EP 611 – The Commercial Mortgage Investment Market And The Future Of Distressed Notes With Michael Jimenez

NCS 611 | Commercial Note Market

NCS 611 | Commercial Note Market


In this time of uncertainty, the only thing that we can really hold on to is the future—looking out for the things that will push us to get through this pandemic. One of the areas that we can look forward to is the commercial mortgage investment market. In this episode, Scott Carson interviews Michael Jimenez, the CXO, founder, and loan sale blackbelt of Xchange.Loans, about the current commercial note market and where he sees the future of distressed notes heading. How does somebody get into buying loans from sellers? Where would you invest your dollar in right now to seek safe returns? Michael answers these questions and more, sharing more details about the real estate market and how you can grab the opportunities before they pass you by.

Listen to the podcast here:

The Commercial Mortgage Investment Market And The Future Of Distressed Notes With Michael Jimenez

I’m Michael Jimenez, Founder of Xchange.loans. I’m on the Note Closers Show with Scott Carson talking about CRE notes, so check us out.

I’m honored to have a special guest who spoke at Note CAMP. He did an amazing job talking about how to source and pitch commercial note deals. This guy has been a player in distressed real estate space for a while, specifically in notes. He’s got a great background and I’m excited what we’re going to talk about. We’re going to talk about where the market’s at. If you had a crystal ball, what he sees with all the different activity going on in the market. We’re honored to have Michael Jimenez join us. Michael, how is it going?

Scott, thanks for having me. It’s another beautiful sunny day here in South Florida, Fort Lauderdale. I’m happy to be on. All we do here at Xchange.loans, we solely focus on helping you all buy and sell loans in REO from lenders.

How does somebody get into buying loans from sellers? Talk about your background a little bit and how you got where you’re at now.

The way I got into loans is I went to school for Commercial Real Estate and Finance, dual major in Florida State. I started in industrial brokerage and development for the late great Trammell Crow, not the actual senior trader at the company. Right before it got brought out by CBRE back in ‘05 and ’06, I knew the market was about to fall apart because this is my first year out of school. I’m getting way too much. This doesn’t seem it’s going to be a lot about this.

I was like, “I paid a lot of money for this education. All the fundamentals are alarming here.” I went and got a job with a good life insurance company at that time known as ING. It’s a big firm. I worked on the insurance side. That later got split off between insurance and banking with the whole European and Dutch government bailing. We bailed out of those companies. I brought my talents down to South Beach. I did some commercial mortgage brokerage for DUS Lender. It was Grandbridge, which is a whole subsidiary of BB&T. I started learning about banking culture there and I learned a lot about DUS, Direct Underwriting and Servicer for the GSC’s, Fannie and Freddie.

I got exposure to everything outside of life call-ons. During the recovery, we got ahead of the curve started. I got into a CRE tech startup down on South Beach. It was a subsidiary or special branch of Starwood and LNR, which later became Auction.com, TEDx and everything. I founded Rhenium Cap. We are now launching Xchange.loans. I more specifically got in note sales in 2007. When I was at ING, I got tagged in my first note sale. I got tagged in to manage a lot of legacy assets at the life insurance company because they kept buying annuity and insurance companies. I got to manage our entire Detroit portfolio from 2007 to 2010. That’s how I got to note sales.

For our audience out there that don’t understand a little lingo, can you explain what a legacy asset is or legacy product is for a lot of these banks?

That’s an important question when you look at banks because for years, there’s been a massive consolidation of banks like WaMu got bought, Wells Fargo got the servicing rights and took over that portfolio. They bought the legacy assets of that former entity. Legacy is like your family legacy. A lot of times you’re born into it and you’ve got to know, “How do I make this work?” Unfortunately, you can’t sell off your family legacy but with notes, you can sell them off a lot easier.

Basically, it’s taken over a portfolio that they didn’t originate. A lot of times, they’ve taken it over at a discounted price of some sort so they’ve got some flexibility in selling it. I remember the whole Washington Mutual going out of business, getting bought up, the same thing with World Savings getting bought up by Wells Fargo as well and all of that stuff.

We had Commerce Bank where I grew up outside of Philly and South Jersey. That trend is not going to stop and we can already see that with the overexposure of CRE to total risk-based cash capital for a lot of mid to large-tier banks. It starts out $500 million in AUM, Assets Under Management, all the way up to about $5 billion. You get to the massive, large national banks like BOA, Wells, Chase, etc.

We always tell people you’re not going to buy a note from the top ten banks out there unless you’re going to write a big check. On the residential side, they want a big thing. They’ve got their different departments inside on the commercial side asset classes that might be a little more flexible. We bought some one-off notes in the past from Wells Fargo, Capital One, and US Bank.

That’s a good point because we’ve got good contacts and relationships there. When you went to Wells Fargo, is it from Wells Fargo proper or from RETECHS, Wells Fargo RETECHS?

It was Wells Fargo Multifamily originally.

I don’t know exactly where you want to begin a walkthrough specifically focusing on bank CRE because every lender is different. You wouldn’t approach a bank the same way you would approach Fannie and Freddie. A lot of the larger banks, once you get to $1 billion and up, they have allocated resources and talent or processes to buy and sell notes. Some guys like BOA and Merrill Lynch had an active loan trading platform or whole loan trading platform where that’s where they go and they talk to heads of other banks and Wall Street guys. You’re not going to get in there as a broker or even as a loan sale advisor. You’ve got to have scale and a big platform. US Bank, Capital One, Fifth Third, Wells is a little bit tougher because they have a lot of different little sectors or fiefdoms.

You could go to Wells Fargo proper, it could be CNI loans in a different sector. The larger they are, the more allocated staff and specific processes and platforms they have in place. US Bank, Capital One, they’re selling almost quarterly. Some will sell monthly. Fifth Third usually sells almost monthly. They don’t go direct so that’s one that you can get into if you know who to follow up with. I would suggest if you guys are investors and you’re looking to do one-offs primarily SFR, 1 to 4 family mortgages, which I don’t touch. I never touch anything qualifying and strictly commercial, always to entities and never people. I’m not that guy getting out of the window out of her shoe.

That’s the older ball game. Think about that SFR stuff securitized since you’re not going to be able to pick it apart but the commercial side especially getting into those million-plus balances. Those are the ones that they spend time on. One of the biggest strong points for a lot of investors is that sub million below balance sheet because it’s the concern of the small assets for the banks. A lot of times they will see some decent deals for your local investors to take advantage of.

You hit it right on the head. That’s what we noticed because we spend a lot of time there. I worked for Auction.com for quite some time. We ran our own valuation and advisory division. That’s our claim to fame. We sold about $10,000 deals coming across our platform and helped advise all of the executives and sales. What we noticed then and even from Rhenium Capital where we were specifically loan sale advisors to now running a platform after we have done this for a long enough time and got exposure to attack is that million dollars. That’s where most of the funds like pick a fund that goes to IMN like directed capital.

A lot of these guys have a ton of their investor cash or they also have leveraged funds from Wall Street banks. They don’t get out of bed for anything under $1 million. The middle market is what it’s called a CRE or small cap is $5 million and under from a CRE perspective. If you get into home loans qualifyings, you’ve got your performing then your jumbos. There are all these different areas. As an investor, as a loan sale advisor, once you hit that million-dollar UPB or million-dollar acquisition is where the funds can get active. Sometimes they’ll go below but if you’re a fund manager, you’re like, “I’ve got $100 million to put out.” They’ve been sitting on this cash, some of them for a few years. They can’t waste their time on stuff under $1 million because they’re never going to get all that cash out at that level.

The cost for due diligence can offset. We had Todd Billings from US Debt Ventures. He’s down the road from me there in Fort Lauderdale, speaking as well as talking about he’s got a $100 million line of credit debts. He’s got to put that to work. If you’re nickel and diming, making smaller stuff, he’s like, “It doesn’t make sense. Moving into the bigger spot works well because it’s fine air in a lot of cases.

What we also noticed and what we built our platform because we saw this time-after-time again at Auction.com, we’re also going to see thousands of assets trading live, which ones closed, which ones don’t. We were the guys who had to open the hood on every single one of them and be like, “What happened? How do we put the pieces back together? What’s it worth?” Starting in 2012 where the market finally started, you had comps. Things are getting better. Bankers are lending again. Before that, it was tough. I did consulting advising through there. The thing we noticed most in what we designed or the technology of our platform for is it’s that whole Main Street investor, which I’m guessing is mostly your audience.

NCS 611 | Commercial Note Market

Commercial Note Market: You’re probably not going to buy a note from the top ten banks out there unless you’re going to write a big check.


Even if they are funds, they’re looking at the Main Street level. Main Street localized or regional folks with boots on ground operations, intel, experience, and knowledge, they will almost always beat the large funds. Number one, the funds are almost always going to have to hire a third-party manager because where all the funds are always in the coastal cities and then down in Texas. We sold one, it was a small $15,000 REO property in a town in Charlotte. There were 3,000 people there. It was a former church then it went to a seafood restaurant. I wanted to help this lender who was a subsidiary of the bank. The fund isn’t going to touch that. Your audience can get that easily minimum 20% to 200% returns in 6 to 18 months however quickly you can stabilize or recapitalize the asset.

That’s the biggest thing when Fannie, a couple of years ago, was stopped. When their number of REO started fading off because they were selling primarily on the debt space. They own the loans off to Goldman Sachs and a bunch of others. Other investments announced like, “You’re not to be selling me REOs because we’re selling the notes to the investors or the funds.” They can be a lot more flexible with it. They can cash us out in a much quicker space so that we can go out and take that money and recapitalize the velocity of capital and letting out. Mike, let’s talk a little bit about something here. You’ve been doing this for a while. What was your feeling on the commercial space before our favorite uncle captain tricks roll in here with a pandemic and the Coronavirus? Did you think that the commercial markets were going strong or a little overpriced in some sectors? What did you see before everything happened?

We saw things getting heated. I did a conference where I was a speaker there at the IMN down in Miami. It was early 2019 where there is one key indicator, everybody watches GDP. Where’s the Dow Jones? Which is Apple, Amazon, Google, all that stuff. They’ll look at unemployment and then prime rates. That’s important for the consumer economy but you even touched on it, it’s the velocity of capital or velocity of money, as we say. These are all things that are also indicators. I banked on what’s called the Yield Curve Inversion.

When the yield curve inverts in the debt market, you know that the debt markets dwarf the equities. The debt is the one who determined the pricing especially in real estate because the valuation is primarily driven by rates and availability of capital liquidity. When we saw that yield curve invert, that means that everyone in that debt game is now not going short in midterm. They’re not buying 1-year bonds, 2-year, or even 3-year bonds. Now, they’re going heavy into 5, 7, 10, and longer durations because they see that time as there’s greater risk lying ahead and we’re not getting compensated for it.

That’s why that yield goes up and then the yield curve on the long side goes down and it inverts. It’s supposed to be a nice solid curve. The further you got, the more risk you see because you can’t control the future 30 years, but you control the next 30 days a bit better. If that yield curve inverted, when it started to invert, it’s never been wrong in history. It only came out in the ‘80s, they reverse test it, it came out positive. A recession will kick off within 6 to 12 months following a yield curve inversion. That was the key indicator. I knew we also watched the CPPI, Commercial Property Price Index, which is published by a great firm, Green Street Advisors. They’re based out of Canada and Europe but they have a CPPI.

Everyone can access it. When I last checked, we were at about 120%, so 20% higher than peak pricing. I see even ‘07, ‘08. It’s falling precipitously since the COVID crisis which those guys have to forecast things right. There haven’t been enough transactions. Now it’s this weird wide bid ask spread. This is like the musical chairs. Everyone is getting ready for it. Some people pile their cash into core assets. We’ve got a lot of investors. We had guys who lost a lot of money in the market, “Where do I put my capital?” Best saying is to buy something cheap. Buy something salvage value so they’re coming to us to get scratch and dent NPLs and REO.

That makes a lot of sense there because I see and hear it on the investor side that a lot of people, especially on our apartment syndicators where apartment complexes were the most overpriced asset out there. People flocking and overpaying for these things with the philosophy of like, “If I were to buy the market, we’re going to regentrify this asset in three years and then cash out, we get refinanced out.” I’m having my Spidey sense go off like it was back in 2008, 2009, and 2010. Investors got burned doing the same thing like, “We’re going to hold onto this.” In three years, you can’t get refinanced because the values have dropped. You’ve got to bring 20% to 25% of cashback to the table to re-securitize that asset for the lenders on things like that.”

We see a lot of people now that overpriced asset class. I like to say the oh shit factor, what do I do now? You hit the nail on the head there. Buy something of value, discount it, need some work, and then put it to work to recapitalize on that asset if you’re picking up at $0.50 or $0.60. It’s still got some underlying value in the open market once you’ve put new renters in it or new tenants in place on the commercial space.

The last cycle we got and this is another thing because this is the part that took us a while to understand. We realized this years ago, this is why I’m dealing more with NPNs, which I refer to as the residential side of the nonperforming loan or nonperforming mortgage space. NPLs, Nonperforming Loans is more of the commercial CRE side. We got involved. We helped founded Auction.com finance back in 2014. Some of the folks that were on that participated in that venture within Auction.com and commercial prior to converting in TEDx, they were selling a house on Auction.com every single six minutes clockwork.

They came from the resi side saying, “We need to figure out how to finance this.” They came over to us since we were the capital markets guy there. We started Auction.com. I didn’t know anything about financing homes. When you do, you technically qualify more stuff and more regulations. I said, “Figure out a way to make commercial loans on these houses because commercial loans have a lot less regulations and then you can pay yourself as a broker, as a third-party intermediary using the OPM, Other People’s Money.” If you do that on a resi side, now you’ve got to get registered with NMLS, which we have a broker here. My cofounder, he has that license. I don’t want to touch regulations.

That means there are a lot of people involved and I don’t want the government involved in how I make money because it takes too long. I believe that’s where the whole SFR market came out. I want you guys here as far think Single-Family Residential, which is true. That’s why it’s interesting. You could say a hub where all the commercial and all of the resi stuff meets. SFR is now Single-Family Rental loan. It’s a commercial loan. We’re working with some of the largest securitizers and special servicers to sell this stuff. There’s going to be a ton of it because there’s a lot of work going into foreclosing these with the Fannie situation where they’re like, “Why would a securitized lender go to try to foreclose a $50,000 note?” You’ve got to pay for a third-party.

Let the local guys get the note and let them figure it out like the local attorneys, local landlords, and local contractors help. This is why I’m very passionate about this because nonperforming loans is about recapitalizing assets, opportunities, and communities. When the big banks and the big funds are involved, especially on these deals under $1 million, they are not going to be better at it than the guys that are there with equity in their communities and the bankers as well. That’s what we focused on and we’re trying to help service. We know that you and your audience, that’s why I want to get this message out to them that this stuff’s coming up. It’s going to be a lot like resi, but it’s going to be a little bit more commercial and we want to help facilitate this process to make sure we’re recapitalizing these communities in the best way possible.

We’ve got a lot of opportunities out there. Let’s take it back a little bit here to the CMBS meltdown, the $50 billion lost overnight here in the middle of March 2020. A lot of people flipping out, a lot of people losing value if they reacted in a scarcity factor. Those markets will recover. It’s going take a while for everything to settle out and see where everything is trading out, what the government’s going to end up doing with bailouts too. Do you agree with that? Do you have a different opinion about that, Michael?

Number one, don’t ever feel bad for CMBS lenders. They do it. I’ve got a lot of good buddies. I’ve got a lot of good colleagues. We got our behinds kicked in ‘06 and ‘07 by CMBS. When we were a life co-lender and I didn’t understand what was going on. I was an analyst, fresh out of college, and knew I was in a safe space because they had the balance sheet. Guys would not take us like, “You know your lender. The same guy who did your loan is going to be here. We know your mortgage broker, Tom.” Tom, the broker down in Dallas. They would take the CMBS deal for 10 bips spread tighter.

CMBS is not going to be the same cycle as the last time. Everybody thinks they’re the special servicers, LNR, Rialto, CW, C-III. I got those big CMBS deals and all Fannie and Freddie. It’s not going to be like that this time. Here’s the difference why. CMBS is what’s called CMBS 2.0. There were a lot more regulations that required and you could talk about either a vertical or a horizontal hold back. Before CMBS was turning and burning at 1.0, if the deal went bad, too bad, and then Auction.com through Eleanor who was the special servicer, what’s called the BP’s position.

They buy the lowest securitized tranche, you’ve got your Triple A’s, you’ve got your B tranche, which is called your controlling class. When something goes wrong, the captain is drunk and he’s about to crash the ship, the first mate jumps in, the BP’s investor, and a special servicer to figure out what the heck are we going to do? That’s why they created the Auction.com and got the first of its kind first to market five points to sell the asset.

This time around because that hold back and because they are not going to be able to get a fee for the sale to themselves. They may be able to get paid a sales fee or something internally as a special servicer. That’s not going to happen again. They are going to be more inclined to handle this. It went from a cash basis to more of an accrual basis, much like banking to where they’re going to try to mark it down steadily quarter-by-quarter, quarterly, or semi-annual appraisals. The CMBS stuff and everything in CMBS, it’s there for a reason. CMBS gets over-aggressive.

It always gets overextended because the banks and the life coaches and Fannie and Freddie won’t do it. CMBS got that layer of anonymity. It will be much more interesting this time because now the originators and the servicers got a lot more accountability. I’ve talked to a lot of guys that run these special servicers. These are the guys who are like, “This is going to be how it goes from now on.” If you’re in consulting doing BOVs, you’re doing property management, special asset management, it’s going to be great for consultants. If you’re trying to sell as a broker, it’s going to be a lot tougher.

One of the things that we did when it first came out as I went back and pulled up the top twelve, first-quarter reports from those companies on what they were sharing with their investors and the top eleven of them all had in 2019 invested in a lot of nonperforming assets or subprime mortgages as well that were, “We think we can get it reperforming.” I’m like, “Not right now. You’re going to get to have a lot of forbearance agreements here in the next 6 to 12 months.” That’s where I want to take us next here. We look at what’s going to happen over time. We’re going to still figure out where everything’s at in the next 90 days. If you had money that you were investing yourself and there was an asset class that you thought that was going to come out ahead, what would you be invested in your dollar, Michael?

You said a few cool key things there. The forbearance stuff is a major issue. You’ve got policy risk and then you got a headline risk too like, “You go buy an asset, a CMBS deal.” You’ve got a headline risk. Who are you dealing with? People are getting blown up in the media now. If you don’t get on board with the mainstream narrative, you might find some trouble. Where do I go to seek safe returns? If you’re in the NPL game, that’s the safest bet to make. You want to be in states that are landlord-friendly. Let’s be honest. They’re not going to put a permanent moratorium, forbearance, or rent holiday. If that happens, it’s going to be in New York, New Jersey, Chicago, and the West Coast.

We’ve been researching this very specifically and it’s tough because the same foreclosure, forbearance and painted, it’s the same that applies to people’s houses that it does to their businesses. The same funds get the same protection as a lot of these residential folks. Focus on states that are landlord-friendly or property rights friendly. If you’re buying NPLs, Georgia, Texas, and Florida. Those are the top three states. I don’t know why Florida. I think because there are so many people coming down here all the time that real estate, even if it goes down and it is an efficient marketplace, it will get ahead faster and collapse faster than the others, but also come back because we have so many brokers down here. I would say stick to foreclosure-friendly and landlord-friendly states.

NCS 611 | Commercial Note Market

Commercial Note Market: The valuation is primarily driven by rates and availability of capital liquidity.


Texas, non-judicial in 30 days. Georgia, 90-days non-judicial. Florida, there’s always a ton of demand coming here. Go to where the consumers are going. I don’t think we’ve seen the last of COVID. If you’re reading the headlines, it’s already focused on the second wave. We got one under contract, OREO from a small bank out in Postville, Iowa. I never heard of Postville, Iowa either. We ran through a small community savings bank. That’s where all the farmers, all that corn after it turns yellow, it turns back into green in the form of money.

That’s where they’ve been feeding their cows. They’ve got the world’s largest kosher beef processing facility in Postville. They export. I believe it’s where Israel receives a majority of its beef imports. Nine-four percent occupied, partial REO, partial NPL. We’re going to get the devalued, already executed by the bank, willing to offer that. The buyer bought it all cash, 30-day close on a thirteen cap on in-place income. He’s got a Fannie Mae loan, ready to take them out at 4.25%.

What percentage can you pick that up at as far as LTV, what you can figure out?

We were selling it primarily as REO. He bought it all cash, the note and there was a construction loan. What had happened was that the former owner and manager of the kosher beef facility was small town. You either husk a corn or you’re feeding the cows. It went bad. It was a story on American Greed. He ran it into the ground, it was bad. It was also the largest ice raid bust because these are primarily illegal immigrants as well as child labor. This is exactly the textbook story. It went bad, the bank was suffering, they were managing themselves. We had the CEO’s daughter was showing some of these spaces.

How are you going to serve your community and recapitalize that asset? At the same time, banks are not made to manage real estate. I don’t want to see that happen because he’s better served at his community’s highest and best use. It was in a community. We were able to recapitalize that opportunity in that community, a new hedge fund owner bought that kosher beef processing facility. Now we know how integral and vital these distribution lines are to our society. Being able to live your life. I don’t want to see empty grocery shelves here. Their workers need a place to live that’s clean, healthy, safe, and well-managed. That’s what we did. We think we sold it to a good owner and manager.

We saw a lot of that in smaller towns especially up in Ohio around the big three in the auto industry especially Fort Wayne, Anderson, Indiana. We have a couple of markets that were hit hard. We bought some stuff when GM got taken over and then rebounded back strong, Ford as well. Reopening plants, those markets rebounded back strongly too. It’s important to know what’s going on in those markets as the major employers and stuff like that. That always makes me think about what’s going to happen to a lot of these college towns, these university cities where the lifeblood is university. In Bloomington, Indiana, they did pieces on how it’s a ghost town. Even Tallahassee. The Seminoles aspect of things there because there are a lot of companies and commercial property that’s set there to help cater to their university or the students and the staff that it’s going to take a while to recover. You have to think about it.

I want to make sure I answer this question good enough because I get into these stories, you can tell I’m very passionate about this stuff. I love this. I don’t ever want to do anything else with my life. This is my calling, my passion, and my purpose. I’m trying to walk my path. These rural towns, if you can look for assets and opportunities that are either directly tied or somewhat related to essential businesses. Be close to that. If you want to have more of a COVID thing and there are a lot of opportunities that aren’t priced. People still want to buy an apartment in Manhattan on a five cap. It’s like, “I got Postville, Iowa to thirteen cap and no one is shutting the beef processing facility down.” How can you buy anything cheaper? Ninety-four percent occupied. It’s insane. In terms of where it’s going to get hit the hardest, SFR loans specifically private lenders. Private lenders are not going to get bailed out. Banks, Fannie and Freddie, QM loan originators like Quicken Loans out of Detroit. If Quicken Loans goes, Detroit is going to collapse again. Don’t ask me how I know.

I’ll tell you how I know because of the guy behind Quicken Loans. He owns the Cavaliers. He’s dropped millions, if not big into the redevelopment of Detroit. Quicken has been selling their stuff on a quarterly basis for years. We’ve been looking at their stuff but the thing is those areas like Cleveland is going to be hit hard. Detroit has been trying to come back there but it’s still one of the most affordable. You know that being part of the legacy platform where you could buy houses for $500 or $1,500.

They were giving them away during the downturn. In a way, we’ve done a lot of research on the top 15 and top 100 MSAs through our real estate, loan sales, analytical capital markets perspective. Cleveland should be good in the interior core and that whole area in Ohio and Indiana. I want to say in Ohio, you’ve got the Cuyahoga River.

The Cuyahoga County is where Cleveland is and then you’ve got the county where Columbus Ohio State University is.

We noticed this trend especially at Auction, no one built any housing there since the ‘70s. It’s all old, it’s all wood-frame. Cleveland came around and it’s funny because there’s been a trend in America about reestablishing, revitalizing, and fully-integrating your core. Everyone got off of manufacturing because manufacturing was the death sentence for Cleveland and the river that set on fire decades ago. Now they’re focusing on medical. Indianapolis is focusing on tech and distribution, which is good in driving that area as well as Fort Wayne. In terms of regions to go, if you want to be, “I want a safe investment. Foreclosure-friendly, landlord and property rights friendly states.”

If you want insane risk and the places that are going to be selling off, Cook County is going down hard. There’s a pressure release system in Cook County. That’s called Lake County, Indiana. If you want to go buy SFR in Lake County, Indiana, my brother-in-law does, which is why I got a good insight into it, that’s where you want to go by. It’s already happening in Chicago and Cook County. They’re going to be an exodus from these places as like, “You’re not respecting my property rights. I’m going to take my money and leave.”

I know first-hand experience about Cook County.

I’m looking over my shoulder as we speak. I got good intel at Clark Street Capital. He’s a good guy. He runs that town. I’ve done some deals there. We take a look there in Cook County. If you’re out-of-town or trying to get in Cook County, good luck. If you want to buy, rent, you’ve got to find a localized partner there who’s got connections. I like Lake County but they’re starting to run it out. They’re jumping out of the ship.

DuPage County there in Illinois is welcome because it’s difficult to foreclose in Cook County. It’s corrupt. That’s why those areas are crossed for me. If you’re a big guy, it’s got to be local.

You’ve got to have local connections. We’ve done quite a few deals there. I go to Chicago every year. I’ve got family there. I go there for Christmas which is such a great time of the year. It is tough. If you’re out-of-town, I would say stay out-of-town. If you want risk, New Jersey is another one where the tax is going to keep going up. Values are going to keep going down. Jobs and wages are going to keep going down. They chased Amazon out in New York. It’s historic and I’m from New Jersey, right outside of Philly. It’s got that whole pressure release valve for high prices. That’s how it all started. Everyone left across Holland Tunnel and George Washington Bridge to get cheaper housing in New Jersey.

Now, it’s the same policies that are driving everybody down to Florida and Texas, the same thing in California, isn’t just LA and San Fran. People don’t understand but they’re not respecting the landlord’s property rights. If you’re looking to buy at the bottom, keep your eye on those economies because America will prevail and order will be reestablished, but people are going to cut and run early. That’s a perfect time to go in if you want to be focused on the mid to long-term and you want higher risk, higher rewards, higher returns. Texas, Georgia, and Florida, if you want to be safe and know that you’ve got to have governments that are going to respect your property rights.

I’m a big fan of God’s waiting room as I call Florida.

Naples, to be more specific.

When I was traveling for the 3.5 years nonstop, I spent a lot of time down in Naples or even right across the bridge on Tamiami Trail in Marco Island, Florida.

Did you get to do any fishing?

NCS 611 | Commercial Note Market

Commercial Note Market: Banks are not made to manage real estate.


Yes, I lived right on the water. The Marco River that comes through there and it’s great. Let’s talk about Florida a little bit. If you think back in 2008, 2009, 2010 where they thought that at least 30% of the state was vacant. You think about the image especially from The Big Short. They’ll walk them through these vacant housing complexes that were half-built up and only one house was finished or gators in the pools and all that stuff there. I remember walking into Naples, an apartment complex, 180 units in 5 Santa Maria or Santa Ana.

Half of it is rented out. The other half is vacant. The community centers are trashed out because it has two loans and complete dysfunctional property area. Florida was at such a big discount. I was looking at a perspective that I put together in a portfolio that I wouldn’t pay above 40% of as-is value not included back taxes. These days, people would gladly pay $0.60, $0.70 on the dollar because the market rebounded back strong. It’s going to take a hit, you start looking at the last areas to recover, which was Jacksonville. It was the slowest recovery and started rolling it down. Duval County, Hillsborough County a little bit there. Miami is going to stay strong. Broward, you’re going to have a bigger hit in the higher-end asset class especially with the condo. It’s up million-dollar condos that’s already been starting to lag for the most part but there’s so much international money coming into South Florida too. Right, Mike?

You’re right. I’ve been down here for a while. I was born in Broward County, Hollywood Memorial back in the ‘80s. You were right there when this stuff was going down last cycle. Cape Coral got annihilated. I don’t think it’s even recovered all the way since.

It hasn’t. I’ve made a lot of money in Cape Coral. Western Cape Coral was my getaway spot over there. In Cape Coral, Lehigh Acres, Bonita Springs, Fort Myers, West Fort Myers.

I’ve lived in Tallahassee. I live in all three counties down here. I live in Tampa as well. I’ve been almost everywhere across 60 from South Florida to Tampa to go see all the orange rose and the citrus. You tell me, I would like to know from ‘06 from peak pricing in those areas, a lot of them hadn’t gotten back up since ‘06. Maybe close if they rented or if you’re financeable, you still see some of the foundations lying in the pads in the cul de sac.

You see a few of those these days. We’ve got a good buddy of ours, Brent Garrett who’s a phenomenal realtor out that neck of the woods. He had about 20 ounces. He sold them all here because he’d seen the market and capped it out and knew that it was in fault. I make that same mistake as they go to Cape Coral and Coral Gables, it’s easy to do but they sent me a list of their Florida stuff that they were performing. They were selling at $0.80 of UPB. I was like, “What are they doing? Performing stuff right now. You’re letting go. It’s because you bought it at $0.40 five years ago and you think you’ve got as much as you can get out of it.”

They’re another one that lenders are not going to get bailed out and they’ve been running their other Silver Hill mortgage fund. We’ve got some good colleagues and friends over there. They’re well-capitalized, they can weather any storm and they know no one is coming to save them. More specifically too, what’s going to happen to Florida? I don’t know. I saw a good meme on Instagram and said, “If you had to get rid of one state in the United States, which one would it be and why is it Florida?”

I love Florida. I’ve always thought it was much better than California when it comes to a lot of things out there.

For property rights too. I love it because it is like the Wild, Wild West. It is wide open. Anyone can come down here. It’s not like New Jersey, Philly, New York, or Chicago where you’ve got to know people and you’ve got to play in the politics. There’s a little bit of that going down here as anywhere especially Disney, Orlando, the Brightline and railway system coming in. Florida in the long-term is going to do great. A lot of beach line, 40% of the Eastern Seaboard is along the Florida Coast. We’ve got a ton of great universities that keep gaining traction. The cost of living is still low especially when there’s no state income tax.

We’re building out the infrastructure which has always lacked infrastructure. Brightline is going to be huge. It’s finally happening. They’ve been talking about it ever since I moved down here. In terms of pricing, it seems with what’s going on in these states, it is going to be a day-by-day mostly measuring in 90 days. If they don’t lift moratoriums and open back up those blue states, all the property owners are coming down here. If they don’t respect the Rule of Law and Property Rights, they’re all going to come down here. They’re going to come down to Texas. They’re not all going to come down to South Florida. That is a common perception.

The blue bloods from Chicago will or from DC will, the big-time landlords from New York will but the regular folks who lost their jobs, they’re going to go to Hillsborough, Pasco, Hernando County. They’re going to go to Manatee County. They’re going to go to these cheaper places in Florida. They’re going to come down to Fort Lauderdale, but they’re not going to live in a class-A housing. Some of the bankers and stuff will or some of the landlords but they’re going to go out to Coral Springs, not Coral Gables, not Cape Coral or Coral Springs, which is a great suburb. It was one of America’s top suburbs in the early ‘90s. You talk about international money. I don’t know what’s going to happen to Florida. I know that they added way too many high-end units here. The high-end units and the high-end condos are going to get crushed. You will be competing with flight capital. We saw this happen before.

Michael, explain what flight capital is.

If you guys remember back in the last downturn where everybody was like, “The Cyprus government is going to take and the Germans took their money right out of the accounts. The bail end.” You’ve got all this money and how dare you hide it in the banks. You greedy sons of guns. If they’re like, “I need to get my money out of this country as soon as possible.” I don’t care what I do. US real estate, Miami real estate, there are tons of other ways to get your money in and out of the country. Miami real estate is one of the preferred methodologies of that. New York real estate is a little bit high. Now, you also see the deflation. A lot of these guys, particularly in Miami, you had what’s called a flight capital scenario. When Chavez had his heart attack and Maduro came into power, you had the flight capital. All the families are going, “It’s here.” They took over and consolidate all the wealth, kicked out all the wealth class who controlled all the means of production. They all came to Miami. He talked about headliners made headlines. They were throwing their Cuban coffees out of it at lunchtime.

You left and now you own assets here. More specifically because we have bank relationships. I’ve had several calls, “The FTIC is coming and they want to know our exposure to Venezuelan assets and Venezuelan citizens.” That goes back to the whole know-your-client. The flight capital are coming to the US especially as these tensions is rising, these trade wars. Trump was in Maine, I have family up in Maine. Do you know that the Canadians catch the same lobsters in the same water and are going to sell to Europe for no tariffs and we pay a tariff? Europe, “Remove the tariff, we’re going to tear up your car.” That’s good to keep the dollar strong and all this stuff and to keep exports because we’re going to have to export more. We’re going to have to bring manufacturing jobs back here.

We’ve got great programs and we’ve got cheap land. It’s not just Miami here. Miami is going to get nailed. Miami is going to get rocked. We increased our supply of multifamily housing apartments, not condos this time. The last time was condos. This time it was apartments. We increased the overall inventory of multifamily housing by 10% in a matter of 3 to 5 years. We were swamp playing in the ‘70s. I-95 didn’t even touch Miami. Now, we increase that supply that took 30, 40, 50 years to get here. We increase it by 10% and it’s all luxury housing. It’s going to get slammed. There will be plenty of opportunities here.

People love that because Florida is one of our bigger markets for our network out there. The show plays across a couple of different radio networks there in Florida, Tampa, in the villages, and New Port Richey, and retirement community central.

That will be me one day.

We’ve talked about a lot of stuff here, Michael, and we could go on. I would love to have you back on in a few months when things settle out. What’s the best way for our readers to check out what you guys have at Xchange.loans for sale? What’s the best way to network with you?

Thank you for having me. It’s been a great conversation. An eye-opening to what you guys are looking for. I’m trying to learn more about the NPN and the Main Street investors because that is the majority of the market. You guys are the ones on the front lines, recapitalizing assets, opportunities, and communities. I want to do everything I can to help you because I don’t want the big funds to come in and buy something that stays vacant for five years. That doesn’t help anybody. That’s where you get in touch with us. Email me at MJ@Xchange.Loans. Check out our website, Xchange.loans. There’s a big pink button up there that says Schedule Demo. That goes right to my calendar.

Hit us up on LinkedIn. LinkedIn is the future. I’m a big believer of LinkedIn. I’ve gotten several six-figure trades off of posting stuff, be active, be present, and be on LinkedIn. You can always call me. Email Scott if you want. To get ahold of me, come check out Xchange.loans. We’re in beta test mode. We’ve got about 25 SFR portfolios coming to market on the Xchange.loans platform. Things are going to be kicking up into high gear. Q3, Q4 and Q1 are going to be active.

NCS 611 | Commercial Note Market

Commercial Note Market: America will prevail, and order will be reestablished. However, people are going to cut and run early.


Michael, I appreciate you taking your time on a busy schedule. Stay in touch. LinkedIn is how we originally connected back in the day. I remember you speaking at IMN. I didn’t attend. I was supposed to go but I saw you. I thought I’ve got to reach out to him and we connected on LinkedIn. I’m looking forward to it. As always, thanks for taking your time. Thanks for speaking at Note CAMP as well. Great job. A lot of great compliments on your session there.

Thank you.

That’s going to wrap it up for this episode. Take key to what Michael shared. Michael shared a lot of knowledge. You might need to go back and read. We look forward to having him back on in the future. Take advantage and learn what’s going on in the market so that you can capitalize the most. Make the most bang for your buck here in the second half of 2020. Go out, take some action. We’ll see you at the top.

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About Michael Jiminez

NCS 611 | Commercial Note MarketMichael began his career as an associate for Trammell Crow Company in Tampa. He then spent 4 years as a Life Co lender at ING Investment Management. Michael transitioned into mortgage banking with Grandbridge Real Estate Capital in Fort Lauderdale where his team was the 3rd highest revenue producer for the company.

In 2012 he co-headed Auction.com’s V&A Dept., helped found Auction.com Finance and lead business development in South Florida as a vice president. Michael graduated from Florida State University in 2005 with a dual B.S. degree in Finance and Real Estate.

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