Today's guest is Ben Fraser Ben Fraser is the Managing Director and Chief Investment Officer at Aspen Funds, where he combines his analytical nature with a passion for delivering outstanding client service and strong returns through out-of-the-box investments. Show summary: In this episode, Sam speaks with Ben Frazier from Aspen Funds. They delve into the complexities of raising capital and the strategic shifts Aspen Funds has mad...
Today's guest is Ben Fraser
Ben Fraser is the Managing Director and Chief Investment Officer at Aspen Funds, where he combines his analytical nature with a passion for delivering outstanding client service and strong returns through out-of-the-box investments.
Show summary:
In this episode, Sam speaks with Ben Frazier from Aspen Funds. They delve into the complexities of raising capital and the strategic shifts Aspen Funds has made to adapt to the evolving market. Ben outlines three common scenarios they encounter: providing gap funding for urgent capital needs, facilitating loan assumptions to improve leverage, and offering rescue capital in distressed situations. He explains the intricacies of negotiating with senior lenders, emphasizing the importance of understanding their motivations and the power of being the last money in. Ben also candidly discusses the current challenges in the commercial real estate market, including rising interest rates and an influx of new supply, suggesting that survival through the next few years will be key for investors.
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Intro (00:00:00)
Ben's Career Journey (00:01:14)
Evolution of Aspen Funds (00:02:00)
Challenges in Raising Capital (00:03:42)
Adapting to Market Changes (00:04:55)
Navigating Risks in Real Estate Investments (00:05:13)
Building Trust with Investors (00:07:13)
Attracting Capital through Thought Leadership (00:10:52)
Timeline for Capital Attraction (00:12:13)
Current State of Commercial Real Estate Market (00:14:05)
Future Opportunities in Real Estate Investments (00:17:57)
Conclusion of the Show (00:17:57)
Gap Funding (00:18:24)
Loan Assumption (00:19:56)
Distressed Rescue Capital (00:20:52)
Hope for Sponsors (00:23:32)
Negotiating with Lenders (00:26:15)
Conclusion and Contact Information (00:28:52)
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Connect with Ben:
LikedIn: https://www.linkedin.com/in/benwfraser
https://www.linkedin.com/company/aspen-funds
Web: aspenfunds.us
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
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Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
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Want to read the full show notes of the episode? Check it out below:
Ben Fraser (00:00:00) - There's something like 9 million accredited investors just in the US, right? For any one of us to be successful, I only need like a couple hundred investors. You know, if I want to go big, a couple thousand investors, that's not that many in the sea of accredited investors. And so my mindset started to shift. We started to position ourselves as thought leaders,, to attract capital to us as authorities in our space, doing a lot more content,, getting in front of audiences virtual and in person and starting to kind of build a,, an attraction mechanism to bring capital to us.
Intro (00:00:36) - Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.
Sam Wilson (00:00:49) - Ben Frazier is the chief investment officer at Aspen Funds. They're an inc 5000 company, and he's responsible for sourcing, vetting and capital formation of investments. He has prior experience as a commercial banker and underwriter, as well as working in a boutique asset management group.
Sam Wilson (00:01:05) - He's also the co-host of the Invest Like a Billionaire podcast. So if you haven't checked that out, go check that out as well. Ben, welcome to the show.
Ben Fraser (00:01:12) - Hey, thanks for having me, Sam. Absolutely.
Sam Wilson (00:01:14) - The pleasure's mine. Been there. Three questions. I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now? And how did you get there?
Ben Fraser (00:01:22) - Yeah. So you kind of said a little bit. I was,, spent some time in banking as a commercial banker, underwriter. Learned a lot. Got to look under the hood of ultra wealthy borrowers of the bank. And my favorite thing was going to look at their personal financial statements and tax returns. Learned a whole lot. Two biggest takeaways were the most wealthy,, borrowers were business owners and real estate investors. And I thought, hey, that's what I want to do. So an opportunity to join Aspen Funds about six years ago now, I've become a partner and,, helping scale and grow the business,, and running running my team.
Ben Fraser (00:01:55) - So it's it's been an amazing ride. And,, just kind of getting started to.
Sam Wilson (00:02:00) - That's really cool. What was the opportunity that you saw when you joined Aspen Funds? Like, what was the gap that you said, hey, man, this is something I can fill and this is the direction we can take the company.
Ben Fraser (00:02:09) - Yeah, well, I kind of got bait and switch that I like to say in a in a certain way, because I was coming on to be the VP of finance. So as a banker, you know, finance MBA. So I was like, I'm going to go kind of the CFO route, kind of help with the the finance side of the business. So I joined, you know, they'd been going about five years at that point, had only raised about 10 million bucks. So it was pretty small at that point. But so opportunity to help scale and grow something. But then very quickly they said, hey, you know, we actually need help raising capital because that's, you know, really we need to scale.
Ben Fraser (00:02:43) - And I'm like, okay, that's not what I really signed up to do. But hey, I want to just help out where I can and, and the and grow. So learned very quickly., I had no idea what I was doing and,, tried all the wrong things. Made a lot of mistakes., wasted a lot of money,, trying to do different campaigns. But fast forward to six years later. We've raised over $200 million in equity from investors. And,, continue doing to to scale up. So it's it's been a fun thing. I have an amazing team. It's not all me. I have about,, six different people that are on my marketing and investor relations team. So we just continue to be able to invest in good people. And I don't do any calls anymore. But still, you know, run that team, right?
Sam Wilson (00:03:27) - No, that's really cool. I'd love to hear a little bit more about those kind of mistakes and things that you say maybe you did wrong early on, but before we get there, let's talk maybe about what Aspen was doing then and maybe what it's doing now.
Sam Wilson (00:03:40) - Like, how has that changed?
Ben Fraser (00:03:42) - Yeah. You know, I think it's important to have an agile business model, especially in real estate and investing, because the tides can change. Right. And what you were doing before,, may not be a good place to be now. And what was really cool at the genesis of Aspen, it was really an opportunistic thing that our, our founders saw, and it was buying discounted distressed mortgages on, on homes. Right. And at that point, coming out of the great financial,, crisis, they saw this opportunity was a great opportunity., but it really launched us. We continue to operate those funds that continue to perform very well, but it's just not the same level of growth that we've seen in the past. And so several years ago, we started to take the same approach that we use to identify really good opportunity sets, really good, what we call macro driven themes. So we're looking at the macro economic picture, trying to find where we think these long term trends are going to kind of carry the next wave and, invest in those verticals.
Ben Fraser (00:04:45) - And so we have a few different verticals we kind of focus on and have expanded into a lot of different,, kind of asset classes from there. And, continue to, to grow those.
Sam Wilson (00:04:55) - Got it. What about the distressed mortgage business? What's that? I mean, what's that look like today? If you guys were I asked this this is kind of a leading question because I'm, I'm an investor in a distressed mortgage fund that is basically gone belly up at this point.
Ben Fraser (00:05:13) - Oh, no. Yeah.
Sam Wilson (00:05:14) - It's not good, man. It's not good. I could I got a front row seat on telling you the wrong things to invest in., but it's gone belly up and I'm looking at it going, and they made some mistakes, I think maybe 3 or 4 years ago where they ended up doing. They took these loans and they did worker work workouts. Work around.
Ben Fraser (00:05:29) - Workouts. Yeah. Workouts.
Sam Wilson (00:05:30) - Yep. Workout. Okay. I'm not in that business. You can tell,, with the borrowers, but they were resetting then, you know, the interest rates at that point in time, like, hey, Ben, cool, man.
Sam Wilson (00:05:40) - We can rework your loan. I know you had 100 grand. We bought the loan for 20 grand., you know, we'll reset it for 70, and you can,, you know, you can take the well and we'll, you know, set it at 3 or 4%. Well, now, nobody wants those. They can't resell them. Like the value of those loans is declined to almost nothing because nobody wants to take a 4% or 3% loan on their books because they're not worth anything, because now it's, what, 7% that's going rate something like that? How did how did you guys get around not getting caught holding the bag like that?
Ben Fraser (00:06:08) - Yeah. You know, again, being agile not both in a macro sense, but also a micro sense. So as the market kind of matured we had to shift strategy. And so, you know, we we saw that one of the biggest risks would be rising interest rates. And at that point we thought it was a pretty, pretty minimal risk because we'd have low rates for a long time.
Ben Fraser (00:06:28) - , but we always risk adjusted our pricing. And we just kind of held to that and, you know, missed out on some opportunities, but just felt like that's, you know, we're taking more risk working with a borrower that is,, you know, not as good credit quality as, you know, you or I. And so we risk price those to,, you know, much higher interest rates. So our yields, our gross yields are generally in the 13 to 15% range., and so we've been able to stay right sized in that fund and still pay our investors their full return and haven't missed in 11 years. And,, have, you know, still pretty good healthy portfolio. So it's, you know, call it some luck, call it a little bit of foresight and just good discipline. Throughout changing, changing times.
Sam Wilson (00:07:13) - Right. And I think a lot of people are afraid of that. One of the things that we hear a lot of people say is, you know, don't don't fall prey to shiny object syndrome, which is a real thing.
Sam Wilson (00:07:22) - You know, we're investors, they get involved. I'm I'm one of them. I'll be honest. It's, you know, early on, you're like, oh, hey, what about this? What about that? That's really cool. That's really cool. But yet at the same time, there's a right time and place to be like, no, we're pivoting. We're not doing that anymore. Because as you said, very at the beginning that, you know, times change and you got to have to have a, have to have an agile business model in order to adapt with the times. So really cool. Thank you for sharing that. Let's talk a little bit about the early on days of raising capital. You said you spent a lot of money and made a lot of mistakes, did some wrong things. Give us some insight there.
Ben Fraser (00:07:52) - Yeah. You know, so I came in with pretty much no network. We didn't have a website that worked,, and no background and raising capital. I'd done some like sales jobs before, so I knew how to like, talk to people.
Ben Fraser (00:08:03) - But, you know, that was about it. So my initial thought was, hey, if I just. Go into rooms where there's wealthy people. We have a compelling product, compelling offer. I can convince them to invest with me, right? I mean, it's that simple. Money needs a place to land. We got a good place for it. You know, easy as pie. So we started doing. I mean, it's kind of funny because we go to this this,, conference, and there was this,, kind of service provider that mostly worked with financial advisors, which this is a very common lead generation tool where they go do dinner events, they send out mailers, they bring people to a fancy steakhouse. They do a whole, you know, dog and pony show and convert people to a,, an appointment where you kind of talk one on one and then you, you know, get the assets. So they tried to apply this to,, fundraising. And,, so we tried this and, you know, I went to like a whole week long training of how you do these seminars.
Ben Fraser (00:09:03) - And,, we went all all in on it and spend a lot of money and had a lot of success from people coming to their and people that were interested. And then we had a really high conversion rate to appointment. So I'm like, man, this is working. So we just keep doing this while we're working through the the lead pipeline. And then at the end of the day, we did, I think, 3 or 4 of these events, and they're costing us 15, 20 grand a pop. So, you know, we're dropping some change. And at the end of the day, I raised a big fat goose egg and I was like, what just happened? Because people came, they were interested, they wanted to learn more and I couldn't close them. And what was so interesting to me, you know, there's different reasons why people decide not to invest, but the ultimate one was they just didn't have enough trust in us. They didn't. There wasn't enough of a,, comfort level, knowing who we are, what we're doing.
Ben Fraser (00:09:57) - And, you know, we had a little bit of a track record, but, you know, this was these were called audience. And so very quickly learned, you know, the kind of idea of, of funnel,, marketing, but also in capital raising, building that trust is so important. And finding ways to shortcut that trust curve is like kind of really became my, my passion of learning how to do that. And so what really shifted was we instead of like my approach at that point was begging and groveling and just any dollar I could get I would take. But, you know, it created this scarcity mindset to where it was like, if I don't close this investor on the phone right now, I don't know when my next investor is going to come and I need the money to, you know, invest in this deal to an abundance mindset of, you know, I think I forget the number that changes all the time, but there's something like 9 million accredited investors just in the US, right? For any one of us to be successful, I only need like a couple hundred investors.
Ben Fraser (00:10:52) - You know, if I want to go big, a couple thousand investors, that's not that many in the sea of accredited investors. And so my mindset started to shift. We started to position ourselves as thought leaders,, to attract capital to us as authorities in our space, doing a lot more content,, getting in front of audiences virtual and in person and starting to kind of build a,, an attraction mechanism to bring capital to us. And,, then you build on momentum right where you, you find where the momentum's rolling and you just double down, triple down and,, and just keep, keep going. So it's fast forward. Now, we've raised, raised a lot of money and it's I'm not working any harder. Not necessarily any smarter is just doing the right things. Right.
Sam Wilson (00:11:36) - No, I love that. Thank you for sharing that. That's,, that's that's time intensive on the front end. I think putting in those, positioning yourself as thought leaders, putting out content, I mean, what was the,, it's like,.
Sam Wilson (00:11:50) - You know, Google ads or something like that. You know, they say on the front end, like you're going to spend the first 4 or 6 months and you're pouring in tons of money in an ad campaign in the first 4 to 6 months of that. There's just very little happening. You don't think, and then eventually, you know, you start to get traction with it. What would you say the timeline is for you? Or you said, hey, man, we put in the hard work that 12 months, 24 months, what was how long do you feel like before you start to really get your feet underneath you?
Ben Fraser (00:12:13) - Yeah. You know, I think it's just it has to be a mindset shift where we all want a silver bullet that if I just do X and I invest Y into it, I get out Z and I make all this money. Right. And it's it's never as simple as that. And I think I spent so long trying to find the formula that we could just pour money into that would just give us, you know, new capital.
Ben Fraser (00:12:34) - , but it's like the quick fix, right? And it's so much of what we're doing, you have to play the long game. And when you're doing content, when you're building a,, an audience, when you're building a platform, whatever mechanism you choose, whether that's, you know, blogs, whether that's YouTube, whether that's a podcast,, whatever it is, it takes time. And so for us, we started with SEO,, we had some skills internally of being able to,, rank high in Google. And so we started doing that, writing articles and, ranking high in Google for certain keywords and then doing layering on advertising on top of that. And then, you know, that became kind of the first,,, flywheel that we could kind of build off of into other, other things. And so it took some time. It's hard to say exactly when it really kicked off, but I would say we spent. Probably a good portion of a year or two, like with this mindset of we're just going to go hard.
Ben Fraser (00:13:25) - We're going to, you know, build this thought leadership platform with results along the way. But I would say at about that kind of 18 to 24 month mark. Everything. Just start taking off, right? Because you get a couple wins, you get on a couple stages and all of a sudden, you know, you just start to attract more and then it's,, this kind of snowball that picks up steam and just gets bigger and bigger and bigger and bigger. And, you know, you just kind of roll with it, right?
Sam Wilson (00:13:49) - I love it, love it. Thank you for sharing that. Certainly appreciate it. We've got about nine minutes left here on the show. I want to get cover. Two things. One, I want to get your thoughts on what the current,, commercial real estate market looks like. And then what you guys are really going along in right now.
Ben Fraser (00:14:05) - Yeah. You know, it's it's interesting as we stand today, beginning of 2024,, we're sitting on the back end of the fastest,, rate increases in history.
Ben Fraser (00:14:15) - And,, the market is still digesting. What does that mean? You know, how how long is this going to be? When can we get our first rate cut, please? Jerome Powell and it's from my perspective, caused a,, a misalignment of expectations to reality. And I think a lot of people are just wanting to go back to the old normal. Right? What we're used to really low interest rates, really cheap money. And I think we're entering into a new normal. And,, I think we're going to have rates higher for longer. What does that mean? I mean, anyone that knows, you know, some basic math and you have smart listeners, but, you know, higher interest rates put a lot of pressure on higher cap rates, which really puts, you know, downward pressure on value. So I think we're seeing,, values being taking a hit in the short term. But we also see a lot of capital on the sidelines looking for places to invest.
Ben Fraser (00:15:08) - Right. So I don't think we're going to see the next oh eight., you know, part of that was driven by a banking crisis. And we're not seeing the same level of a banking crisis. It's more idiosyncratic across different types of of lenders that have maturing portfolios., but what I do know is that, you know, coming from a banking background, when when the credit markets tighten and when investors get spooked, it's very difficult to form capital. It's very difficult to go get debt, very difficult to go get raises, raise equity. And investors, they see maybe opportunity or the kind of beginning stages of it as the market kind of resets and goes into another bull run. But I think we're still very early in that. I don't think we have fully reset number one. And number two, it's going to take some time for investors to have confidence coming back into, well, what is the new exit cap rate that we're projecting? You know, what is the economy going to do.
Ben Fraser (00:15:59) - And right now what we're seeing from a risk adjusted standpoint is kind of the private credit boom. Right? This is this is the time of the market when private credit, it goes through a really big,, boom cycle because senior lenders are pulling back., a lot of times if it's like agency or CMBS loans that you have on existing portfolios or acquiring new interest rate,, or not interest rate, interest reserves,, that you got to bolster your, your cash reserves that maybe you don't have enough capital to finish your business plan, you know. And so there's credit tightening there. It's difficult to raise capital from a capital call of investors. So you can kind of come in and preferred equity mezzanine debt lower part of the capital stack lower risk. You don't have the same exposure to cap rates continuing to go up or values to drop because you're usually cap out at, say, 70, 75% loan to value. And then on new acquisitions, we're seeing a lot of this loan assumptions are the hot thing right now, right where you can go and assume an agency loan,, at, you know, low rates of yesteryear and,, be able to ride out whatever maturity is left on there.
Ben Fraser (00:17:08) - But generally those are very low leveraged loans, especially, you know, at the values a couple of years later. So,, you can kind of come in at that part of the, of the capital stack. You can generally get really strong risk adjusted returns., you know, not quite equity like returns, but low double digits and,, on a net basis and you're way lower in the capital stack. So it's, it's from our standpoint, a very attractive place to be. We think it's going to be an opportunity for at least the next several years., as a lot of these maturing loans start to hit and,, the market has to digest an enormous amount of supply of new,, mostly housing and multifamily,, so there's going to be a lot of turbulence in the market for the next 24 months, and we want to be positioned to take advantage of that.
Sam Wilson (00:17:57) - So how does that work? Let's let's assume, I don't know, we're going to make up some fictional situation.
Sam Wilson (00:18:02) - Or maybe you can make up a,, change the names for,, identity. You know, no one knows who they are. But what's a situation that you guys have encountered where someone has come to you and kind of walk us through how you guys look at the opportunity, and then kind of how you help the borrower out in that situation, then how you protect your investors. Give me give me kind of some nitty gritty if you can, without obviously telling your stories.
Ben Fraser (00:18:24) - Yeah. So I mean, there's probably three situations that we generally see. One is gap funding. So I had a,, a borrower just the other day. They're closing on a deal., they, you know, leverages downs, have to raise more equity. It's really hard to raise equity right now. He had a big investor drop out there going to the closing table. And like 3 to 4 weeks I need a million bucks., so we're coming in. This is a 90 day loan. And, you know, we're charging high interest for this because it's, you know,, it's money that he needs, and we're coming quick.
Ben Fraser (00:18:57) - And it's an asset based loan. But in the course of the whole project, it's a very, very minimal cost versus not closing. So we kind of come and help gap fund., and then we get paid off in 90 days that that happens fairly regularly. Another case I mentioned is the loan assumption. And generally loan assumptions like what we're looking at right now, they have a 2.9% assumed rate with another I think it's 6 or 7 years and a really good submarket. You know, it's a I think a 90s vintage property. So it's just it's a great asset. But it's at like 45% leverage., so it's difficult to get your, their equity investors returns. They want at that leverage point. So we come in. We're more expensive than the senior debt. You know we're in the kind of mid double digits total cost standpoint. But it's still a creative to their equity investors who get all the upside. And we kind of get a contractual rate of return. And we bring the leverage up to a, a more normal scenario.
Ben Fraser (00:19:56) - , while they can still, you know, manage that a really good loan assumption., and the kind of third scenario is probably the more distressed rescue capital situation. This is,, these are a lot more challenging because a lot of times basis dictates the future, right? If you just bought it at the peak and you levered it up to 80%, and we've seen a lot of deals recently, there's there's there's just no way you're not going to sell it at a loss. I mean, I'm sorry I can't put any more money down at this deal because you're already at today's value. You're over over 100% leverage, right. So those are difficult situations. But there are situations where we're seeing where a lot of these senior lenders and bridge debt lenders are very, very desperate because they have a lot of issues in the portfolio. They get very aggressive. So we can actually go lower in the capital stack. They actually subordinate portions of their senior loan behind us. So they actually stand to lose significant amounts.
Ben Fraser (00:20:52) - , if,, you know, if there's a loss in the property before we ever get hit, even below the senior, not all the way below, but somewhere kind of in the, in the,, behind them. So those are kind of different situations we see,, in kind of the needs for the capital.
Sam Wilson (00:21:07) - Right. So just and I want to, I want to kind of pick that last deal apart a little bit and see if you can clarify some things on this. What you're finding is that there are bridge lenders out there because obviously a loan is a lender's asset. So they have a loan on a on a deal. And that for whatever that that deal is now in distress. And you guys come to them along with the borrower and say, hey, look, we can help bridge this gap. Yep. Or whatever. Not. I guess you use gap funding on the first deal, but we can we can come in and you in the, in the initial, senior debt holder will now subordinate part of their debt to what you guys are bringing to the table.
Sam Wilson (00:21:45) - So you guys are now in position one in order to keep this deal moving forward. Okay. Yeah. For those of you who are listening, he's shaking his head. Yes.
Ben Fraser (00:21:54) - I know that's the question.
Sam Wilson (00:21:57) - I am just yeah.
Ben Fraser (00:21:58) - So, so so the idea on this, this deal in particular, it's,, they. We're doing the renovation plan that a bad property manager drove. Occupancy was low, aided to a lot of cash reserves. They ran out of money to finish renovation plan. They're stuck at like 70% occupancy because they don't have the capital to finish renovation plan. They hit the business plan. They're hitting the market rents. They have a path to stabilization. They don't have any money to do it. The senior lender is saying, we're not putting any more money out because we're out. We're our whole portfolio is, you know, in trouble. And,, we're, you know, they don't want to take it back because they have other deals are taking back. And, you know, that's the last thing they want to do.
Ben Fraser (00:22:37) - So we could come in and say, hey, we'll provide the, the, the, the funding to finish the business plan. But lender we need you to subordinate to us in this scenario. It's, it's a almost a 2 to 1. So if we put $3 million out they're going to subordinate $6 million of their senior portion of their loan behind us. So they have to lose $6 million before we even lose a dime of our capital. And that's, you know, last money in dictate terms. Right. And that's just the reality is you can write the ticket and we have all the leverage, because if we don't like the deal, we just won't invest in it. We won't put the money out. And so that's that's where you get a lot of you know getting to cherry pick.
Sam Wilson (00:23:16) - Got it. That's really cool Ben I love that I mean that's that's I mean that's amazing one that you get to dictate those terms and come in in that position. I guess there's there's two further thoughts on that though is that what is the hope from the sponsors position.
Sam Wilson (00:23:32) - Like what's the hope for them as it pertains to their equity investors? Are they eventually just hoping to just not lose the farm on this deal and make their investors whole as kind of that? This is their this is their their Hail Mary to get out of the deal alive 100%.
Ben Fraser (00:23:47) - I think a lot of sponsors in these situations have realized, wow,, we're going to be lucky if we can get our capital back, because a lot of these deals were purchased at historically low cap rates. And when the interest rates have reset and they're higher now, you I mean, they can't even refinance because the refinance would require a huge capital injection rate. We all have cash out refinance, right. Most deals right now are cash in refinances. That's not the direction you want to see cash going. And so it's it's difficult because values have come down. We're kind of I think at the beginning stages of the worst part of this cycle. Right. I think it's over the next 20 or 12 months, it's going to get pretty, pretty gnarly and then hopefully kind of start to rebound up.
Ben Fraser (00:24:30) - But if you can just make it through the next couple of years, right, to where a lot of this,, distress of maturing loans is hit the market. I mean, the other kind of big wave that were they're fighting right now is new supply, especially in the Sunbelt markets. We're seeing record number of deliveries of new units because these were all started in the cheap money, you know, part of the end of the last cycle. And it's now all being delivered. And so we have 60% more new supply than the previous record hitting over the next two years. And so you're now competing not only with high interest rates, but now with a new tons of new properties. And they're getting very aggressive and leasing these up. So you just if you can make it through the next couple of years, you can hope to ride out the storm and hopefully values recover a little bit. Hopefully we do have some lower interest rates and all those factors that you can't control, but probably in a better position a couple of years down the road can hopefully at least return capital.
Ben Fraser (00:25:27) - And maybe you can squeeze out some profits too.
Sam Wilson (00:25:30) - Right? Right. And I think that's, that's I mean, one, I don't wish that on anybody, but it's also just an economic reality. I think a lot of sponsors probably need to take to heart, which is that, you know, the days of yester year of doubling our money in 18 months, which I was,, you know, part and parcel I was a participant in had lots of fun doing it. But I think those days are behind us for the foreseeable future., so, you know, getting being honest with your investors and saying, hey, look, if we do our, the best we might do here is get out alive. So if we can return your capital to you, I feel like we've hit a home run at that point. So that's that's a humbling conversation. But it's something I think we're just going to see more of. The last question I have for you on this, what's that conversation like with the,, bridge debt lender, the, the, the senior lien holder saying, hey guys, we're going to come in as rescue.
Sam Wilson (00:26:15) - Like, how do you even start that? I mean, I, I would imagine that that conversation I'm just projecting here. So tell me if I'm right or wrong or how it actually works, I guess is the real question. But that, I mean, it's going to begin with a lot of like no answers in the beginning because like, no, we're not subordinating our debt and like, why? Like, how does that even work out? Like, how do you work your way through the legal and technical challenges of getting this whole sort of a deal done?
Ben Fraser (00:26:39) - Yeah, attorneys definitely get get rich in this scenario. So there's a lot of negotiations, a lot of, you know, redlining of agreements. But,, yeah, I mean, it really starts with, you know, knowing where where our box is and knowing what we're not willing to capitulate on. And so it's really a matter of here's your options. I mean, one of the options of the sponsor is. If they don't get the scalpel, they give the keys back to the property.
Ben Fraser (00:27:05) - But from the lender's standpoint. What's their motivation. Right. And if there's like we're actually targeting certain bridge debt lenders, I'm not gonna say the names because it's proprietary knowledge. Right. But they have struggling portfolios and we know they they don't want to take back all their properties. Right. And so if they have a certain number of properties or a portfolio that's just struggling, they just want to kick the can down purely from an operational standpoint. Right. They can't take back as many properties because they're going to probably take losses in their capital. So it's understanding what their motivations are and the position they're in. Because in some deals we've seen with this lender, they're actually not in a negative equity position. There actually is a little bit of equity they sold right now. Now the sponsor would lose capital. And so but we don't have as much leverage to work with the the senior lender. And so you know we have to kind of understand the position. And then we've actually just walked away from the negotiating table like two times already on this one deal.
Ben Fraser (00:28:04) - And I'm not even sure if we're going to get there. Then just we're talking about a deal. In my head that's, you know, an act of negotiations., but. It's understanding what their motivations are. And because I, I write the last check, I have all the power and all the leverage because I just walk away if I don't, because there's a lot of other deals out there that are looking for capital. And so it's it's you kind of have all leverage in that position, right?
Sam Wilson (00:28:29) - No, that's really, really interesting. Ben, thank you for coming on the show today and kind of breaking down what it is you guys are doing currently where you've been in the past. You've given us all sorts of insight, everything from kind of the mistakes you made early on raising capital to,, you know, what you guys are doing now on the private credit side of things, where you guys see the market and just how you guys are positioning yourself for the foreseeable future. So certainly appreciated you coming on today and sharing your insights with us.
Sam Wilson (00:28:52) - If our listeners want to get in touch with you and learn more about you, what is the best way to do that?
Ben Fraser (00:28:57) - Yeah, you can check out our podcast, Invest Like a Billionaire., and then our private equity firm is Aspen funds at Aspen Funds us.
Sam Wilson (00:29:04) - Aspen funds us. We'll make sure we include that there in the show notes. Ben, thank you again for your time today. I do appreciate it.
Intro (00:29:10) - Thank you. Sam. Hey, thanks.
Sam Wilson (00:29:12) - For listening to the How to Scale Commercial Real Estate podcast. If you can do.
Intro (00:29:15) - Me a favor.
Sam Wilson (00:29:16) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.
