00:00
hear you yeah super so uh back over to
00:02
you anton yes uh so uh uh
00:06
why don’t you uh give us a brief
00:08
background about you as well as uh
00:10
glastonbury thorne
00:12
okay
00:13
all right yes so um yes i’m jim griffin
00:16
with glastonbury thorne and glastonbury
00:19
thorn offers
00:20
concierge
00:22
services to investors who are interested
00:25
in investing in
00:27
notes
00:29
that is to say
00:30
mortgages and so
00:32
and
00:34
that is
00:35
for investors who
00:36
would like to hand pick i would like to
00:38
have this particular note or that
00:40
particular note in my portfolio so uh
00:44
that’s what we help with
00:46
okay very good
00:48
uh now
00:49
our typical listeners there are uh
00:53
commercial real estate investors whether
00:55
they are investing in multi-family or
00:58
other type of commercial real estate as
01:00
direct investors or then also passive
01:03
investors very often in
01:05
in syndications
01:07
so they may wonder why do we talk about
01:10
node investing right so what what does
01:13
it have anything to do that would add
01:15
value
01:16
to me as a as a multi-family or a
01:20
commercial real estate investor now i
01:22
think what a lot of people do not
01:26
fully understand is that
01:28
monitoring and knowing about
01:32
the underlying debt and underlying their
01:34
portfolio and how they perform
01:37
and how they evolve is actually a very
01:39
good
01:40
uh
01:41
signal we can call it the canary in the
01:44
gold mine or any other term you want to
01:46
use and we certainly have seen that in
01:49
2007-2008 when
01:52
anyone who was involved on the debt side
01:54
already saw clear signals there whereas
01:58
the investors were just buying
02:00
properties in investing in properties
02:02
never really caught off guard right so
02:05
that’s why i think
02:07
talking to an individual like jim
02:10
is is really important to get to get a
02:12
feel for where the market has been and
02:15
for how it’s evolving and also what what
02:18
you think it’s it’s going to look like
02:20
down the road and what potentially your
02:23
strategies
02:25
could be
02:27
so jim can you give us a little bit of a
02:30
of a picture of how obviously we went
02:33
through kobe 19 since early 2020 now it
02:38
appears that we are now getting back to
02:42
hopefully as normal as possible as
02:44
quickly as possible
02:46
uh but how how has that been working
02:50
with you on the on the note
02:53
business side
02:55
okay so um let’s break that down into
02:57
two sub topics that in some sense you’ve
03:01
talked about
03:02
the first just briefly uh sort of from a
03:05
tactical standpoint when you
03:08
set up that question you were talking
03:10
about the fact that many of your
03:12
listeners
03:13
invest for example in multi-family and
03:16
commercial and and how would
03:18
about notes being relevant for that so
03:20
with and so on so just very quickly
03:24
uh it’s interesting to think about you
03:26
know as you invest in notes
03:28
you can create
03:30
basically a virtual multi-family can’t
03:32
you
03:33
so uh whereas that multi-family is all
03:37
uh by definition
03:39
all concentrated perhaps in one or two
03:42
city blocks
03:44
uh so it has all that geographic risk or
03:47
you know if there’s a fire it’s going to
03:48
affect probably the whole thing if
03:51
there’s a change in crime rates it’s
03:53
going to affect the whole thing if
03:54
there’s anything in that
03:57
specific local environment that is
03:58
causing more vacancy it’s going to
04:01
affect the whole thing
04:02
whereas buying a portfolio virtual
04:06
multifamily of maybe 20 notes or 40
04:10
notes they can be spread across multiple
04:12
geographies and you can imagine already
04:15
without am i saying anything more what
04:18
the advantage would be of that
04:20
we could talk more about that but let’s
04:22
get now to the the question that you
04:24
raised is uh which i think is a very uh
04:27
perceptive that in the past
04:30
those who invested in notes
04:32
got
04:35
sort of
04:37
preliminary insights about what was
04:39
coming
04:40
and indeed uh
04:42
you know we do have now uh at this
04:45
moment sort of mixed signals
04:48
so what everybody is talking about
04:51
is the good stuff right yeah that’s the
04:54
cocktail party uh talk
04:56
the
04:57
market is on fire
05:00
boy when you put something on the
05:01
marketplace you get multiple offers and
05:03
they’re all over asking price it’s
05:06
amazing
05:08
and this is great
05:11
so uh indeed it’s true i mean when when
05:14
we talk about
05:16
year on year uh median
05:19
price
05:20
for existing homes
05:22
uh back in june
05:25
uh when this kind of started
05:28
and you you ask yourself you know why
05:30
where were prices starting to
05:32
go up in june because of covid doesn’t
05:36
make sense of course we know it’s
05:39
because all this money started to be
05:41
injected into the into the economy but
05:44
anyway
05:45
uh
05:45
though that median price
05:48
notched up pretty significantly in june
05:50
by about 3.2 percent year on year june
05:55
2020 versus june 2019
05:59
by july it was up 9
06:02
by october it was up 15.5 percent and
06:06
the most recent month for which i have
06:08
data which is february it hit a new
06:10
benchmark of 15.5 percent 15.8 percent
06:14
so in other words in february of 2021
06:18
the average
06:20
change in median existing homes
06:23
was it was 15.8 percent greater than the
06:26
year before so that’s amazing right
06:29
and uh you know you’ve you can see this
06:31
whole shift in the market up the
06:34
brackets you know what what were the
06:36
traditional brackets 71 percent of the
06:39
market was
06:40
100 000 to
06:42
500 000 and you know you can subdivide
06:45
that and so forth but all those brackets
06:47
are shifting
06:48
so the
06:50
brackets that were you know like 100 to
06:52
250 000
06:54
that that’s down 10.7
06:57
and the higher the bracket is the more
06:59
it’s increasing so all that’s good right
07:02
and that’s all the cocktail party stuff
07:04
so now
07:07
behind that
07:08
we take a look at
07:10
you know what i see
07:12
on the notes side
07:15
we can see
07:16
that a lot of smart money doesn’t
07:19
apparently share this optimistic view
07:23
and one of the ways uh that we can see
07:27
that
07:28
is uh taking a look at the mortgage
07:31
bankers association
07:33
mortgage availability index
07:36
so this is an index that is tracked year
07:40
on year
07:42
and we can see that uh
07:45
right now it’s about at the index is at
07:48
about a 125.4
07:50
it’s trending up a little bit
07:53
but it is down
07:54
about 35
07:58
versus uh december of 2019 in other
08:02
words for every 100 people who could
08:07
have gotten
08:08
a conventional mortgage in december of
08:10
2019
08:12
35 of those same people with the same
08:16
credit scores and the same profiles
08:18
cannot get a mortgage today
08:22
that is very significant and at the same
08:26
time
08:27
those people who are getting lose do you
08:30
want to guess what the average down
08:32
payment is today
08:34
so we’re talking about all these offers
08:36
over asking price right who’s paying
08:39
that extra over asking price
08:42
well
08:43
gold comes with equity right well yeah i
08:46
mean um
08:47
it it it comes with cash
08:50
so somebody doesn’t trust that
08:53
optimistic
08:54
price
08:55
so the average down payment right now
08:59
according to ellie mae
09:01
is 19
09:05
on residential
09:07
so you add it together and you can see
09:09
that there’s a lot of smart money on the
09:11
sidelines that doesn’t share
09:14
this wildly optimistic view that we’re
09:16
hearing at cocktails
09:20
yeah they’re very interesting
09:24
i think what also probably plays into it
09:27
and you can tell me if i’m wrong is is
09:30
uh the smart money obviously wants to
09:33
see that
09:34
bad new cushion on one hand but at the
09:37
same time they also see that
09:39
affordability
09:41
issue that that comes into play with
09:43
with a lot of borrowers right so
09:46
the ones that
09:47
can afford to put in more cash
09:50
they can bring the debt down so that
09:53
it’s still meeting the the debt to
09:56
income ratio
09:58
but it’s essentially limited to the ones
10:00
that have the cash all the others are
10:02
pushed out of the marketplace right
10:06
yes yes these things these factors are
10:08
all coming together and you know another
10:10
signal that that we can see
10:13
is uh flipping profits you know many of
10:15
us you know uh kind of like a little bit
10:19
on the sidelines right now with flipping
10:21
but uh you know if you do look at the
10:24
flipping profits the overall
10:26
gross profits
10:28
are
10:29
floating are trending up but the roi
10:33
percent has never been so low
10:36
as it was maybe
10:38
2011 or 12 was the last time we saw the
10:41
percent roi on flipping down this slow
10:44
and again the reason is obvious that
10:46
pressure to buy those properties trying
10:49
to find those good buys is becoming more
10:51
difficult
10:53
sure absolutely right so
10:57
you better hope that these values go up
10:59
otherwise you you you’re left with uh
11:03
uh with with your harmony loan that you
11:05
are that still has has to accruing
11:08
interest right and
11:10
it doesn’t take much we
11:12
we have a couple of clients who uh on
11:15
the multi-family side are also active on
11:18
the flipping side
11:20
uh and there was a brief period
11:22
particularly in california right in the
11:25
la and bay area
11:27
in 2019 where there was a little bit of
11:29
a cooldown and a lot of them got
11:32
caught off guard just for a few months
11:35
and
11:36
it it can whatever looked like a great
11:39
profit can turn into a disaster very
11:42
quickly there right yes it’s not funny
11:46
yeah yeah
11:48
so so what you are uh talking about uh
11:52
uh white when it comes to individuals or
11:56
lenders asking for more for more cash
12:00
down payments
12:02
and then also that aspect of
12:04
affordability and all that
12:06
it’s only short term at least that has
12:10
uh has created a major boom
12:13
uh
12:14
also for multifamily right whoever now
12:17
cannot afford to to buy a single family
12:20
home
12:21
either because it’s not available
12:22
because a lot of the prospective sellers
12:24
on odeem selling the prop views they
12:26
hope that they can even sell it for more
12:28
but apart from from the supply
12:31
constraint there there is only
12:33
affordability issue and that definitely
12:36
has helped now also to fill some of the
12:38
multifamily properties that have been
12:40
struggling
12:42
and as we know right over the last 12
12:45
months of all the commercial real estate
12:47
multifamily has been the darling
12:49
and a lot of
12:51
owners have been able to fill these
12:52
properties very quickly because a lot of
12:56
the new tenants
12:57
were all prospective single-family
13:00
buyers and they cannot afford it anymore
13:03
but i think the message there still is
13:05
right whereas on the single family side
13:08
the lenders obviously are pulling back
13:11
right they want to see more equity and
13:13
they’re they are not changing their
13:16
qualifications for the for the buyers
13:19
with the debt to income ratio
13:21
whereas on the multi-family side we
13:24
certainly have seen a lot of property
13:26
owners
13:27
adjusting their
13:29
criteria for their tenants for to
13:31
qualify
13:33
downwards so that they actually can pay
13:35
the rents or the higher rents right so
13:39
the reality is yes all these new tenants
13:42
they they come in they need a place very
13:45
often you can raise rents because they
13:47
need a place to live
13:50
but
13:51
on the flip side very often these new
13:53
tenants they cannot really afford all
13:56
these rents so what do property owners
13:58
do they are making concessions on the
14:01
tenant qualifications right so that will
14:04
be the interesting
14:06
thing to watch going forward uh how many
14:10
of all these tents that you are now able
14:12
to get on board are actually
14:14
long-term paying tenants and how many of
14:16
those will will turn into
14:19
more problematic tenants with
14:21
delinquency issues
14:23
[Music]
14:24
yeah that’s certainly a question you
14:26
know i mean i i’ve got
14:28
i can think of several uh properties
14:30
that i’ve i’ve got
14:32
signed agreements to purchase in my
14:34
market uh that i can’t close on because
14:38
the seller
14:39
uh can’t get the
14:41
tenant out of the property which is the
14:43
condition for closing
14:44
and the tenant is not paying
14:47
and they can’t evict
14:49
now uh
14:51
that is a big hardship you know so so on
14:54
whatever scale they’re not
14:57
that many investors that can
14:59
last that long
15:02
not having rental income
15:04
having to still pay their mortgage and
15:06
not being able to evict that’s a tough
15:08
one
15:10
yeah that’s a it’s an excellent point
15:12
right
15:13
i think what uh what is also ammo’s kind
15:16
of unfair right uh in in that whole
15:19
picture
15:20
is that
15:22
obviously it’s always the
15:24
everyone sees all these these large
15:27
multifamily properties and everyone
15:29
feels including many people in gorman
15:32
though these are all these extremely
15:35
wealthy property owners they can afford
15:38
to keep these tenants in in their
15:41
properties without paying
15:43
and obviously if you are a reit and if
15:46
you are a large hedge fund
15:48
or a private equity fund
15:51
you
15:51
it’s easier for you to afford it’s still
15:53
not fair but at least you have the
15:55
ability to
15:57
to fund some of the
15:59
the shortage for a longer period of time
16:02
but what no one really recognizes is
16:05
that the majority of all these rental
16:08
properties from single family to
16:10
to small multi-family they’re all
16:13
individual owners and they do not have
16:15
that massive cash
16:17
cushion
16:18
to just carry all these
16:21
uh these tenants that by law are now
16:24
allowed to
16:25
to continue to live there without having
16:27
to pay right
16:30
so it that will definitely be very
16:32
interesting to watch how how that all
16:35
turns out
16:36
uh i think there will be some
16:38
opportunities obviously with there will
16:40
be pain
16:42
but uh
16:43
i personally see particularly in the
16:46
smaller
16:47
rental segment that there will be much
16:49
more pain points
16:51
and as a result also opportunities
16:54
for
16:55
for buyers that are
16:57
looking at that market would you agree
16:59
with that
17:00
completely agree with that
17:03
you know it’s interesting i i think i
17:05
don’t know if you know but i i i spent
17:07
quite a number of years uh
17:09
living in asia and um
17:13
you know the kanji character
17:15
for crisis
17:16
in uh
17:18
in china is actually a compound you know
17:21
like we have compound words like
17:23
fireflies composed of the word fire and
17:25
word fly and get a firefly it’s neither
17:28
a fire nor a fly
17:30
so the kanji character
17:33
for crisis is a combination of two words
17:36
danger
17:37
and opportunity
17:39
and isn’t it interesting
17:41
because we’re in the middle of a crisis
17:43
and when you’re talking about a economic
17:46
crisis there is always embedded in there
17:49
some kind of opportunity
17:52
if one is ready and i do believe that
17:54
the opportunity that you’re describing
17:56
is a very big one uh the those uh tired
18:01
landlords who have had it and they just
18:04
want out
18:06
yeah uh that they want out or have to
18:10
get out right or have to get out yeah
18:13
yeah so
18:15
of of the of the loans uh that uh the
18:19
notes that you you have been uh buying
18:22
for yourself as well as for your
18:23
investors where would you say the
18:25
performance
18:28
has has been over over the last let’s
18:31
say pre-covet doing covert and what what
18:34
do you see is going to happen
18:37
now this year and obviously you don’t
18:39
have a crystal ball into next year
18:44
well let’s start by saying that broadly
18:46
speaking we can classify notes
18:50
at any given time into two broad groups
18:52
performing and
18:54
non-performing and you know if we’re uh
18:58
prudent
19:00
uh about how we select notes
19:03
then uh you know in in the performing
19:05
category
19:07
we have every good expectation to uh
19:10
continue to collect those payments
19:14
and uh the
19:16
uh and of course we know that we have
19:18
equity exit strategies if those payments
19:21
do not come that’s not our our goal
19:24
and within the performing uh category
19:27
we’re going to have a range of yields
19:31
and of course if you uh pick a note that
19:34
is like
19:35
perfect in every way the house is
19:38
beautiful the neighborhood is perfect
19:40
there’s no crime the economy in that uh
19:44
community is going up uh the vacancy
19:47
rates are down the investment to value
19:49
is perfect uh the payment history is
19:51
ideal but
19:52
every criteria you can think of
19:55
of course that note its yield is going
19:58
to be at the low end of the range
20:01
and as you find notes out there that
20:03
have got these amazingly high yields
20:07
just go look and you’ll find the reason
20:09
why they have amazingly high yields and
20:12
so basically if you just hit the ball in
20:14
the middle of the fairway and
20:16
say the six seven eight
20:18
nine percent yields you can find good
20:22
solid nodes that are going to pay and
20:24
you know
20:25
that are secured by nice assets and
20:28
they’re checking the boxes
20:30
but now
20:31
your question what does the what what do
20:34
we see coming
20:35
well
20:37
one thing i think we can say fairly sure
20:40
is
20:40
get brace ourselves for a pretty big
20:43
tranche of non-performing notes
20:46
and those non-performing notes for those
20:49
who have an appetite for that are a
20:51
different thing
20:52
so there the play may may not be that
20:55
you’re expecting to get the payments i
20:57
mean after all the note is a
21:01
a percentage of the value of the
21:03
property and then you’re probably buying
21:05
the non-performing note at a very deep
21:08
discount to the unpaid principal balance
21:10
so it’s a discount on a discount
21:12
just try to get those kinds of discounts
21:15
doing direct mail advertising saying i
21:16
want to buy your house so that’s another
21:19
thing
21:21
yeah
21:23
obviously
21:24
it takes an effort to find those right
21:27
uh
21:30
direct mail and that way it’s for
21:32
wholesaling whether in for multi-family
21:36
technically it’s possible but it takes a
21:38
lot of effort and time and money right
21:42
and
21:43
you may be able to find some great deals
21:45
there
21:46
uh but i think uh what’s only if if
21:50
someone uses a service like you you do
21:52
the footwork for
21:54
uh for that so someone
21:56
can focus on their core investments
21:58
rather than
21:59
now attempting to to find that needle in
22:02
the haystack that is is now the the
22:05
right loan right
22:08
so
22:10
why don’t you give us a little bit of a
22:12
of a picture what uh
22:14
what you’re doing and what type of loans
22:16
you’re typically
22:18
uh buying and how how
22:21
uh let’s say our listeners obviously
22:23
they are heavily involved in
22:25
multi-family or commercial real estate
22:27
directly but
22:29
as a diversification tool uh if someone
22:32
has an interest to invest in
22:34
in in a note maybe you can give a little
22:37
bit of
22:38
a picture there what what would be
22:40
what they could expect
22:43
yeah diversification is really a
22:45
constant theme of people that i talk to
22:47
that uh you know have a lot of
22:49
experience with syndication and you know
22:51
doing things at certain scale
22:53
but they are always fascinated by notes
22:56
and they always say to me i’ve always
22:57
wanted to kind of get and learn a little
23:00
bit more about it and buy a couple so
23:02
that i kind of understand what it what
23:04
it’s like
23:06
and um
23:07
so the first thing that i can say is
23:09
that uh i do have um
23:11
a pretty extensive ebook
23:14
that would be available if somebody were
23:16
to you know just send me a message at
23:18
you know info
23:20
at
23:22
gthorn.com g of course standing for
23:24
glastonbury and then thorne t-h-o-r-n-g
23:28
thorn.com i can send you that e-book um
23:31
or a link to download that e-book which
23:33
has like 31 criteria for selecting notes
23:37
and then it follows with says step by
23:39
step what do you do in order to buy a
23:42
note
23:43
and and after reading that you pretty
23:46
much see okay there’s a lot of factors
23:48
to consider and um
23:51
it’s a fair amount of work you know to
23:53
kind of filter and say not this one but
23:55
that one so we do that
23:58
and uh you know it’s just like buying a
24:00
piece of property
24:03
investment property uh
24:05
you know there’s a realtor involved and
24:08
and you know nobody pays the realtor
24:11
nobody no buyer pays the realtor
24:13
people always ask me you know so what do
24:15
you charge because
24:17
there’s no charge i mean you there’s
24:19
there’s a price and don’t worry i won’t
24:21
starve
24:22
but it’s you know all you see is the
24:23
cost of a note and what’s the yield then
24:25
you decide if you want it or not it’s
24:27
that simple
24:30
yeah that’s that’s very good so do you
24:33
focus on certain uh states obviously
24:37
you’re based in tucson right in arizona
24:40
uh do you focus uh on on i assume
24:43
arizona is a market that you are
24:45
focusing on but do you
24:47
do you do it across the country or do
24:49
you have some markets that you like or
24:51
dislike
24:53
that is a great question
24:55
so uh the the initial answer is i would
24:58
buy a note in any state okay
25:02
now there are certain states that i
25:05
love less than others
25:07
uh a new york uh would be a state that i
25:10
love less a new jersey would be a state
25:13
that i love less because of the
25:15
environment there the political and
25:17
legal environment
25:19
there right now
25:21
um but i would buy a great note in any
25:24
state
25:25
but
25:26
what i’ve found is that when i’m done
25:28
filtering through and all my criteria
25:31
and trying to figure out okay what’s the
25:33
best yield what’s the best value and
25:36
then i go look at this state
25:38
in general
25:39
my notes turn out to be mostly in the
25:42
midwest and southern states
25:44
that’s where i’m finding the best value
25:46
it’s not because i’m filtering for that
25:48
it just turns out that way
25:50
yeah very rare that i find a great note
25:53
on on the pacific coast
25:56
so uh it just turns out that way
25:59
okay so what what do you think is the
26:01
reason why the pacific coast
26:04
uh is generally not that that’s great
26:07
because the
26:10
everything is already so
26:13
highly valued
26:15
and
26:17
the margins that you have the safety
26:19
margins are are lower or what is the
26:21
reason for that
26:23
yeah um so i mean there are a number of
26:26
criteria that
26:28
you know one can look at some are more
26:31
important than others
26:33
so um
26:34
i’m very favorable to
26:37
as low an investment to value as i can
26:40
get
26:41
and
26:42
so that’s one of the things that i look
26:44
at strongly and
26:47
so
26:48
you know those
26:50
those
26:51
nice investment values tend to be
26:55
more in the states that you know i just
26:57
mentioned in the midwest and in the
26:59
south yeah there’s less volatility i
27:02
like i don’t like volatility when i’m
27:04
investing all those kinds of factors
27:08
yeah put it all together yeah
27:10
okay very good
27:12
uh
27:13
great uh i think uh jim you you provide
27:16
a lot of value here obviously it’s a
27:18
little bit of a different spin on
27:21
what we are typically talking about but
27:24
as we discussed
27:26
whatever is happening
27:28
on the on the note investment side
27:32
including single family right uh it it
27:35
has a direct impact on
27:37
on the multifamily side
27:40
and it’s it’s only gives some signals of
27:43
how
27:44
uh how lenders look like uh look at it
27:47
on the on the single family side and
27:50
maybe some multi-family investors should
27:52
also take note of how how they viewed
27:56
the state of the market right now
27:59
when they when they invest in
28:01
multi-family
28:03
refinance multi-family or
28:05
also just make decisions when it comes
28:08
to tenant qualifications should you
28:10
really be that aggressive
28:12
or should you take
28:14
kind of a lesson out of the book from
28:16
lenders and say well maybe we just need
28:18
to stick to our
28:19
uh our past criteria rather than losing
28:22
them just to fill the property
28:26
yeah yeah
28:27
yeah
28:28
so thanks again uh jim was was great
28:31
having you on uh so you you mentioned
28:34
your uh
28:36
uh your email so maybe you just can uh
28:39
to to wrap it up just to provide again
28:42
your contact details sure yes uh my
28:46
email uh you can reach me at info
28:49
at
28:50
g
28:51
g thorn
28:53
dot com
28:54
so
28:55
um
28:56
yeah from there i can provide you with
28:57
links to multiple other things all right
29:01
very good thanks again tim for for uh
29:04
joining us today thank you anton
29:08
bye-bye