finish the value at work, then they bring the property to the market, and most of these sponsors and operators, they want to wait out, let’s call it a year and a half, two years until the market starts recovering and they bring it into a seller’s market, not a buyer’s market.
So the path to maximize the value for the current owners is to take on this capital. Of course, it’s very expensive capital, but if it’s well thought through and the money is used wisely, what it does is actually creates substantial additional benefits for the current equity investors. So we’ve done this on existing deals also, there’s another play to the whole strategy. We’ve seen this on new deals. They’re trying to do new construction and they get bank loan for 60%. They’ve raised a bunch of equity, but they can’t raise enough. So they are looking for a bridge or six months bridge, nine months bridge to give them more time to continue to raise capital. So a new project, it also exists, we can come in as fresh, let’s just call it gap funding, either for a couple of years, or it could be a shorter duration loan where it just gives them time to continue to raise capital.
So if it’s underwritten well with a very clear exit in mind that it creates a very attractive opportunity. You’re not trying to squeeze them, you’re trying to provide them with liquidity that makes all the difference. I’ll give you an example. We have a project right now where they’re short 700,000 on the new ground up construction where they have 6 million equity raised and they’re a little bit short. So we’ll give ’em a bridge, let them get the project rolling, and in six to nine months, probably way faster, they’ll already pay us, but at least we’ll have some kind of minimum earning interest for six months. So that’s the play. And then the projects we funded that have typically a need for the money for the duration of the deal, or two to three years, we still underwrite them for two to three years, and we look for the path of what happens if they do well or if they start falling behind because we’re holding back a lot of capital and if they’re not hitting the milestones, we can hold back the disbursements. So it’s kind of essentially they call it rehab control funds or interest as growth. The bottom line, we want to give ’em enough money to be able to execute the business plan and monitor and continue to disperse with progress. If they’re hitting milestones, they’re increasing value, they’re executing business plan, then the disbursements justified, and if they fall behind, it’s a system of reward and punishment. This is how we are looking to get these deals done.
You’re really acting much like the bank, but the bank that has control of the reins.
Exactly. What’s really interesting is banks pulled back, it has become a really great opportunity for private capital, for private funds to come in and to replace what banks used to do.
The pendulum swung the other way so much that the banks are so stressed that they want to do minimal amount of business, take minimal amount of risk. I didn’t get a chance to pull that graph together, but the graph is literally in the last 12 months, bank lending shrunk by close to 50%. It is crazy how little appetite banks have for the new deals versus the private stepped in this replacement and change is a massive opportunity. That opportunity is likely going to last for at least a few years because the bank’s credit’s going to be very tight. I think probably minimum two, three years, and then it’ll gradually, gradually get a little bit looser. The pain takes a while to sync through and to adjust. So the time for private financing, it’s like the best opportunity right now when interest rates rise, it’s bad for equity and good for debt.
This is a
Comparison. A year ago, well, banks used to lend, they used to lend over 40% or credit was paying credit, and now it’s down to
Like 22, 20%, half that. Yeah,
Alternative picked up more than 50%. That’s your private lending. That’s the first. And then mass financing, private lending.
Yep. Well, awesome, Mike. Well, I appreciate your time here today. I know you have your podcast, also your temple funds, temple funding.com, and you also have Big Mike fund as well. What would you say is the best way for people to follow you, reach out to you?
Yeah, folks can go on our corporate site temple funding.com from the word temporary, TPO funding.com. Of course, there’s a big mike fund.com. You’ve heard that whole joke. If you misspelled big mike fund.com, I promise it’s not a kinky site. That’s the simplest way to reach out. Then we did launch a new fund in March called Tempo Advantage Fund, LLC. Again, I’m not trying to promote, I’m just letting folks know, which is focused on this mess financial strategy. It’s the hottest product we have out there. We’re very, very excited about it, and it’s off to a great start. Let folks reach out, request VPM, learn more. Just again, reach out through one of our website and happy to chat and appreciate folks to chat with folks.
Yeah, of course. We’ll put a disclaimer. We’re not giving any investment recommendations or anything like that, and Mike’s not paying me to have you reach out to ’em either. So
Yeah, there’s no solicitation. It’s just the outflow flagship fund, and we’re very excited. We’re very proud of it. And the difference it’s going to make on many projects, and the crazy part is this. Most folks ask, what about the capital was previously invested in all these deals? This new money is diluting them. The answer is yes, but without the capital, these projects can’t get to the finish line. They need critical liquidity. So the mass financing, what it does, it actually helps existing dollars. Otherwise, the projects can be lost potentially to a bank foreclosure if the project runs out of liquidity. So the power of this, this is actually a solution to a lot of the challenges created in the last few years. It’s a win-win for the fresh money that’s coming in a relatively safer place, but it’s also helping existing dollars. Most people don’t understand, well, I’m getting diluted.
Yes, you’re getting diluted, but without it, you could be losing all of it. So it’s your choice. You’re choosing between, let’s just call it two medicines and one medicine can help save patient’s life. And the other one, the patient unfortunately, may not make it through without additional capital. You see, this is mass financing. So what’s really, really revealing is for many years, mass financing has been shrinking because the banks continue to lend more and more in first position, extending the credit bank credit to a higher and higher leverage until the peak was 2022. The need for mass financing, which is a bridge between the two, between the equity and bank, was at the lowest in 2022. And guess what happened? The bank credit, the pendulum drastically swung the other way. Banks went from lending 75, 80%, they went down to lending 50, 55, 60%, maybe in extreme cases, 65, and the gap is becoming much bigger. So you have a gigantic jump in the need for mass financing that just took place, and it’s been picking up momentum. I don’t have the Q4 data here, but you could be sure
Trending upward,
Very big spike very fast. So very powerful ideas that the opportunity, the smart money is flowing into the mess because I mean, honestly, we’re not getting any hard time for 20% return with 11 current yield and 90 deferred and some points. And on top of that, we ask for some equity too. So all that is happening because the capital is very difficult to get, and all the smart money is flowing there because writing fresh common equity checks still creates a lot of risk.
Yeah, fascinating stuff. Yeah, that’s right. Awesome. Mike, again, such a wealth of knowledge. Always appreciate your time here on our podcast today. And everybody, again, feel free to check out his stuff. Check out big mike fund.com or tempo funding.com to kind of learn more about what Mike does and really just kind of staying in Mike’s stratosphere. He’s always educating, always creating value. As I mentioned, he’s got a huge heart, always looking to do what’s best for people. So be sure to check that out. And course guys, the big thing about this is, hey, when people are fearful, that’s when you can get greedy. When people are greedy, that’s when you should be fearful. And right now, everything bubble has been greedy except for in the commercial, specifically the multifamily space, which Big Mike had just talked about today. So that’s the one space there could definitely be opportunity. So be sure to check that out everybody. Make a wonderful and prosperous week. See you later.