#116: Buckingham Team Interview – PPP Loans and Debt Forgiveness — part 2

Welcome to The Accelerated Investor Podcast with Josh Cantwell, if you love entrepreneurship and investing in real estate then you are in the right place. Josh is the CEO of Freeland Ventures Real Estate Private Equity and has personally invested in well over 500 properties all across the country. He’s also made hundreds of private lender loans and owns over 1,000 units of apartments. Josh is an expert at raising private money for deals and he prides himself on never having had a boss in his entire adult life. Josh and his team also mentor investors and entrepreneurs from all over the world. He doesn’t dream about doing deals, he actually does them and so do his listeners and students. Now sit back, listen, learn, and accelerate your business, your life, and your investing with The Accelerated Investor Podcast. 

Josh: So, everybody, welcome back to Accelerated Investor. I’m really excited that you’ve been able to join me today. Wherever you’re at in the world, whether you’re at home, social distancing, whether you’re out for a walk. I would say on your way to the gym or in the gym, because a lot of people do listen or podcast in the gym, but that’s not happening right now. So maybe you’re in your home office, maybe you’re working out at home, maybe you’re listening in your car. Wherever you find Accelerated Investor, just want to say thanks and tell you how much I appreciate you. How much gratitude I have for you engaging with us in our Accelerated Investor community. As you know, I love to do solocast and guest interviews that I think are gonna benefit you and your investing, your entrepreneurship as a business owner, being a better leader.

Josh: And that’s exactly what we have today. I’ve brought on three guests. Their names are David Lindner, Richard Fry and Nate Sinn. And they are attorneys that work for a local firm called Buckingham. Buckingham has over 60 attorneys. And Nate Sinn, I work with on a pretty regular basis in our private equity fund. When it comes to notes, mortgages, foreclosures and workouts for our borrowers. 

Josh: So let me just kind of open this up. Maybe Nate, go back to you or David. What are your thoughts on…we talked a little bit while we’re getting ready for this podcast about liquidity and cash flow and just being able to sustain this. Cause I don’t think anybody is going to pop right back, you know, unless you’re Amazon or, you know, you sell pizza as your pizza shop and everyone’s ordering pizza. You know, I don’t think there’s a lot of business that are just gonna hockey stick right back. So it’s gonna be a little bit of a long game to stay liquid, to have cash on hand. And that’s probably what a bit a lot of business owners are managing now as I can have the BPP money. I have some revenue coming in. I’m cutting some expenses out, but I’ve got to maintain this. So again, I think people are trying to cut deals everywhere they can to stay as liquid as possible. Is that right now? Is that the number one objective for most of your clients?

Nate: Yeah, I’m mean, I’ll jump in first, like. So I’m having a couple of different conversations. So for the business owner clients or property owner clients and yes, it’s managing the cash flow, trying to stay liquid. Understanding what your options are. You know, if you manufactured goods, you ship goods, you know, we might see a rise in reclamation actions where you ship your goods out and you typically do it on a net 16 or net 30 and payment hasn’t come. So what are your rights? Can you grab those goods back and avoid litigation that way? City reclamation demand. So some of these remedies have kind of fallen out of favor. We might see that again. At the same time, we’re going to have to be looking at your accounts payable. Right. And what can you trend? How can you manage your payments to cut your expenses? Not really understanding how long this is gonna go on when your cash flow is going to pick back up from your receivables. And the other side of my conversations I’m having with lenders. And the lenders so far aren’t really seeing a huge effect. But I think the defaults have come in and we talked a little bit earlier.

Nate: The key period is going to be asked for this initial round of stimulus money. If you look at what’s forgivable under the PPP, well, it’s primarily payroll. So I have some lender clients who view this as the government’s way to kick the unemployment can down the road. They’re anticipating having to front a lot of money from unemployment, wages, and they basically pass the buck to business owners. Well, in the kind of, you know, life cycle of. You know, our economy. Take commercial property, for example. Know you got to have the business revenue to pay the rent. Rent is the property owner who then has to pay the bank. Right. Well, eventually it’s going to trickle down to the lenders, too. So they’re bracing for scrubbing their loans and bracing for who they anticipate are going to be problem loans early. And then just like business, retail business owners and manufacturing business owners, the lenders have to do the same thing when they ask to make the business decision, like, are we going to try to help our borrowers weather the storm? Are we going to try to shore up our position? This actually starts happening.

Josh: Got it. And David, what are your thoughts on liquidity if you’re in the middle of a lot of transactions. I have heard and I know that Fannie Mae and Freddie Mac, especially on stabilize multi-family loans, they’re requiring a whole year, some cases a half a million, million dollars of cash being put into an escrow account, essentially for the prepayment of interest and in some expenses and expenses like that. So, again, liquidity becomes a major issue because they have to put more money into a deal or more money down, or if you’re in a cash out refi situation in the middle of this, Fannie and Freddie is requiring more dollars to be set aside to, again, kind of guarantee their loans get paid over the next year. So liquidity, again, an issue there. What are your thoughts on that?

David: Yeah, yeah. Say, you know, kind of echo Nate’s comments, I think are, you know, as owners or landlords, you’re looking to trim costs and reduce expenditures at this point. So it could be deferring capital projects or deferred maintenance and things like this, which, you know, could impact the property value. But at this point, you know, you probably are better off maintaining some liquidity as long as you can just due to the uncertainty or due to increased lending requirements. So that’s yeah, I think that’s the case.

Josh: Yeah, I’ve got some friends of mine. Could I like to hear from all of you guys because you have different types of clients. I have some friends of mine who are salivating about the defaults that might be happening and saying, hey, you know, even before COVID-19, we were expecting a recession in the next six to 18 months and they were keeping a lot of dry powder ready to go on a buying spree to buy commercial buildings, apartments, portfolios of single family properties, self-storage facilities, all these different kind of things. And they’re looking at COVID- 19 as just something that exacerbated what was coming anyway and probably just made it even worse than what the recession would have been. And so, you know, I’ve got friends of mine who are raising equity or raising debt to get ready to go on a buying spree. And Nate works a lot in the receivership area. 

Josh: Do you have clients also that are kind of looking at this as an opportunity to buy properties at a lower price to get things on sale? And how are those guys gearing up for this? Again, I think liquidity and raising money, relationships with equity investors, relationships with banks is a big part of it. So do you guys see some of your clients kind of gearing up for this opportunity? And if so, what are some things that they’re looking to try to do? And how long do you think that they’ll be waiting like. Obviously, we just said there’s not really deals right now, but there’s going to be in the next six months, 12 months, 18 months. So maybe, Richard, let’s start with you. What are your thoughts on what’s coming down the pike?

Richard: Yeah, I think this is an interesting situation. I know Nate deals with a lot of people who are already in distress. I’ve actually had a few clients who were already going through the process to refinance. This happened. They are now getting a better rate. You know, I’ve seen low 3s for commercial or residential property, which is pretty unheard of. Right. They’re getting some cash out and they are, like you said, preparing for those opportunities to come about. You know, I don’t have a crystal ball, unfortunately. You know, it could be 60 to 90 days or could be 180 days. But I think knowing the market that you play in and continuing to monitor those deals, there’s going to be properties that come up that are in that situation. And if you have the cash, you know, pull out a couple hundred thousand dollars of equity out of what you already have to refi and then have that available to kind of capitalize on those opportunities that come up in the market, because there certainly are going to be a few. So people with a strong balance sheet. I think right now should certainly look at a refi or like you said, raising cash that you’re going to be able to jump on these opportunities that come up in the near future. 

Josh: Again, I have some of my friends that are really good at raising equity that are just like, hey, we’re just we’re waiting kind of, you know, their rubbing their hands together. Hey, let’s wait six months. Let’s see what happens with prices. And there’s going to be even the guys that are really the sellers who are well capitalized, but maybe just a little bit older guys that are sixty five seventy five eighty, which is a lot of the sellers that we see in the multifamily space, guys that just own the building for 20, 30 years and just don’t want to go through another round of this that want to go through another issue, another 2008, another pandemic. They don’t want to improve the buildings. They’re just kind of done. They were planning on cashing out and now they’re like, oh, my God. Like, there’s not gonna be any buyers left. 

Josh: So my guys retraded the price and lowered the price a little bit. I think at a minimum, there’s gonna be quite a bit of that because they’re not necessarily selling because they’re distressed. They’re just selling because they’ve owned the building for a long, long time. Then you’re going to have significant distress, which we’ve talked about some of these commercial building strip centers and obviously some multifamily guys that were buying because guys think like 90 days ago, people were buying multifamily properties, class A are like a five cap with almost no cash flow. And now they’re going to have rent problems and this property are going to go into default. That’s gonna happen. 

Josh: Nate, you have to work in a lot of receivership situations and foreclosure. What are your thoughts on this next 18 months and again, clients? Again, we’re gonna be one of those guys that are buying. As you know, Nate, we have this private equity fund. We’re kind of in the process of winding it down in order create liquidity. And we’re taking those dollars to now invest in what are some deals are going to be coming. So what are your thoughts on this, this discussion?

Nate: I have clients salivating, too, and those guys are court appointed receivers, as you heard. They’re looking to be busy. I don’t know when it’s going to come down the pipeline. I think it’s going to be within the next six months, it’s really going to start seeing the defaults. The practical problem we’re going to have, particularly in states that are judicial foreclosure states. Look, I was the court basically hit the pause button for several months. So I had ongoing cases. I’ve got ongoing receiverships where I just so happened to file a motion, to appoint an electioneer two days before the state got closed. That’s right. Not been opposed. And it’s just sitting there in limbo. 

Nate: And when we come out of the kind of courts operating at reduced dockets and on emergency basis, only there is going to be this backlog and there’s gonna be a backlog to clean up the dockets that have just been set there. So I think everything’s just gonna be delayed. And then there is going to hit a point where there’s going to be a start of new cases file. So from Mosher standpoint, we are going to see an increase in foreclosures and I expect to see commercial foreclosures coming, too. But when you file your case, you might have a longer time to get through to the end, to get through to the sheriff’s sale or judicial officer sale, where as a lender, maybe your goal is to take the property back REO. Maybe it’s not, maybe it’s just liquidate, get out. So you’re going to see lenders looking at alternative remedies like receiverships.

Nate: Ohio has its own receivership statute. It’s fairly robust in terms of selling commercial real estate in addition to Ohio, because we operate in multiple states. There is the uniform commercial receipt, receivership and uniform commercial real estate receivership. A handful of states have enacted that. And that kind of mirrors a lot of things that are in Ohio. Statute provides the actual state law basis to take this alternative remedy to sell properties. So I think particularly in the judicial foreclosure states, you are going to see these opportunities come up, but they’re going to come up through third parties. They’re going to come up through a receivership who is, you know, has fiduciary duties to creditors and to the court. And you’re also going to see them start coming up in bankruptcies. The Small Business Restructuring Act became effective February 19th this year.

Nate: Perfect timing. It’s right to have this kind of small business restructuring act that is makes it more affordable and easier for small businesses to file Chapter 11 bankruptcies. And the CARES Act actually amended that statute and increased the debt caps. So now you can have seven and half million and still file. So I think you’re going to see an increase in bankruptcy filings to what Chapter 11 has kind of gone the way of liquidations. You know, any in most chapter 11s you see nowadays, they’re not reorganizations like they were intended to be originally. They’re liquidations. So you’re gets see a lot of sales coming out of bankruptcies, too. And so it’s either going to be a debtor in possession. It’s going to be an operating trustee, a small business reorganization trustee, court appointed receiver. One of these kinds of whatever you call it, it’s going to be a third party that has fiduciary duties that’s going to be offering properties for sale. Those are deals that I see that are coming.

Josh: And David taking that what Nate just said, if you’re working with a client, someone like us who’s a buyer in this market, who’s looking at deals that are potentially on sale, what are some ways maybe you guys know of some ways that I’m asking this for selfish, selfish reason. But what are some ways that guys who are looking for acquisitions, looking for new opportunities to find those in this upcoming maybe six to 18 months? Is it having relationships with attorneys that are in the know? Is it having relationships with commercial brokers? Is it making relationships with court appointed receivers? If other lists that you can buy of bankruptcies or foreclosures or real estate taxes that are behind. My audience is always looking for an end or a new strategy or a new way to find a great deal. What are your thoughts on some different maybe potential opportunities or ways to find some deals or some things that might be on sale in the next two years or so?

David: Yeah, well, I think the personal contacts are usually one of the best. I mean, talking to your attorney, talking to other people, you mean brokers are always pretty well-informed? I mean, Nate can talk more about. I think they’re in bankruptcy or foreclosure and how to locate those items. But, you know, I deal more with sort of market properties. And the brokers are always a great source of insight and saying that, you know, I stay in contact with them. I’ll let you know if they’re shopping something round. I mean, there’s all kinds of listings. Loop net and others that, you know, again, it’s not going to be as under the radar, but certainly I think you’ll see more activity there. And just kind of keeping your ear to the ground. But, you know, maybe they can talk about how you might find some of the real distressed properties maybe before this. Sure.

Nate: Yeah, I can I can I can add to what David said. And, you know, when you were asking your question in my head, I was answering yes to all the above. I think the relationships are key. Right. So it’s always good in any market to have these kind of relationships. So particularly if you’re getting if you’re looking for distressed property, then, yeah, you need to know attorneys to do this type of work. You should know bankers that are in the special assets groups of different lenders. Now, you should talk to receivers. You should talk to auctioneers, see who in your local market are doing this kind of work. Now, how to find, you know, when things are going to be coming up like this. There are services available. You can pay for a daily email of every Chapter 11 bankruptcy filing that’s in the nation.

Nate: Now you’re going to get first energy’s filing. You’re going to get it Merry Cole, you’re gonna get, you know, Neiman Marcus filed yesterday, right? Gonna get those notifications which don’t have anything to do with you. But maybe you see there’s a file and it’s a random LLC. And if you’re in the Cleveland area, this the northern district of Ohio. Well, it takes some legwork. You know, you can always access federal filings rooms through the Pacer system. So you can go Pacer. It’s P-A-C-E-R and you can sign up and you can access and it’s you have to pay by page so it can get very expensive if you do a lot of this. But it’s reasonable if you’re not. And you can look up any case.

Nate: But you’re going to kind of have to do your investigation to figure out what it is. Maybe there are some properties that you have your eye on that you’ve been hearing rumors are in distress. Well do the legwork ahead of time to figure out who the owner is and watch the court dockets. A lot of court dockets are online now, too. You can set up your Google alerts. And then there are services to pay for court docket alerts, too. And our firm, you know, we have less law services, which are a little pricey, but they have docket alerts, court wire alerts. So I’m looking out. I’m in my office for the first time in two months today. Yes. Looking out the window. You know, if I see this office building right here. My eyes on it. And I think that they’re in distress. I’m going to find out who the owner is. I’m gonna set up a Google alert for that owner. I’m gonna set up a court wire alerts for that owner, and then I’m going to watch the bankruptcy dockets for that owner as well.

Josh: Wow. That’s great. Fantastic advice. So, guys, as we kind of round third here and head for home, I’d like to just ask each of you. We’ll start here with Richard. Just any kind of final like parting shots or words of advice that we haven’t gotten to for business owners, for residential and commercial real estate investors, just things that should either watch out for or maybe it’s just, you know, what do you think in the market that’s positive? Just any kind of final thoughts that you’d like to pass along to our audience to not only just keep their head above water in this tough time, but really thrive going forward? What are some things that you’re telling your clients, things that we should know that we haven’t talked about yet? Could be any anything that’s kind of on your mind or on the tip of your tongue that you think they should know as we kind of round up here, I think.

Richard: And both David and Nate touched on the personal connection that you could have. I think now is an extremely important time to keep up with those personal connections. Like if you reach out to the people that you know, that are other business owners that are your brokers and agents. I mean, these people are going through the same struggles that we are, you know, working from home. You know, I know there’s a bunch of agents as to how do you find properties? Well, there’s a bunch of agents and brokers that are now working from home, maybe aren’t as busy. They should be keeping an eye out. They will be keeping an eye out. Right. I think that there’s also some, you know, tax programs that you can take advantage of. You know, one thing you mentioned before, there might be a lot of people who have owned property for 20 to 30 years. They’re trying to move out of the business. There are like kind exchange opportunities to move that money into Delaware statutory trust, or you avoid the management aspect of the property, but still are able to collect a good return without having to pay tax on the proceeds of the sale. So just keep your options open. Liquidity is a great thing to keep if you have a strong balance sheet to go out and be ready to jump on those opportunities.

Josh: That’s fantastic. As I have, I’m going to have David comment. I just have a feeling we’re only scratching the surface here with all the things that we could talk about. And we’ll have to set up maybe a series of these podcasts and maybe we each have each of you on separately. So David, because Richard, we if we had time, we definitely jump into opportunity zones and 1031and the Delaware Statutory Trusts and some of those kind of things. That’s a whole other conversation that we definitely should be having. So, David, the same thing for you. Like just kind of final thoughts, parting shots, words of advice for our business owners and real estate investor.

David: Yeah, absolutely. I mean, I guess the bottom line is crisis always brings opportunities. So be prepared. Educating yourself, learning about the government programs that are out there, keeping an eye out in your local area for opportunities through some of the methods Nate’s talked about. And staying in touch with people like Rich said, you’ll hear about things and it’s a good chance. You know, if you have properties now to take a look at, you know, strengthening them, maybe you have tenants that aren’t going to make it. You know, maybe it’s now it’s time to evaluate. Are those the kind of tenants you want to cut ties with as soon as you can and look for something that’s going to be more stable if something like this ever happens again? Maybe tenants weren’t as reliant as, you know, walk in traffic or have better online business models. And, you know, by the same token if you’re a tenant, maybe you’re looking at reducing your space. A lot of office tenants have found, look we’re all at home now and we’re managing to function. So, you know, maybe it’s a chance to reduce your footprint if you’re a tenant and reduce that expense. You know, it’s not as good from the owner side, but that’s you know, that’s what tenants are going to be looking at. So the right, keep in mind as well.

Josh: That’s great advice that actually our office lease is actually up later on this year. And to your exact point, David, we’re already hearing from the broker or the owner about if we can cut a deal now to basically guarantee them that we’ll stay. They’re already very open to concessions because they’re worried about the long-term health of their property and the office suite that we have. And so I would pass along to our audience again, if you have a lease coming up and you can cut a deal that allows you to feel more comfortable and the landlord to feel more comfortable and maybe extend your lease and maybe be able to give and get it at a lower cost per square foot. Now’s the time to do that, right, because everybody’s looking for more, you know, longer term, more, not permanent, but longer-term contracts that they can count on that are less likelihood of default. So I would encourage all of our audience to renegotiate those deals now. It’s actually better for you and the landlord or if you are the landlord, make that deal with your tenant. Maybe give your tenants some concessions to keep them in your building and extend their lease out for a couple more years. Nate, as we kind of wrap up, what are your final thoughts?

Nate: Yeah, I think just this whole situation has kind of made me do a little bit of self-evaluation. And I think the most important thing for everybody is just honesty. You know, whatever situation you’re in. Yes. To be open and honest with yourself. So if you are going to be in a troubled situation, you think cash flow is going to be a problem. You didn’t have a strong balance sheet. Be prepared to make tough decisions and make those tough decisions early. Be honest with yourself about your likelihood of survival, of whatever it is you’re doing or some aspect of what you’re doing. And if you have a lender or a landlord or something on the other side, cooperation is key. Now, if you’re struggling on cash flow, now’s not the time to hunker down. It’s to cooperate. And out of that, you might be able to find that, you know, you revamp your business, you pivot a little bit and you can succeed. So I think you need to be honest and you need to be open to change and innovation on every single side here. And I think everybody’s gonna get through it one way or the other.

Josh: Yeah, you bet. Guys, fantastic advice today. I know we’ve been working on getting this together for about 60 days. I appreciate guys carving out some time and for my audience. Again, want to make sure that you reach out to the guys. Richard Fry, David Lindner, and Nate Sinn with Buckingham. Again, their Web site is BDBLaw.com. And again, that forward slash COVID19 is a fantastic resource page with multiple articles from our guests today on everything from General Business Council advice, labor and unemployment updates, Family First Coronavirus Response Act. I’m kind of reading from their Web site right now, the CARES Act and then some of the Ohio re-opening guidelines, really tons of great videos in there and content resource pages, white sauce papers for you guys to take a look at again. BDBLaw.com/covid19. Guys, thanks so much for being on today on Accelerated Investor.

You’ve been listening to Josh Cantwell and the Accelerated Investor Podcast. Leave a comment on our iTunes channel and let us know what you want to learn next, or who you’d like Josh to interview. While you’re there, give us some five-star rating and make sure to subscribe so you can be the first to hear new episodes. Follow Josh Cantwell and his companies, the Strategic Real Estate Coach and Freeland Ventures on all social media platforms now and stay up to date on new training and investment opportunities to start your journey toward the lifestyle you’ve always dreamed of. Apply for coaching at JoshCantwellCoaching.com.

In this two part series, attorneys Nate Sinn, Richard Fry, and David Lindner from Buckingham join me today to talk about what they’re seeing on the legal side of the real estate investing equation as COVID-19 impacts the courts, contracts, bankruptcies, and business deductions.

If you look at what’s forgivable under the PPP loan, it’s mostly employee payroll. What comes after the stimulus money is gone is where the real problem may lie. Nate Sinn shares his thoughts on what he sees from both lenders and business owners as they try to navigate through the current environment.

Being in the middle of a cash out refinance when liquidity is disappearing may be having a negative effect on your investing strategy. Fannie Mae and Freddie Mac are requiring more money to be set aside in order to stabilize the market. David has some suggestions for those who are refinancing or in the middle of purchasing property.

As attorneys who deal with a lot of foreclosures, bankruptcies, and reorganizations, Nate, David, and Richard talk about crisis also brings opportunities. From both the tenant and the landlord side, now is a great time to reevaluate your business. They have suggestions for ways you can trim costs, and rethink your business strategy.

If you’ve been shoring up money waiting for the next downturn, I know you’re probably hungry to know how you can find these deals. Relationships are key, says Nate Sinn, especially with the bankers, auctioneers, receivers, brokers, and attorneys that do this kind of work. Going beyond that, Nate shares a wealth of knowledge for how to keep an eye out for distressed properties.

What’s Inside:

  • If you can refinance to pull out cash for future deals, you should consider it.
  • The Small Business Restructuring Act’s role in helping businesses regroup and recover.
  • Chapter 11’s may move to more liquidations and less restructuring.
  • Where are we headed in the next 18 months in the commercial real estate space?

Mentioned in this episode​

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