$200M to $5M: The CRE Collapse No One Saw Coming

🚨 Is Commercial Real Estate in a Full-Blown Crisis? 🚨

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In this video, we break down what’s really happening inside the commercial real estate (CRE) market—and why many insiders are calling it a “bloodbath.”

📉 Billions in equity have been wiped out.
🏢 Trophy assets are seeing massive valuation drops.
🏦 Banks are quietly taking back properties—but not how you’d expect.

We dive deep into:

🔹 The Current CRE Landscape
Why some high-end properties have lost up to 95% of their value—and what that says about the market cycle.

🔹 Why Lenders Aren’t Rushing to Foreclose
The surprising incentives behind “kicking the can down the road” and how banks are handling distressed assets behind the scenes.

🔹 The Interest Rate Shock
How deals that worked at 3% interest are collapsing at 7.5%—and why many properties are now worth less than their debt.

🔹 The Double Whammy Investors Face
Rising expenses + higher borrowing costs = shrinking (or negative) cash flow.

🔹 Where the Pain Is Worst
Office buildings, failed conversions, and properties tied to floating-rate debt are taking the biggest hits.

💡 Whether you’re an investor, broker, or just curious about where the market is headed, this breakdown gives you a clear, no-BS look at what’s unfolding—and what might come next.

👇 Drop your thoughts in the comments—are we at the bottom, or is there more pain ahead?

#CommercialRealEstate #RealEstateInvesting #CRE #MarketCrash #InterestRates #RealEstateNews #Investing

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Transcript

SPEAKER_03 0:10

There's a bloodbath going on in commercial real estate. Billions of equity has gone to zero. Banks are taking properties back. And a lot of people who thought they were conservative are about to get exposed.

SPEAKER_02 0:22

Just downtown skyscrapers that were$200 million or selling for$5 million.

SPEAKER_03 0:26

Let's say somebody paid$50 million in 2022. That property could be worth$25 or$30 million today. All the equity's gone, and maybe they sell it for the price of the loan.

SPEAKER_01 0:38

All right. Hey guys, uh, welcome back to the uh Jaden and uh James uh podcast where we talk about uh real estate and whatever else might come up. Uh again, I'm James. We got Jaden in the house down there. Jaden, how's it going? Doing great. How are you doing? Good. Hey, um, you're the one I think sent this over to Brady. So do you mind setting this video up and then we'll we'll we'll just start and stop. We're gonna do a reaction video. Um hey, to do a reaction video though, you gotta make facial expressions, okay? So I know that's really you know hard for you.

SPEAKER_02 1:12

Like just go, wow, I noticed YouTube, everybody's always like everything's everything YouTube is like like it's really not that no, sorry, it's not that crazy.

SPEAKER_01 1:24

Come on, you gotta just for the uh just for the the fun of it, okay? Just just trying to remember, I get you, you know. But uh go ahead, go ahead and uh and set it up.

SPEAKER_02 1:33

So this is Ken McElroy. He is a uh apartment investor. He wrote a book with rich rich dad poor dad um Robert Kiyosaki. Um it's probably behind him, the ABC to real estate investing. He's got a couple books with Rich Dad. Um so I read his book many years ago. Uh he owns uh 10,000 plus multifamily units, and um he's been doing it for 30 plus years. So he's pretty knowledgeable about that, obviously. Um, successful as well. So he's got some comments about the uh commercial real estate market, which he says is uh in a crisis. So let's go to somebody says.

unknown 2:08

Yep.

SPEAKER_03 2:10

There's a bloodbath going on in commercial real estate. Billions of equity has gone to zero. Banks are taking properties back, and a lot of people who thought they were conservative are about to get exposed. Now, here's the part that should scare you. Last year alone, we bought over$500 million in real estate. And even with that, I still can't get some of the distressed deals that I'm trying to buy. So the real question is where are all the deals? So here's what's happened. If you're a lender or a debt fund, let's say, when you sell something, you actually have to take the loss. So why sell it? Better just to keep it on your balance sheet and asset manage it. So, in other words, you don't actually have to show a loss right now.

SPEAKER_02 2:53

So I'm actually a limited partner or was a limited partner in an apartment deal that went and got foreclosed on. Uh, and it did the bank did kick it down the road for a couple of years, but they did eventually take it back. And that that went back about nine months ago. So they are starting to take them back. Um, but what he's saying is true. The the lenders aren't in the business of running multifamily properties. So if they have an operator that's running it and the lender doesn't see that they could do any better or get somebody else to do it better, and they they can't sell it and get the loan paid off, they don't have a lot of incentive to take the property back. In commercial, it's really it's really weird. In commercial real estate, the lenders are not necessarily incentivized to foreclose on those properties when they're not getting paid. Um, they're more incentivized to work out a deal with the the um owner and operator. Whereas in residential, there's a very high incentive to foreclose on people when they stop paying you. Because if a family's in a house and they stop paying you, you can take the house and resell it. Um it's a very liquid market. You can take the house and resell it. You can probably get all your money back up and get the loan paid for. Maybe you might even make some money on doing it as a bank. And um, so it's it's kind of unfortunate that you know, homeowners, if they stop making payments, they lose lose their house instantly, and commercial real estate owners have a lot more flexibility with banks, uh, as I saw, you know. So it's very interesting how that works. And businesses are the same way, businesses.

SPEAKER_01 4:19

I mean, isn't it changing because of what's happening right now?

SPEAKER_02 4:23

You know, it's just the no, I was just saying the incentives aren't the incentives haven't changed. The incentives are the the bank's gonna just look at it from a business perspective and go, what's my best business outcome? Which what which way can I go? Does keeping the current ownership in the property, running it, does that give me the best outcome? Or does foreclosing on them taking the property and getting a different owner operator in there, is that better? Um, and they can just look at that both ways and and make a decision. In a lot of cases, they'll say, let's just keep the current operator, as long as they're not doing a horrible job operating it, they can negotiate. So when you say operating it, are you saying like, oh, I guess an apartment or I'm I don't know, I'm guessing like an apartment complex. Any commercial real estate commercial real estate is operated. Every piece of commercial real estate is being operated by somebody. Okay. So operating meaning like if you have a strip mall, who is managing the tenants of the strip mall? Who's collecting the rents? Who's fixing the fixing the problems? Same with an apartment building, like who is running that place, who's leasing it, who's collecting the rents, who's fixing it.

SPEAKER_01 5:21

But isn't that part of uh I think we've learned it before, it's better to keep it going and up versus shutting it completely down.

SPEAKER_02 5:29

If they look at it and go, well, you guys are probably doing about as good as of a job as anybody could do, and the only reason you're not making your payments is because the market took a dip, which is like that one in Tennessee that I was involved in, is what happened. The market took a dip, and some other things happened, and like were they doing a poor job running it? I mean, maybe they weren't. Maybe they were doing as good of a job as anybody could do, and it was just the circumstances. If that's the case, then the bank's gonna go, well, we don't see a better path right now. We'll just kick the can down the road for you. And uh, they did it for a couple years, and then eventually they they go, Well, this doesn't you guys don't seem to be fixing this or getting any better, so we're gonna take our chances, we're gonna foreclose on it and resell it to somebody else. And they took a loss, the bank took a big loss when they did that. But at some point, I think at some point they look at it and go, like, we don't see a path to this ever getting better, you know. Right. And if they they give you a couple years or they don't see a path of it getting better, they're gonna go, okay, well, it's now it's time to now it's time to take this back. But if they see improvement and they see a light at the end of the tunnel, they might give you five more years or ten more years, they might rewrite the loan on you if they see a path to getting out of this thing, you know. Where uh banks will do that with residential too, sometimes, I guess, with the new uh loan modification programs and stuff. So there is that is starting to happen. But so anyway, that's why he's saying you're not seeing these these uh foreclosures, but like you know, with that one in Tennessee, obviously you did get foreclosed on and got resold to somebody else, so it is happening a little bit.

SPEAKER_01 6:55

So yeah, it's happening slower than he thinks it is. I think now they're starting to pop, right? And that's what they always talked about.

SPEAKER_02 7:01

Well, they're they definitely have been happening. I've seen office buildings in Minneapolis sold at you know five cents on the dollar, these downtown skyscrapers that were 200 million dollars that are selling for five million dollars. And uh, I remember like five years ago, I was I was here about these like A plus core properties selling at 4% cap rates and three percent cap rates. And they were whenever I heard that, I'm like, why are they selling at you know through four four or three percent cap rates? These high-rises in these downtown metros. I'm like, that seems crazy risky to me to be doing that. And uh at the time, well, the answer was, oh, but they're core properties, they're the lowest risk Alassa properties. I'm like, well, they're not low risk because the cap rates are so low that they became very risky because of the high valuations. And uh, I mean, they don't look low risk now. I mean, some of those 200 million dollar properties are worth less than 10 million bucks now. Like 95% loss, that's a low-risk property. Holy cow. So whoever's coming up with these risk profiles was a little bit off on that, I would say. So I don't know. For some reason I saw that, but uh it did it ended up happening. I guess they probably won't be seen as core A plus properties anymore. Um, but anyway, go ahead and roll it some more.

SPEAKER_00 8:18

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SPEAKER_03 8:48

Now, even though in many cases the real estate is worth less than the loan. So, what's happening is lenders are engaging brokers, and these brokers are putting out the deals to people, but they're not actually closing because what they're really trying to do is set the price and figure out what these properties are even worth. So that's how I know that there's actual distress because we're actually seeing these deals, but we're not able to buy a lot of them right now, but we will because the only thing that will save them is lower interest rate and lower expenses. And I can tell you right now, we're definitely not going to see lower expenses. But what we're seeing is a flow of distressed commercial real estate. And the question is how early should you buy? What should you pay? And how long will it take to you actually turn these around? Those are the three things that you need to ask yourself before you step into any situation and you catch somebody else's problem because the traditional real estate is um is that is this recent?

SPEAKER_01 9:44

Do we know how how recently? This is real like two weeks ago, a week or two ago. I just wanted to know the time frame. Yep, there we go. 11 days ago. Cool. Yeah, this whole thing, this has already been going. We're in like year four of this now. This is well, right. That's what I'm I wanted to make sure.

SPEAKER_02 9:57

This is probably gonna be a 10-year cycle, it'd be my guess, of this happening. Of this, like we're we're in year four of 10, probably, of this going on. You think on the downside, or you know, yeah, I mean, we're we're in four year four, and he's basically saying that we've hardly even seen any of yet, and I would agree like how much of the distressed properties have actually been sold.

SPEAKER_01 10:14

So you know, how much of that was COVID? Was all is all this COVID kind of related?

SPEAKER_02 10:19

No, it was before COVID. COVID made it worse. It was because the interest rates were in the so low before COVID, you could get four percent loans before COVID, even cap rates were four percent before COVID. COVID made everything worse, so then the interest rates went down and cap rates.

SPEAKER_01 10:34

Oh, yeah, that's what I meant. Right for everything that was the downfall. Even the stuff before COVID was bad. Um but yeah, anything's gonna happen, but COVID has made it happen then.

SPEAKER_02 10:43

The stuff that was bought during COVID was is the worst stuff because people paid the highest prices for it because the rates were so low. So you're buying stuff when rates were two and a half percent, and then the rate on that same asset now is seven and a half percent. Okay, well, and you bought it with no cash flow at two and a half percent. Well, how how can somebody now buy it from you at a seven and a half percent interest rate if it doesn't even cash flow at two and a half percent? Right, it doesn't work, right? So the only way that it's gonna cash flow is if the price comes down by 50% or more, so that you can actually cover the the debt. So that's what the problem is, is the interest rates are so much higher, and everybody said, Oh, it's gonna be uh year or two of high interest rates. That was four years ago that people, you know, people are saying that. And uh, you know, we're in year four, so 2022, 23, 24, 25, year five actually. And uh rates are not really much lower, they haven't come down much, and they don't they won't come down, I don't think, much this year, maybe a quarter point or something. There's not really any reprieve coming. And I think that's why that deal that I was involved in uh as a limited partner, not the sponsor. Uh the bank, I suppose, looked at it and said, Well, rates aren't coming down, your expenses aren't getting any better, your revenues aren't getting going up. Like, what we don't see that this is gonna get any better. So we'll take it back. Right. Roll it some more.

SPEAKER_03 12:08

What you're buying is you're buying price per pound. And of course, hopefully, you're buying cash flow at the same time. So, let me explain how this process is supposed to work. Normally, real estate is simple an owner decides they want to sell, and maybe they're tired, maybe they want to retire, and maybe, of course, they think that they're at the top. So they call a broker and the broker lists it. The broker lists it and buyers tour it and offers come in. So people compete. It's like an auction. But what happens when the bank owns it? Who's emotional in that transaction? No one. Because the bank, of course, is trying to figure out what it's really worth, even though the brokers might be accurate on what it is worth. If the bank takes the loss, they have to write off the loss. And by the way, the equity gone. We're seeing massive distress, primarily the office buildings trying to convert to multifamily, and of course, some multifamily that was purchased within the last several years and has floating rate debt. Those are the three big ones. So let me give you an example. Let's say somebody paid$50 million in 2022. That property could be worth$25 or$30 million today. Well, I can tell you right now that that's about what the loan's probably at. So if they sell it at$25, all the equity's gone, and maybe they sell it for the price of the loan. But what happens if it's below? They have to actually write a check. So where does that$5 million come from? It comes from the partnership. If they're lucky enough to sell it for above the loan, then the equity, of course, the original equity, is still gone. So from a syndication standpoint, from an existing partnership and an older syndication standpoint, most of that equity is gone. And the one thing that could potentially save you is time. If you can kick the can down the road or work with the lender for a long period of time, you may get back into the money. From a bank standpoint, the bank wants to sell the property for at or more than the loan. And that's the entire point of being in the first position. From my standpoint, I want to buy this property if it has cash flow and it's below replacement costs, and it's in a great market that I can improve on.

SPEAKER_02 14:10

Yeah, I don't, I mean, nothing else really to comment on that.

SPEAKER_01 14:13

You know, honestly, I thought that was a really good explanation. Um, how it kind of broke it down and yeah, no, we're done we're done with that video. I think we don't need to comment anymore on that one. So yeah. Or we some final comments.

SPEAKER_02 14:27

Um I mean, yeah, commercial, like you said, if you bought like stuff that was bought in 2022, uh, when rates were three and a half percent interest, um, the values of those properties have gone down to 30 to 50 percent potentially, and um the loan is more than what the properties are worth. So those you know, things that were bought in that time frame 21, 22, maybe even 23, a little bit, um, you know, probably all gonna get foreclosed on, I would unless they were what something happened to be more valuable.

SPEAKER_01 14:52

So it's it's it's not gonna happen all at once, it's just gonna slowly happen. Are you thinking uh in your opinion?

SPEAKER_02 14:58

It seems like slowly, like you said, because these banks will do everything they can to delay this stuff as much as possible. Right. Um, they have no incentive to make it go fast.

SPEAKER_01 15:07

So well, I mean, are they sending out their own people to analyze it and figure out like, hey, yeah.

SPEAKER_02 15:12

Um like you said, they're they're having a broker look at it, solicit offers on it. They'll they'll they won't list these in the market, they'll have a broker like, hey, call your top ten buyers, top five buyers for these kinds of properties in this marketplace and get an offer on this and then bring them back to us. And then we'll use that to determine what we think it's worth based on those offers. And then they'll try to figure out if you know could they sell it? If the offers are high enough, they'll sell it. If it's not high enough, then they'll figure something else out.

SPEAKER_01 15:38

Right. No, that I I actually again I don't know as much as on the commercial side of it. Um, you know, if anybody's ever wanting to talk a little bit more, I mean, uh have them reach out uh to well, probably you, Jaden. You're the one that uh understands that stuff way more than I do. Um, I'm more on the residents.

SPEAKER_02 15:57

I've done some commercial stuff. I've bought a couple hotels um with commercial loans, and I've been a passive investor in mobile home parks and apartments and self-storage and industrial. Um never done any office, I don't think. And I'm probably not going to. But I've never looked at some office deals, and I'm glad that I never got involved in them because the office market just has gone down. Right.

SPEAKER_01 16:19

So yeah, right. Well, hey, uh, thanks for jumping on with uh doing this quick video. Um, for those who don't know, we actually just spent two hours doing something completely different on this, so we just needed to cut out another video really quick. Um, hey, if you guys uh want to talk more, uh you guys know that we're in the franchising business. Um, we'd love to sit down and talk to you and see how maybe we can either help you um jump into the wholesaling and understanding even more, or maybe take your business that you have right now to the next level, branding it and stuff. So again, uh like us, follow us, do that all. And uh just remember uh we made all the mistakes. So you don't have to. Thanks, guys.