Shlomo Chopp got into distressed real estate the way a lot of people find their calling: out of necessity. In 2010, with no deals to be done and no formal finance training, this college dropout cracked open the CMBS loan documents, taught himself the intricacies of structured finance, and just went out and did it. Since then he’s invested in, structured, or advised on nearly $5 billion of commercial real estate. Today he’s the Managing Partner of CASE, a firm that’s roughly 90% distressed advisory and 10% highly selective opportunistic investment, and he comes out of a family office with over 35 years of experience owning and operating about 70 properties across the U.S. Right now he and his team of about 10 are working on roughly 20 loans totaling over $2 billion of debt.
What makes Shlomo different is that his real job is translation, bridging the gap between the language of the operator and the language of the lender. Most practitioners only show up when a deal is going well. Shlomo is the call you make when things have gone sideways, and he’s seeing deals break, capital stacks unwind, and borrowers make mistakes that most people never encounter. His core conviction: opportunity is complexity, and binary thinking is the trap. If your business plan is just waiting for the next guy to take a loss, that’s probably not going to work. The owners who win are the ones willing to sit in the complexity, argue the inputs rather than the outputs, and bring the lender along rather than bulldoze him.
What makes this compelling is how high the stakes get when you don’t read your own documents. Shlomo walks through the rolling implications of a single misread clause, from cash traps to inadvertent recourse triggers to a borrower losing his building over $750K he never should have owed. He breaks down why speed may close deals, but speed kills, why a non-recourse loan isn’t really non-recourse, and why he treats a client’s distressed asset as if it were his own. Underneath the bluntness there’s a real engine of empathy, and a genuine satisfaction in saving someone’s building, sometimes with a single phone call. He’s a guy who collects the wisdom of those who came before him, from Churchill to Howard Marks, and the one he keeps coming back to may be the most relevant advice for today’s market: when the time comes to buy, you won’t want to.
Transcript
[00:08] Welcome to Offshoot, the Fident Capital Podcast with host Kevin Choquette.
[00:14] Offshoot is a curiosity driven conversation that features a wide range of real estate and business professionals.
[00:20] In each episode we unpack the knowledge, vantage point and domain expertise of our guests.
[00:26] Then we move beyond the facts and figures and dive into the personal habits and mindset which allow them to be high performers in their respective field.
[00:34] This podcast, Subjective is simple supporting entrepreneurs, fostering relationships, and uncovering meaningful conversations that positively impact business.
[00:48] Kevin Choquette: Welcome everyone to episode 37 of Offshoot. My guest today is Shot Shlomo Chop, the managing partner of Case,
[00:56] a distressed commercial real estate advisory and investment firm.
[01:01] Shlomo and his team are currently working on about 20 loans totaling over 2 billion of debt, and he’s part of a family Office with over 35 years of experience owning and operating roughly 70 properties across the U.S.
[01:15] shlomo’s origin story is gold.
[01:18] It reminds me of what really matters.
[01:20] He’s a college dropout with no formal finance training who got into workouts when the market cratered in 2010.
[01:27] There were no deals to be done.
[01:29] He cracked open the CMBS loan documents, taught himself the intricacies of structured finance, and just went out and did it.
[01:38] Since then, he’s invested in structured or advised on nearly $5 billion of commercial real estate. Shlomo’s got a unique vantage point in the market.
[01:46] He’s seeing deals break capital, stacks unwind, and borrowers make mistakes that most pract practitioners never encounter because they’re only involved when things are going well. Shlomo is the guy you call when things have gone sideways,
[01:59] and his role is fundamentally one of translation,
[02:02] bridging the gap between the language of the operator and the language of the lender.
[02:07] He’s fast, he’s blunt, and he’s incredibly generous with his knowledge for the audience. You might want to put this one on 0.75 speed.
[02:17] He’s clearly sticking to his east coast roots and we’re drinking from a fire hose.
[02:23] Listen in as we cover topics that include how Shlomo’s role is primarily one of translation between the language of the operator and the language of the lender or the lender’s legal counsel, and why that gap is wider than most borrowers realize.
[02:36] Why gaming out the myriad of potential outcomes, not just your own moves, but the lender’s responses, the market signals and the appraiser’s perspective is central to navigating a complex real estate workout.
[02:50] How the process of negotiating loan docs is best done slowly and with deep respect for the implications of poor drafting and why time may kill deals,
[03:00] but speed kills.
[03:02] His assertion that 70% of real estate owners can’t be bothered to go through the what if scenarios that are part and parcel of navigating real estate’s complexity.
[03:12] That opportunity is complexity, and that binary thinking is the challenge.
[03:18] If your business plan is waiting for the next guy to take a loss,
[03:21] that’s unlikely going to work.
[03:25] Shlomo’s baseball analogy for where the commercial real estate market sits today.
[03:30] A scoreless game in the fourth inning where every ball hit has gone to the track and been caught. And why, if losses start to materialize, it may signal a pullback in the equity markets.
[03:41] The rolling implications of not reading your loan documents.
[03:44] From cash traps to inadvertent recourse triggers to losing your building over 750,000 you never should have owed.
[03:53] The importance of empathy in his work and how a genuine desire to help people,
[03:57] not out of altruism but out of a deep satisfaction in making a difference,
[04:02] has been one of the engines behind his business growth.
[04:05] And finally, by the wisdom of those who’ve gone before us,
[04:09] from Winston Churchill to Howard Marks,
[04:12] is worth collecting.
[04:13] And how the quote when the time comes to buy, you won’t want to might be the most relevant advice for today’s market.
[04:22] Shlomo drops a ton of hard one insight in this one, and there’s a lot here for anyone navigating complex capital stacks,
[04:29] considering a workout, or just trying to understand what’s really happening beneath the surface of today’s market. I hope you enjoy it.
[04:41] Shlomo, good morning. Thank you for, I guess morning for me. It’s afternoon for you, but thank you for taking the time to join me today.
[04:48] Shlomo Chopp: It’s my pleasure. I appreciate you having me.
[04:50] Kevin Choquette: Yeah. Look, I know you’re busy, so hopefully we can settle into a nice conversation without too much work. But for the listener, and candidly, you know, you and I got introduced kind of cold, but we’ve got some mutual friends.
[05:06] Tell us about Case.
[05:07] I think you’ve got an advisory business over there and also an equity business. But tell us about Case. What do you guys do over there?
[05:15] Shlomo Chopp: So Case is.
[05:17] Case’s business is,
[05:19] I’d say about 90, 10, 90% advisory, 10% investments for opportunistic investors.
[05:25] But on the advisory front, our focus is on distressed commercial real estate, specifically around more complex loans.
[05:33] You know, if you think about it, back in the day, you know, a mortgage was a mortgage and a note. Now there’s a mortgage, a note, there’s A loan agreement, there’s an assignment of rents, there’s a,
[05:42] there’s guarantees, there’s nonrecourse carve outs, there’s assignment of agreements, all types of things. And not only do you see that in cmbs, but you see it across all other, many other loans.
[05:53] Fannie Freddie. You see as banks being more specific around cash management and borrowers just aren’t prepared. They’re good at what they do.
[06:01] And I think people sort of discount the need to really prep and understand how to work some of these things out. So that’s what we do. We assist them with it.
[06:13] I’d say typically a borrower has to go through a bad experience before they come to the table and say, you know what, I might need some help over here. But hopefully a podcast like this helps people sort of, you know, understand about what’s involved.
[06:25] So that’s, that’s primarily the work we do. And then we get involved in investments very opportunistically, very selectively.
[06:32] Not because we don’t want to buy up the world and, you know,
[06:35] add to our portfolio. It’s just that,
[06:38] you know, we’re in it not for fees, we’re in it for value appreciation. And we’re very,
[06:44] we’re very selective about. We want assets that actually survive the test of time, so to speak, not just trying to fill a fund. So that’s us. That’s what we do.
[06:52] And, you know, right Now I’d say 90% of my day buy, 95 to 98% of my day is advisory.
[07:01] We’re working on about 20 loans right now, over $2 billion of value. Settle on the value, debt amount. And yeah, that’s us.
[07:13] Kevin Choquette: I had another gentleman on the podcast a while back, and he’s in a related space and used this sort of visual of Pulp Fiction and the Wolf, right? Call the wolf when everything’s gone wrong and he comes in to do the cleanup.
[07:29] Sounds like you’re similar.
[07:31] Shlomo Chopp: I know that laugh makes it sound like it, but. No, I mean,
[07:34] yeah, I mean, listen, here’s the thing.
[07:38] It’s not so mysterious as people may think it may be.
[07:44] It’s really understanding the language other person is speaking.
[07:48] Right. It’s sort of like, you know, something that may be accepted in the US Culture. When you go, for example, to a Far east country, it’s not accepted, right.
[07:56] And so on and so forth. So it’s the same thing dealing between an operator and a lender, right? There’s a different perspective you come from. Like your lender doesn’t have any visibility.
[08:06] And when he doesn’t trust the visibility you’re giving them,
[08:09] then you got a problem. So you need to not only give them the visibility so that they feel comfortable with you, but you got to allow them to come to the point where they’re aligned with you in, you know, what the property needs.
[08:21] And once you figure out what the property needs, the question is who gives it to the property and what’s the right approach? So I would say it sounds mysterious, it sounds like a fixer, it sounds like that, but not really.
[08:34] But there is obviously a lot of knowledge, a lot of technical knowledge and a lot of it is just gaming out. And I think, you know, our society, business wise has become, at least in real estate, has become a lot of deal making.
[08:47] So people don’t just game out, they go and they sit down, okay, let’s see what he wants. You know, I’ll react in real time, go, my gut. Well that’s great,
[08:53] except your gut is totally ill informed when you deal with lender, right? It’s, it’s not. Your gut is not going to be what,
[09:01] what you think,
[09:02] what you think is right. You’re probably going to be wrong. I know that you as a borrower probably can’t hear that because you’re this, you know, great developer or owner and you’ve done a really great job in what you’ve done and you see the reality for what it is and you’re telling the lender how screwed they are and that’s fine.
[09:24] But at the end of the day, you gotta make the other guy come along with you for the ride.
[09:28] Kevin Choquette: And when you say game it out, you’re talking kind of game theory, decision tree, like, okay, we’re gonna go A or B, if we go B, then we’ve got C or D, if we go D, we’ve got like just sort of working through all of the potential outcomes.
[09:42] Is that what you mean by game it out?
[09:44] Shlomo Chopp: Yes. But you only gave me one perspective. Gaming it out, that’s what I’m going to do. But then I got to game out what the guy’s going to respond to. But then I also need to game out what the market’s going to say.
[09:54] And gaming out what the market’s going to say has a lot to do with what the bovs are going to say, the brokers are going to say. So that game’s out based on what owner, what investors are looking for.
[10:02] At the same time, you need to game out what the appraiser is going to, going to look at, right. And how they’re going to come to the table and then you need to game out how all that is going to affect.
[10:11] Feed right back into your decision making on the lender side. And then you need to say to yourself, okay,
[10:16] what if this happened? Then you go and deal with it from there. So yeah,
[10:24] so that’s, there’s, it’s, it’s a lot deeper and most people just.
[10:29] Can’t you just call the guy?
[10:31] Can you just call something out? I’m like,
[10:33] no. Yeah, I call it. The answer is going to be no.
[10:36] Kevin Choquette: Yeah, so, so we recently got involved in a deal that had a bankruptcy file. And you know, there’s, there’s a,
[10:47] it’s enticing to develop a narrative and say this is what’s going to happen.
[10:54] And then at the same time it’s really clear that that’s only one of a myriad of,
[11:00] of potential outcomes. It sounds like that’s the space you’re trying to navigate. Like, hey, it could be that, but it could also be this. It could also be this. And let’s prepare for all of them.
[11:09] Shlomo Chopp: Yes. Now some may say BS is no way you’re preparing for all that. The answer is yes, I am. But you know how I’m doing it, I’m taking things off the board.
[11:18] Right? That’s the process of elimination is the best way to solve for it. Right.
[11:22] So it’s the same thing like Occam’s razor, right?
[11:24] You know, you take, you take the most probable solution, the most probable explanation, you go with it. Right. You sort of need to work backwards. The problem with, with, you know, if I’m an, if I’m a developer, if I’m an owner, I don’t understand how to assess how the lender is going to go think about things.
[11:45] And therefore it’s very hard for me,
[11:48] it’s very hard for me to then game out his response. And that’s where it breaks down. But knowledge alone isn’t enough,
[11:58] right? Knowledge is great, but then you got to put that knowledge into the hopper and mix it around and turn it into something.
[12:05] Kevin Choquette: And just for getting clear on what you are and what you aren’t, you guys are not court appointed fiduciaries. You are not a receiver.
[12:15] Shlomo Chopp: No, I’m not a receiver. I work for the borrower. The borrower retains me and my goal is essentially to provide. And again,
[12:23] we don’t take on every borrower. Okay, because I mean,
[12:27] let’s step back here. Before you asked me a question, quote, appointed receiver or work for the borrower. Work for the borrower. But let me sort of explain a little deeper on that.
[12:34] So first off,
[12:37] I just explained how we go through game theory, right?
[12:40] I’d say 70% of real estate owners, by count,
[12:45] cannot go through that process with us.
[12:48] I don’t know what you’re doing. Just, just, just do this, just do that. Right? You hired me. Or you do want to do it, right? Make up your mind. So then we’re hired by borrowers.
[12:58] And the goal is when we have a more cerebral borrower, someone that understands, someone that’s prepared to work, learn so and so forth to go through the process. And I don’t know more than them when it comes to operations,
[13:07] but we do know more than that when it comes to dealing with lenders and how to bridge that gap.
[13:11] If someone’s work, someone’s that type of an individual,
[13:15] then we work to accentuate their positives. We work to come up with a plan that can turn around the property to the benefit of the lender and for the benefit of themselves, that highlights their strengths to try to illustrate to the lender,
[13:30] you know,
[13:31] how this works for them. So we’ve had many situations where lender’s going down a path of aggression and you just literally flip it on its head. Right? You just got to highlight what this guy’s doing, Right.
[13:40] And he’s doing a good job, given the circumstances. Right.
[13:43] And that’s, and that’s, that’s what, that’s what we do. So we, we take good borrowers who are. Find themselves in bad situations,
[13:50] and we,
[13:52] we use what they bring to the table. That’s a positive. And we highlight that to the lender. And sometimes the lender says, okay, that’s great. So you’re the best case scenario.
[13:59] I still don’t like it.
[14:00] Take me out. Right? Or sometimes they say,
[14:02] too late.
[14:05] I try not. I try not to get into that situation.
[14:08] I try not. I tried to head it off at the past, so to speak, but. Yeah, that’s,
[14:12] that’s, that’s super helpful.
[14:14] Kevin Choquette: So let’s talk about today. Like, what are you guys seeing? I think we’re in a really. So let’s do this. It’s April 23, 2026.
[14:23] What are you guys seeing in the market?
[14:25] Shlomo Chopp: What.
[14:25] Kevin Choquette: Where are the opportunities? Where are the challenges?
[14:31] Shlomo Chopp: Okay, so I think opportunity is if you. No, because it’s, it’s not a bi. It’s not a binary answer. Right. I can’t.
[14:40] Kevin Choquette: It’s not a simple answer.
[14:41] Shlomo Chopp: Yeah, yeah. I’ll tell you why? Because the buckets, I gotta first explain what those buckets are. Right? Like, and I could tell you, so many people out there looking for investments,
[14:49] their buckets are not going to be what they’re going to buy. They’re going to have to pivot.
[14:53] So I think the opportunities. Well, I would put it into buckets, opportunities and the complexity.
[14:59] That’s where the opportunity is.
[15:01] The challenges are in the binary,
[15:05] right? If you want the next guy to take a loss,
[15:08] do you think he’s an idiot? If that’s the case, then okay, great, he may just be an idiot. But if that’s your business plan, that’s not gonna work. The opportunity isn’t the complexity.
[15:16] The opportunity is when you can take a problem that other people view as insurmountable and therefore don’t wanna focus on it. And you could focus on it, identify what the problem is.
[15:26] That’s step number one.
[15:27] And then be able to solve that problem.
[15:30] Not through brute force. I’ll give you X. If you don’t take this deal, then I’m walking and he doesn’t have anyone else to go to. That’s great that you succeeded despite yourself, right?
[15:39] You’re really not adding value.
[15:41] You need to bring the guy over to your side of thinking. And this is a tough thing to do in the stress, right? Because it’s not like I’m trying to buy a deal, right?
[15:48] And the guy wants 10 million bucks. And I tell him, listen,
[15:51] I’m at 9.4, top dollar, that’s it. And you know, he wants to sell a 9.4, works for him. 10 million works better, but okay, he’ll do 9.4.
[15:58] No, you’re saying here,
[16:00] not that you’re making a profit, no, here’s how big a loss you’re going to take, right? You’re trying to convince the guy to take a loss.
[16:06] And sometimes you could get him to take a loss.
[16:09] But you can’t walk in saying you’re going to take a loss.
[16:12] It’s very simple, right?
[16:14] You need to be able to.
[16:16] It’s. It’s a long process. And people talk about, you know, time kills deals. Time doesn’t kill workouts. Actually,
[16:23] time makes workouts, right? People realizing what’s going on makes workouts.
[16:27] It’s also,
[16:28] the more you fight, it’s like a seat belt, right? The more you tug on it, the tighter it’s going to be. Sometimes you got to give them what they want and understand that Rome wasn’t built in a day.
[16:38] And even when the guy fiddled it Burned down in a day. So, you know, at the end of the day, it’s not. Well, I use Dave seven times over there.
[16:45] But the point is that. That it’s a process.
[16:48] It’s a process and you got to come prepared.
[16:51] You got to prepare to execute, and you got to come prepared to improvise.
[16:54] And without preparation, you got nothing. And that’s the challenge because you get all these deal makers going in, saying, okay, we got this property, we tried chasing it for a long time,
[17:03] and now we’re screwed.
[17:04] So let’s just tell the lender this is where we get a deal done. Let’s see if he’s realistic. Ah, it’s a waste of time. Let’s move on.
[17:09] You know what you just did? Just abdicated.
[17:12] You just gave away an opportunity to be the sole competitive bidder on your asset, to turn it around,
[17:18] and now you’re losing it to someone else who’s going to make money off of it. And you’ll always say, well, he just wasn’t ready to do a deal with us.
[17:23] But, yeah, that’s.
[17:25] Kevin Choquette: But it’s the. It’s. If I’m hearing what you said from the top there, it’s the fact that you made it binary. Right? Hey, here’s the price. Take it or leave it.
[17:32] Okay? That’s your challenge. Your opportunity is not being binary.
[17:36] Coming in,
[17:37] like, getting close to them, explaining things, building common understanding, and then seeing if you can actually solve the problem.
[17:45] Shlomo Chopp: Absolutely. And right now, anyone listening to is going, ah, come on. Like, how do you do that? Why is the guy going to sit, talk to me? There’s a million people trying to do a deal.
[17:51] Why put him to put it on the market? Okay, so I’m put on the market. You’ll still be there at the table, and you can still get it done. And then the question is, like, okay, how do you not make a binary.
[17:59] Well,
[18:00] just not showing up in the guy’s office and offering him a low price, a low deal.
[18:06] If you avoid that, that doesn’t mean you didn’t make it binary. I mean, you just decided not to do it in an abrupt, antisocial manner, which is good for you.
[18:14] Thank you.
[18:15] You passed test number one. Right. But it’s only test number one. You actually need to position it into a situation where you can get him on board. So I could tell you, like, back in the day, when I started in CMBS and the special servicers, back in the day,
[18:27] they’d go, yeah, give me an offer and give them off. They go, no, and then they go, okay, what’s, you know, give me another offer if you want to give me off.
[18:34] Otherwise, foreclosing. And guys would go in and give another offer, and they’d say, no, another offer. And they say no, they’re negotiating against themselves. And I’d be like, okay,
[18:41] I’m clearly not going to get him to counter me,
[18:44] okay? I’m clearly not going to get him to say yes to whatever offer I give him until I hit some magic number. He goes, this sucker may actually close. Right?
[18:52] But how do we get to an offer? So I go, and I’d argue the inputs, not the outputs. I say, okay, listen,
[19:00] I get it, I get it. This offer wasn’t enough for you, okay? Furthermore, I also know you’re not going to give me a number in return.
[19:07] Okay? I’m not asking you to do that because you’re afraid you’re leaving money on the table.
[19:11] Let’s talk philosophy around this deal, right? So here’s the challenge we’re having with leasing, and RTI is our X number.
[19:18] We have the brokers giving us opinion around Y number.
[19:22] So a real challenge over here is you got to put an X amount of dollars and this is how it works out. And by then, I’ve given him like a book on the assets, looking at it from multiple perspectives, given, you know, really giving him a 3D vision to the extent the guy even read it,
[19:35] which was an issue. But my, my purpose of giving him the book was not necessarily for him to read it, but rather to deal with the appraiser, to make sure the appraisal came in at the right number as well.
[19:43] But putting that aside,
[19:45] I’d start arguing the inputs. That’s something he could talk about, right? And I’d be like, okay, theoretically, let’s put the number aside.
[19:51] Do you prefer if we do some type of restructure, you want to get out of the deal,
[19:55] right? And he’s like, I don’t know, do what you want, right? So then you could always fall back on, you know what? I haven’t. I have an idea. You don’t want to make a decision.
[20:02] Here’s what we’re going to do. I’m going to make you make a decision. I’m ready to sign over the deed to you. Right? Here you go.
[20:08] Okay,
[20:10] so you’re ready to sign over the deed to me. Now I got to say yes to something and say no to another deal. That’s the most powerful thing.
[20:17] When someone, basically when you’re begging for something and the other guy’s got all the power and you could take away his power and say, hey, I’ll give you the deed and you really mean it.
[20:25] See, that’s the thing, like any lunch are listening to this goes Shalom. Oh, that’s your game. First of all, I don’t do it often. Okay? I only do it when you’re a miserable introvert and you don’t want to talk to me.
[20:34] Okay, let’s just start right there.
[20:36] Secondly, and, and there, by the way, a lot of those guys have left the industry. Right? There’s. I even have like depending which service I talk to, I’ll say, oh, that was a that guy type of response, wasn’t it?
[20:47] But the point is like a lot of those guys are out of the way. But if you’re not a miserable introvert and you can actually realize that we’re trying here and you give me a position and you tell me like shloma, you gotta be higher on that because we’re,
[21:04] we’re in that range. Or it’s gotta have a six in front of it and you’re, you got a four in front of it and we got an issue. And I know you’re BSing about the six and you know that I got room on the four so we could end up somewhere in the fives.
[21:17] Right. Like we know we were going.
[21:19] But they’re not going to do that absent them respecting the person the other side of the table. But if you’re a borrower showing at the table, trying to go it alone,
[21:27] you’re not going to get respect unless you show that the reason it’s in default is a property issue and you’re part of the solution, not part of the problem. Right.
[21:34] That’s going to be the key thing. And if you cause the problem, you don’t get to capitalize on that problem, at least in their eyes. Right.
[21:40] So when you come to the table, you better be prepared with an explanation as to what happened, what, what’s happening or what needs to happen moving forward. And that’s totally.
[21:49] That’s if no one was who’s at the table today existed the property, the economics of the property in its market.
[21:54] That’s the story now.
[21:56] Kevin Choquette: The solving the problem at the property level and making sure that the borrower isn’t associated with it. Like meaning they didn’t cause the problem and they can be a part of their solution.
[22:06] Shlomo Chopp: Yes. I’m basically saying let’s look at it from a 60, 60 foot and 600 foot. Let’s look down from a From a, From a helicopter.
[22:14] Like, this is where the property is right now.
[22:16] And by the way, we didn’t bring it to this point. And here’s. I’ll show you and I’ll prove it out. I’m gonna be open book with you. Obviously, that’s. You gotta be careful on some of that stuff.
[22:23] Be open book with you and I’ll prove to you that you’re really screwed.
[22:28] That’s really what it is. I’m not gonna prove to you that I was amazing,
[22:32] because I’m never gonna prove that to you, but I’ll prove to you that it wasn’t me that ran into the ground.
[22:37] And I’ll also prove to you that you can turn it around at a better return than I can. Right?
[22:44] So it’s better if you take my money as part of a restructure or even a discounted payoff or something, and then let me deal with it and let me deliver for you better,
[22:53] and you won’t look negatively at me as a result.
[22:57] Kevin Choquette: So you’re getting into a whole bunch of really interesting philosophy bits and, like, how to navigate the relationships and how to position the distress so that somebody can start to like, pick it apart and.
[23:11] And perhaps get in motion about resolving property level issues more specifically. Again, just being April 2026,
[23:23] like, what asset classes, what vintages,
[23:27] what kind of capital stacks? Like, where are you guys seeing distress? Or in. Perhaps in your business we call that opportunity. And. And then where are you seeing challenges? I.
[23:38] I got. What you’re saying is, like, the opportunities,
[23:41] complexity and being binary is the challenge. That’s almost a philosophical answer. I dig it. But like, where in a built environment are you seeing things kind of stuck.
[23:55] Shlomo Chopp: So I think it.
[23:57] Okay, so it’s very hard to fight a market. So obviously office is. Is a problem.
[24:04] But if you have money today, you could lease up office.
[24:07] But then the question is basis and time,
[24:09] right? So that’s a problem.
[24:12] Obviously, multifamily was born at the height of the market. 21, 22,
[24:17] you got a problem,
[24:19] right?
[24:20] Any asset that you haven’t invested into it because you’ve taken advantage of high interest rates to return money to investors,
[24:26] that’s a problem.
[24:27] But that one builds into the real bifurcation between the good operators and the bad operators.
[24:34] Right?
[24:35] And a good operator may not be a good sponsor to his GP, to his LPs.
[24:42] Meaning. Let me rephrase that. A good operator doesn’t mean he’s a good gp,
[24:49] it just means he’s a good borrower, a bad Operator doesn’t mean he’s a bad gp.
[24:54] Right. Meaning you could be a bad operator and return 6x tier, tiered. You know, you could be a bad operator and return 6X to your, to your investors. Right.
[25:05] To your lender.
[25:06] You’re probably decaying the asset over time and ultimately the lender has got a maturity at the end of the day.
[25:12] So I think the. What you’re looking for, where there’s the stress,
[25:17] the stress is driven by asset class I market, which I don’t have to tell you that Chicago is an awful market. I don’t have to tell you that New York City multifamily is awful.
[25:25] Markets tell you that Los Angeles office is terrible. I don’t have to tell you about, you know, various other markets with asset classes have an issue. Right. I don’t have to tell you any of that.
[25:35] I also don’t have to tell you that if you financed on a bridge loan to acquire in the south in 2022, that you probably are in default multiple times over and triggered recourse with those predatory loan documents.
[25:48] Right. I don’t have to tell you any of that. But what I could tell you is that if you’re a good operator,
[25:53] you’ve maximized the potential of the asset. If you’re a bad operator,
[25:57] you haven’t. And if you tie that directly to leverage levels,
[26:03] that’s where you find the most distressed.
[26:06] Kevin Choquette: There you go.
[26:07] Yeah,
[26:08] that lands perfectly.
[26:10] The good operator who had maybe slightly more than optimal leverage may pull this off.
[26:19] The bad operator at that same leverage level is probably in trouble.
[26:24] Shlomo Chopp: Yep.
[26:25] Kevin Choquette: Yeah,
[26:28] I wanted to bring this up later on, but since you just kind of gave me a segue.
[26:32] You had mentioned predatory lending documents. I was on,
[26:37] I think your website the other day,
[26:40] or maybe, maybe it was an article linked to like Globe street,
[26:45] but you were discussing recourse and you make this distinction of like above the line versus below the line recourse, which I think the way you speak to it is above the line.
[26:56] Recourse is recourse for the damages that you make and you’re, you know, sort of liable to correct those. Below the line is okay, now the entire loan has become personal recourse obligation.
[27:10] Let’s dive into recourse. Look, it’s like the billboard on the highway, right? And you, and you had just said, you know, a lot of these developers are really good at what they’re good at, but they might not be as good as I am translating from their language to lender language to make sure that there’s a single conversation being had.
[27:25] I think recourse is like the billboard on the highway and the developer’s like, yeah, I want a non recourse loan. But I mean, let’s start with this. Does a non recourse loan really exist?
[27:37] Shlomo Chopp: Well, at its core, every single loan has a guarantee. They’re just carve outs to that.
[27:44] There are essentially exclusions to the guarantee and then there’s carve outs under which those exclusions don’t apply.
[27:50] Right, right. So deep down beneath everything is a guarantor and a guarantee. And you just need to make sure that the scotch tape and chewing gum that you use to patch up the whole of the bottom of your ship is actually going to hold.
[28:03] And you know, it’s not going to, you know, not going to stop leaking on you.
[28:07] So, you know, suppose you’re the borrower that basically decides to upgrade his LEDs in his building and decides to finance,
[28:15] oops, full recourse.
[28:18] So I mean there’s, I mean there’s a lot of challenges that happen when you don’t pay attention to your documents.
[28:24] And what’s worse is a lot of challenges that happen when you don’t hire the right attorneys to draft those documents to begin with. Because the first time you’ll pay attention to those documents is when you want to make sure that you give back the property to your lender clean and say,
[28:35] oh my gosh, we got a problem. Or the lender says, oh, not so fast,
[28:41] you’re fully guarant, you’ve got, you got recourse. Right.
[28:45] So I think the nature of, yeah, the loan’s non recourse.
[28:49] I mean that’s, you know, that’s like me saying, hey, how’s the real estate market?
[28:54] Right. So I mean, it’s a nice,
[28:56] yeah, it’s a talking point. Yeah. For me it’s good. For you, it sucks. So, yeah, I mean, great.
[29:02] Kevin Choquette: Yeah.
[29:04] Look, you’re in a unique vantage point though, where you’re seeing deals break and it’s when or come close to breaking. And that’s when all of those really finer points like come into more black and white stark relief.
[29:21] Right,
[29:22] yeah.
[29:23] You know, I just was looking at loan docs the other day, just the guarantee language was 23 pages.
[29:29] And it’s not to say that it should be otherwise, but how do you think about advising developers, entrepreneurs, investors,
[29:41] other than what you just said in terms of having good attorneys? Like these things are,
[29:46] these things are anything but simple. I mean, that’s just the guarantee section, 23 pages. How do you? Or just say it this way, you’re having beers with a friend. Like, what’s this straight up advice to try to navigate that landmine?
[29:59] I mean, it’s just a.
[30:00] They’re, they’re everywhere. It’s not, it’s not an easy task to dissect 23 pages and make sure that just that portion of what is maybe a 110 page conglomeration actually gives you what you think you’re signing up for.
[30:16] Shlomo Chopp: Yeah, I think the best advice I could give is to say, speed may close deals,
[30:23] but speed kills.
[30:25] Right? I mean, you’re like, oh, we gotta close, gotta close, gotta close. Turn to docs. How quickly? Hey, lawyer, when are you gonna turn docs back?
[30:31] You know what they need to be meetings upon meetings upon meetings. When you deal with these docs, what does that paragraph mean? How does it imply? Okay, let’s run the model based on that scenario.
[30:42] Cash trap triggers. I mean, here’s like a simple one, right?
[30:45] So a cash trap essentially is when you deal with securitized lending where the servicer has to pay the bonds no matter what in order to compel the bonds to invest in these cnvo trusts or CLOs, et cetera, they basically build in these cash traps that says to the extent something happens negative at the property,
[31:03] then money gets swept by the lender into a reserve. Maybe not a default to trigger it, but even a tenant doesn’t give notice they’re going to renew by a certain date.
[31:11] So the lender sweeps cash and all that. Right?
[31:14] So how do you get out of the cash trap? Well, if you have two quarters of it being better, sometimes let’s say it’s triggered by dscr. So let’s say one way to trigger would be if, let’s say the loan falls beneath a 1.25 coverage ratio,
[31:27] then if you have 2/4 of 2 calendar quarters of 1.3 or better, then you’re good to go.
[31:35] So let’s play this out.
[31:37] What happens if on January 15th,
[31:42] your DSCR, well, let’s rephrase it. February 1st, rent. Your DSCR pops up to 1.3. So you won’t cash February 1st,
[31:52] but the next calendar quarter starts April 1st. So you literally got six months plus six months plus two months to get to the start of that quarter before you can start getting your cash back.
[32:04] Kevin Choquette: Mm.
[32:04] Shlomo Chopp: How many people have modeled that out?
[32:06] Right? So think about if you need to show the lender 2/4, which would mean, let’s call it April,
[32:12] May, June. That’s a quarter one.
[32:15] July, August, September quarter two. Right.
[32:18] That’s just two and three, but still. Right. And your income recovered February 1st. That means February and March, there’s going to be extra cash left.
[32:26] Then you need two full calendar quarters thereafter.
[32:31] Right.
[32:32] Kevin Choquette: So you’re getting, they’re getting eight months of cash sitting in a box
[32:37] Shlomo Chopp: instead of six months of cash, you’re getting eight months of cash. Right? Right. And that makes a difference. Distribution certainly. Right. And where it also makes a difference is what happens if you have a problem that starts in,
[32:50] I don’t know,
[32:51] the problem starts mid,
[32:53] a month early.
[32:56] At the end of that second quarter,
[32:58] it drops again.
[33:00] Right. And it affects it. What if you were able to not go based on calendar quarters, but six consecutive months?
[33:07] Well, the problem with that is, is that your reporting is monthly. Your reporting isn’t quarterly. So then you got to put an allowance. You could submit monthly reporting if you’d like.
[33:16] Right. And then what happens in that situation where you’re, you had an issue like an abrupt issue where you had a significant issue at the last, at the, at the last month of the second quarter.
[33:30] Right.
[33:31] And that affects your coverage ratio for the trailing.
[33:35] For the trailing two quarters.
[33:37] But had you instead,
[33:40] had you instead timed it differently,
[33:43] then your quarterly reporting thereafter would actually show sufficient cash flow that you shouldn’t go into cash trap again. So what if we did this monthly?
[33:53] Right. So this is a small, small, small, small thing. But what if you never recover from that decline again? So you got your money out of cash trap.
[34:04] So thereafter the next test is going to be the next quarterly report thereafter. So if you time it significantly, you could literally pull eight months of cash in between out putting your pocket where otherwise it’s lost forever until the end of the loan.
[34:18] Because your loan never really got above that coverage ratio. Right. You have to wait until finance and that money, that money potentially could be put back into the property in some form or fashion via capital and sometimes leasing, where, let’s say the cash sweep wouldn’t otherwise be available for leasing.
[34:34] Some the point, and I’m talking some complex stuff over here, if someone that’s never dealt with cash management,
[34:40] it’s maybe hard to understand, but anyone who has and have dealt with this knows exactly what I’m talking about. So flexibility both ways makes a difference. But your attorney is like, oh, what does it make a difference if it’s monthly or calendar quarter?
[34:53] Give them a calendar quarter, no problem. Give them that. We’ll get something else. We’ll get rates to, we’ll get another 5 bips on rate, we’ll negotiate the, the rate. It’s like the rate’s not as important as that.
[35:03] Right.
[35:04] Because just on a net present value basis of having that money tied up until maturity,
[35:09] you gave more than that.
[35:10] Kevin Choquette: So yeah, way more.
[35:13] Shlomo Chopp: Making to you is like no one, like no one. Not going to say no one. But most borrowers don’t game out their, their loan doc clauses and you need to.
[35:23] Kevin Choquette: No, they’re focused on closing the deal, executing the business plan and, and you know, they’ll deal with what may come when it comes. I think that is for many operators, kind of the default mindset, for better or worse.
[35:36] And in many ways for worse.
[35:38] Yeah.
[35:38] Shlomo Chopp: And I’ll, I’ll, I’ll take this to the next step. And this is where it becomes a problem.
[35:43] So sometimes they go, well, I don’t want to let my lender know that I have this issue, so I won’t tell them that a tenant didn’t pay rent,
[35:52] but that I won’t go into cash trap. Well, there’s two problems with that. Problem number one is when you submit financials,
[35:58] you basically falsify your financials. If you don’t, and if you do submit the financials properly, then they’re saying, hold on,
[36:06] where did the money go? Where’s the money? Hold on, we got an issue over here.
[36:10] Or if you submit it down the road and you delay your financials, then they’re going to say, hold on, it was a cash strap all the way back, went to when.
[36:17] So now we’re going to claw back that money and ask you to fund it.
[36:22] At which point that’s at the penalty of recourse. You have to come out of pocket to pay it anyways. Meanwhile, you distribute it to your borrowers and the bar, and I’m sorry, distributed to investors.
[36:30] And the bar was like, man, you know what I did with that money? I built out the space on the third floor which released. Oh, thank you so much. But you still owe it to us because he misappropriated it based on the docs, you should have given it to us.
[36:40] So the rolling implications of third and fourth degree implications over here, it’s like by not knowing is not a defense, so to speak. But by not knowing, you basically have, have, you know, started digging a hole for yourself that could have rolling implications because then you’ll have a borrower that still doesn’t want to read his loan documents and he gets a notice from the lender demanding $750,000 to be paid and he’s like,
[37:02] what Are you talking about why should I pay it? He’s like, I don’t care. And the lender says, well if you’re not going to do it, we’re going to come after you.
[37:08] And because it’s a non recourse loan, then we have to go off to the property as well. So he starts foreclosure and he basically starts suing and then he challenges the foreclosure, but he still didn’t read his loan documents.
[37:17] That basically says that if you go with a frivolous defense in court, you’re going to trigger recourse as well because his attorney screwed up on that as well. So then he continues filing,
[37:26] fighting it, triggers more recourse, right. Ultimately loses the asset over 750k because he never decided to read his documents. Which by the way, written badly to begin with by some guy who was a buddy of his who litigated him another time who didn’t know anything about securitized lending.
[37:39] And it’s like, you know what? Services are bad,
[37:41] services are bad.
[37:44] These guys, they came after me, I did the right thing, I put money into the thing. You know what, you were a good operator,
[37:51] but you didn’t read the rules of the game.
[37:53] And it’s a challenge.
[37:55] And like sometimes, like with one phone call, I will save guys buildings. You know, I’m Superman, apparently. But seriously, all it takes is one call and you tell the guy like, watch out, read your docs.
[38:04] I’m telling you, they’re not in the wrong. They’re going to take your property from you. Oh, okay, okay, okay. And, and you save it in time if they call. But a lot of people are like, nah, I call my attorney.
[38:12] Attorney said, oh, I want to litigate the heck out of this guy.
[38:15] Lender liability, tortious interference, oh, let’s go bankrupt.
[38:19] It’s just like, and by the way, I’m not making this up, these are all real stories. And you could literally cry.
[38:25] Kevin Choquette: Well, I mean, look, it sounds like it’s a rich ecosystem for you to come in, as you said at the top, and sort of translate, right? Like when you’ve got a developer saying, hey,
[38:39] this is lender liability,
[38:41] this is torturous interference.
[38:43] I’m going to throw this thing into bankruptcy.
[38:45] Like that’s, you know, you’re headed towards a brick wall pretty quickly.
[38:50] Shlomo Chopp: There are skies out there that call themselves advisors that actually advocate bankruptcy.
[38:55] I mean there’s, and, and they know,
[38:58] they know that it’s wrong,
[39:00] but they say, oh, hire us as a CRO chief restructuring officer. And we’ll go and do it for you. We’ll, we’ll, we’ll put into bankruptcy for you. As if that’s going to make a difference, which it doesn’t.
[39:10] Right. But even I know a case where a guy decided to do it and he screwed up and whatever. And then he was going for financing on another property where he wasn’t even the direct guy, but he was on the, he was on the org chart, and this was a great property,
[39:22] and he was just getting his proceeds in cmbs.
[39:25] And the controlling class who was going to buy this is the same guy that was on the other loan that he put into bankruptcy. They saw his name in the org chart, they kicked the deal.
[39:34] Now he’s basically. He had to come out of pocket for a few million dollars more to actually finance with a different type of loan.
[39:41] Right. Money that he didn’t have readily available because you get. Become Persona non grata. Like, you’re a bad borrower. You’re a guy, when things go wrong, you’re like, I’m not paying back my lender.
[39:50] I’m in a second position. But I’m gonna make believe I’m in the first position. But you know what?
[39:54] Listen,
[39:55] if it, if, if you’re, if you have a good, compelling case,
[39:59] nobody wants to throw good money off the bad. Yes, sometimes people, they hope and pray and chase deals, lenders alike,
[40:07] but no one wants to throw good money after bed. So make a compelling argument.
[40:11] But if you’re gonna go use the courts and you’re gonna be a bad borrower, you’re gonna get a reputation. And as big as this world is structured finance world lenders,
[40:22] I mean, you could just do a LexisNexis search and see exactly where you showed up in litigation or what you did. And especially if people have a direct, intimate knowledge of how you’ve dealt.
[40:31] And you could say, oh, I hired a guy, put me in bankruptcy. Like, doesn’t matter.
[40:36] Hmm.
[40:37] Kevin Choquette: So how did you get into this? I mean, this is like.
[40:40] And for the audience,
[40:42] you know, you guys put it on, put it on 0.75 play because you’re, you’re,
[40:46] you’re sticking to your east coast roots and going fast with drinking from a fall rose
[40:52] Shlomo Chopp: over here, 1.5, 1.75. Not for this. I’m telling you, people are going to slow it down. Yes, like, yeah, exactly. Yeah.
[41:04] Kevin Choquette: How did you get into this
[41:08] Shlomo Chopp: 2010? I mean, there were no deals to be done. What’s a man to do? You got to feed the family.
[41:13] So I You know,
[41:14] I took out the CMBS docs,
[41:18] I broke open the books as they say, and I,
[41:21] I learned the intricacies beneath it and I have some slight,
[41:29] slight inherent talent I guess to problem solve and went out and then just, just did it. Just, just went out and did it. Right. And honestly, like I’m a college dropout.
[41:41] I have no formal finance training,
[41:45] but you know, now I basically, you know, negotiate legal terms.
[41:49] I advise some of the biggest of, you know,
[41:53] I don’t know, family offices,
[41:55] international investors,
[41:58] even institutions work with the top retained by some of the top litigation firms in the world to work on some of this stuff.
[42:09] And it’s just a matter of like, hey, if you got talent and you’re ready to hustle and ready to do the hard work, like people want a deal, wheel and deal, right?
[42:15] They want to have dinners, they want to go out and party,
[42:17] they want to convince you to do a deal, that’s great.
[42:21] I wasn’t, you know, I didn’t get the lucky jeans that, you know,
[42:25] I could do that.
[42:26] I’m not a slick guy.
[42:28] I’m very straightforward guy. You know, my, my,
[42:31] my,
[42:33] my value add is my ability to be blunt and say things the way they are and not get myself shot in the process.
[42:38] So, you know, that’s, you know, that’s what I just, I just, I hustled.
[42:42] I taught myself how to, how to model, financial model. I taught myself ARGUS I taught myself,
[42:47] you know,
[42:48] put together my first website myself. You know, just tech stuff. And you know,
[42:56] if she is a will, there’s, there’s a way, you know, that’s what it comes down to and been able to,
[43:00] to succeed.
[43:03] And in the last. Or sorry, no, go ahead, go ahead.
[43:06] Kevin Choquette: In the last.
[43:06] Shlomo Chopp: I was saying last downturn I hit a 70% success rate and I was shocked and it was. There’s a matter of luck. There’s no question, right? No one’s that successful.
[43:16] I mean even,
[43:17] even Ted Williams.
[43:20] But you know, at the end of the day,
[43:22] like if you work hard enough and you don’t have an ego, you don’t come in like you’re the most important thing in the room, but rather you try to help and okay, a big key to my success be very first rate.
[43:34] Big key to my success has been the genuine desire to help people.
[43:40] Not out of the goodness of my heart, but just to educate people. Where I have knowledge and they don’t,
[43:45] I get a ha. I get satisfaction when you could take someone who’s literally broken and you could help them realize that it helped themselves. Like, I don’t want to do the work for you unless you’re hiring me.
[43:56] You hire me, I’ll do the work for you. But if I could talk to you and show you where you’re wrong and you could have success, you call me up and you say, you know what?
[44:02] I appreciate it. You saved my bacon.
[44:05] You know, to me, that’s like, okay, I made a difference in the life of a guy that thought he was going to lose everything, and he figured it out for me.
[44:12] I appreciate it. It’s a challenge for me, and I like giving back in that way.
[44:16] Kevin Choquette: I dig it.
[44:17] Is your. I mean, I think I know the answer to this, but I don’t want to be overly presumptuous. Is your business largely countercyclical? When. When it’s go go times, you guys are slow, and when things start to slow, you.
[44:31] You start to go?
[44:34] Shlomo Chopp: I’m somewhat countercyclical,
[44:38] but yes. So, so,
[44:40] so last downturn, we did very well.
[44:44] Then the market,
[44:46] the spigot shut off.
[44:47] So we wound down the business in 2020. The calls came in. So we spun up the business and just now getting in the rhythm right now, like, six years later.
[44:57] So. Right.
[44:59] You know, so that’s really.
[45:00] That’s really something that. Yes, it is somewhat countercyclical.
[45:04] But what we’re doing now is we’re. We’re actively looking at investments, right? And I get calls from people all the time, like, how do we look at stuff together? How do we deal?
[45:11] Like, and most people,
[45:12] it’s like, no, you’re just not a fit. And the reason is because,
[45:16] like, I’m not doing deals the way you do deals, right? I’m. I’m harvesting opportunities. I’m getting myself into positions.
[45:25] I’m buying,
[45:26] you know, derivatives that have impact.
[45:29] It is just like, it’s. I don’t want to make it sound like it’s more rocket science. It is. It’s not. But it’s a slow play. It’s not a big play.
[45:36] But to ultimately say the point I’m making is that my goal, my goal is we’re putting together portfolio, right? That’s the goal. The goal is coming out of this cycle,
[45:44] we’re not shutting down. We’re just gonna focus more on the investment side. Right now, we’re focusing on the.
[45:50] On the advisory side. Like, you know, for example, we were awarded a mall and then a key tenant left. So we didn’t end up going to contract.
[45:58] We were chasing a couple of major office buildings in New York City that ultimately we just had to pull out. We just couldn’t get to the numbers that the lender wanted.
[46:06] In one instance we didn’t underwrite a certain portion of the building. Other people were. So we dropped the ball on that one. And another instance we,
[46:13] it just they wanted property level,
[46:17] property level value for debt and they just weren’t giving us the answers that we needed. Know that we got the access that we needed. So we say, you know what, we’re just, you know, we tapped out on that one after being in the best and final.
[46:30] So you know, we’re chasing some of that stuff. We’ve bought some bonds and we’re constantly out there looking some opportunities like we have,
[46:39] you know, in our like a workout takes 12 to 18 months. Our opportunities, like here’s a deal like I could tell you Greenway Plaza in Houston just closed at par.
[46:48] Like we were chasing it for the longest time. The lender didn’t want to take our deal but we’ve put probably 250 plus hours into it.
[46:57] We had an approach to take the deal down and the lender found someone take it over our par. And this property is, you know,
[47:04] it’s hemorrhaging tenants. It’s a disaster right now.
[47:07] But you know, it’s going to be what it’s going to be. So we’re looking at significant things and we’re attempting to make those deals and you know, hoping to focus on it, but what we’re focusing on.
[47:16] And again he asked me about cyclical but like I said, we’re looking to get into,
[47:20] to add to our portfolio. We’re part of a family office. We have over 50 assets right now. But we’re looking to within the value add side of the business, which is the side of the business that I obviously would handle.
[47:32] We’re looking to get into assets that are the head of the market and not the tail of the market. I never want the tail to wag me, so to speak.
[47:38] I never want the market to wag me, if you will.
[47:40] I want basically to control what’s going on in my markets. I want to be significant enough to be the first place where people go. So that means I’m not just buying a group of loans just, just because, so to speak.
[47:50] Right. It’s not, it’s not what I’m going to do.
[47:52] Kevin Choquette: So that’s you’re sharp shooting as opposed to buying like blanket purchase of some washed out sort of, you know, sea asset in the sea market.
[48:07] Shlomo Chopp: Yeah. Think of it as not only shop shooting Think of as a sniper or shooting at a.
[48:11] Shooting at a moving target. Right? So you got to lead it.
[48:15] Kevin Choquette: Yeah, well, but let’s go back to the. The start there, where it was,
[48:21] you know, you’re countercyclical. So you’ve. You’ve gotten into like, hey, we’re seeing opportunity here, we see challenges here. But, like,
[48:32] I think that you and people in the industry where you are have a very unique vantage point into the industry and the tides and the trends that don’t make the headlines.
[48:44] So,
[48:45] like, where are we in. If you want to use the baseball innings of, of cycles, which is certainly overused,
[48:52] Is distress increasing?
[48:55] Is distress decreasing?
[48:57] Are there more problem capital stacks? Are there less capital stacks? Are you getting busier? Like, what’s the outlook for kind of where we are and where we’re headed? Like, I have to imagine you’re standing on a pretty unique mountaintop seeing things that look different than what the average real estate practitioner might be looking at.
[49:20] Shlomo Chopp: Okay, so here’s what we are.
[49:22] So the buyers are the hitters and the sellers are.
[49:29] And the sellers and the guys that have the assets are playing the field, right?
[49:36] We’re in the fourth inning.
[49:38] Every single ball we’ve hit has gone to the track,
[49:42] okay. And caught at the track. Like, it’s like, yeah, it looks like it’s finally going to be. Oh, man, caught at the track. What a catch again. Wow, that guy.
[49:50] And you know, bases loaded five times and then struck him out, right? Like, literally, like, that’s who we are, right?
[49:58] Inning wise, I think. I think we’re probably from a time perspective, like I said, like in the fourth inning or so,
[50:04] but nothing’s happened. It’s. It’s a scoreless game, right? Nothing’s really happened. There’s been, you know, the defense has had like five picture changes, right?
[50:14] We’ve bunt. Any wins we’ve had has been bunt, sacrifice buns, sacrifice flies.
[50:20] I mean,
[50:21] we’re not. There’s nothing really happening.
[50:24] And frankly,
[50:26] you know, the defense is running out of pitchers don’t have capital to chase their deals, right? I mean, the offense, there’s so much power coming up, but they keep on, like, striking out, right.
[50:39] For new deals, right? And you know, frankly, there’s a whole new team waiting for the next round to take over, but the guy playing defense, they’re just preventing that from happening.
[50:50] And our existing guys were just trying to, like, somehow put some runs on the board to sort of salvage this game to make it out to the next round, right?
[50:58] That’s really what we’re dealing with over here, we’re dealing with buyers on existing, owners of existing assets are cash poor.
[51:06] There’s lots of capital in the market that’s trying to chase things, but that’s being affected by the fact that the guys playing defense are somehow related to the guys in the next round.
[51:15] And you know, the guys in the next round may have all the money, but if the guys in this round, the guys playing defense lose the game,
[51:22] they may tell the guys in next round, you know, we need you guys to actually help, you know, come in for early training for our next year season. So therefore you may not have that power to actually buy stuff once it hits the market.
[51:34] My point being,
[51:35] because a lot of people that have the capital are people that have exposure to existing loans and because of maybe directly or indirectly, even the allocators that are, that are expecting to get capital back are, are somehow tied into a lot of this new money that’s coming to the table.
[51:50] I think once some of the balance sheets start start moving around, you’re going to have more redemptions and you’re going to have a lot of issues. I’m not, I’m not advocating.
[51:59] Now let’s make it real. From my, my,
[52:02] my analogy and the baseball analogy,
[52:04] I think because finance is a closed loop system,
[52:08] right? I gotta pay back the loan so you can make the loan elsewhere. Right.
[52:12] I think the more market price discovery we’re getting and the more losses are gonna be materialized, the less bullish some of that capital in the market is going to be.
[52:24] And it’s really hard to know upfront how that’s gonna look.
[52:29] But so far there haven’t been that many substantive resolutions. There’s been a lot of kicking the can, a lot of delaying,
[52:37] but not a lot of substantive resolutions.
[52:41] And it’s really, you know, it’s not 100% that when those resolutions happen that the capital that’s out there is going to be as aggressive. And I think we’ve seen some of that where deals have come to market and they haven’t realized the pricing that people would have, would have assumed they would.
[52:58] So what happens then is, is that all the aggressive capital, the market says, I don’t like the pricing, but I like the pricing minus 20%. Let me give you a loan against that new purchase.
[53:07] So then the equity becomes an issue.
[53:10] And that’s where I think ultimately you have a challenge. If the equity doesn’t exist, then it drops. Then when it drops into the level that the debt that the people who would have been the debt on the equity are comfortable with, then they’ll go in and buy it at that price.
[53:23] But the reality is, is that as, as you know,
[53:26] you start waiting for the market to catch up to you. The market runs away from you. It’s like the guy that wants to sell a property for $100 and bids come in at 90, says no deal.
[53:34] Then the market drops to 80 and he goes, I’ll take 90. Market 70 says, I’ll take 80. Right. And then all of a sudden something changes and something outside the system changes.
[53:44] Kevin Choquette: But we’re at this point, but we’re in a like.
[53:47] Try to say some of what I just heard back to you.
[53:50] There’s a bit of a log jam. The buyers and sellers are, are playing ball. There’s, there’s chatter, there’s bids, there’s offers.
[54:00] Trades aren’t happening. Right. It’s kind of a stag stalemate.
[54:05] If there are big marks to come,
[54:08] then you expect equity is going to become more,
[54:13] There’ll be more trepidation about jumping into the market, which could then exacerbate a downdraft. I’m just trying to make sure I kind of heard what you’re saying. I think I got it.
[54:24] Shlomo Chopp: Yes,
[54:25] yes. I think you’re right. I think you’re, you’re characterizing it well.
[54:29] And I think the ultimate point I’m making is that it’s not just a supply and demand dynamic.
[54:35] Right. There’s so much more that needs to be determined because capital supply and capital demand is one part of it,
[54:42] product supply is another part of it,
[54:45] but then there’s other parts of it as well. And that has to do with, you know, obsolescence. So I was, I was running an analysis, I was trying to identify how many loans,
[54:54] not how many loans, but what does the opportunity look like in the market relative to discounts to previous peaks. Right. So you, you pretty much could get a sense of where institutional pricing was.
[55:04] You could get a sense of where trades occurred.
[55:08] You got a sense of where debts are. Debt is valued at specifically in cmbs once it goes to special servicing.
[55:15] But what you need to then do is layer upon it your obsolescence premium. Like what’s it going to cost to renovate it? And then you compare that to replacement costs and pretty soon the discount ain’t really that big of a discount.
[55:28] Right.
[55:29] Kevin Choquette: Yeah.
[55:29] Shlomo Chopp: That’s also another factor to bear in mind. And that’s things that, that, you know, people realize once they dig in on a deal.
[55:36] So that’s why you have to be really, really careful. And that’s why,
[55:39] from my perspective, I want to deal with the head, not the tail. Because if something’s going to pop, I want it to be my deal, not that some other deal takes over the market and I gotta stand the line behind them.
[55:50] So that’s why we’re not focusing on,
[55:52] you know, oh, let’s buy a bunch of row houses and. Or a bunch, you know, in some suburb of Boston. Right. That’s just not going to be exciting,
[56:02] you know. But if I could actually buy a specific tower in a really great market,
[56:09] then, yes, if something’s going to pop, it’s going to be my building.
[56:15] Kevin Choquette: I know you’re going to come up on hard stop. So let’s switch a little bit. I appreciate all that insight into the market. I think it’s.
[56:22] Well, it’s real.
[56:24] It’s an interesting market.
[56:26] That stagnation and stalemate has been persisting for a while, and I don’t really know how it’s going to break, but it’s an interesting time. It’s a good time to be where you are.
[56:36] To be honest, I think you guys are going to be very busy.
[56:40] What about mentors? Who’s been influential in your journey? Anybody that sort of helped you?
[56:46] I love the idea of, like, how’d you get into it? It’s like, oh, I rolled out my shirt sleeves and figured it out. I pulled out the documents and I read them.
[56:54] What a radical concept. But anybody that’s helped you kind of get here?
[56:59] Shlomo Chopp: Yeah, I mean, there’s been a bunch of people, I think,
[57:03] from a technology perspective. My first boss, his name is Iris Lotowitz. He’s been in the finance game for a while. He’s. He had a software CRM that was out.
[57:12] Um,
[57:13] and, you know,
[57:14] so that’s some. That’s the first. That’s. That’s one that was very helpful to me.
[57:18] My current partner, Dylan, for Benowitz, is very helpful to me.
[57:22] When, you know, the game was up in 2016, 2017, I partnered with him on the acquisition side and just, you know,
[57:31] built out the business from there.
[57:34] I think there’s, you know, somebody there. There are some people in the special servicing industry that was,
[57:39] you know, very helpful. There’s one guy who actually,
[57:43] you know, we do work together right now on some workouts,
[57:48] who’s Kevin Donahue, who actually retired. But,
[57:52] you know, for fun, he gets involved in some of the long workouts that we’re doing.
[57:56] He used to run C3 in Midland, and he’s Someone that, when I was negotiating with,
[58:01] you know, specifically, there was a deal I was working on where a.
[58:06] A somebody who’s in the same business as me, who’s Deborah Morgan, really great. So she was on the other side working for him. And I was trying to figure that out.
[58:13] So I had meetings with him. He’s like, just advocate for your client. But we had lots of great discussions, and that’s somebody I have a lot of. I really appreciate.
[58:24] You know, there’s, you know,
[58:26] the partner that got me into business on this Steve Herschel lesson. Mentor, more partner. I think somebody. People that I’ve studied a lot. I’ve studied Bill Zeckendorf as to the excesses.
[58:35] I’ve studied, you know,
[58:37] other. You know, learned a lot.
[58:39] I think I read a lot of Winston Churchill. You know, I take a lot from books because I don’t. I. You know,
[58:44] people that are in the process. You never really get it in alive today. You never really get a real good read as to what the real story is. You just get the story they want to tell you.
[58:54] People you could read about is helpful. And I think one of the, like, Winston Churchill is a good example. Like when he went to FDR to try to.
[59:01] To try to get a deal done, if you will, to try to get the US to help him.
[59:06] He used what FDR said, you know, the fire. You know, if your neighbor has a firewood, you’re not lending the fire hose to go and cut it back. So what he did was a great job of saying, hey, this may be my problem, but it’s really your problem.
[59:16] It’s the same thing that I do with the lenders. Right. But he. He was able to eat, you know, what from. From fdr. Because FDR was pretty haughty as a person to start with, but FDR also couldn’t just jump into war, and he had to, you know, be standoffish a bit with Churchill.
[59:33] And he was ready to, like, bow down to him. Whatever you want, sir. Yes, sir. Right. He treated him like. Like a God. And so he put his ego in check.
[59:43] And a lot of borrowers don’t do that. So I learned that from him as well.
[59:46] Sam Zell is someone that I really admire. You know,
[59:50] I had the. The hubris to write an article that called New Graves to Dance on that I have published. He published a second the Grave Dancer. The Grave Dancer Returns.
[01:00:00] But I pitched him on. On a couple of stuff once, and that was really cool.
[01:00:05] You know, just try to learn from people around me. I really do. And I try to learn from people who are,
[01:00:10] you know, not egocentric people that are brass tax and could actually educate you. Somebody that I really enjoy listening to as well is Howard Marks and his podcast. I know a lot of people, you know,
[01:00:21] I heard saying, you know, like, I wish he was in business the same way he’s on his podcast. I’ve heard from people,
[01:00:26] but I find his, you know, some of his quotes are,
[01:00:29] are really, there’s some like, he’s really great at coming up with some of these quotes. Like I have literally an internal note that I share with my team that I think is just,
[01:00:40] is absolutely great. Like I have a couple from Kevin Donah who is great. He’s like, appraisals are a forward looking science based on a back based on backward looking data.
[01:00:48] Another one Kevin said, which is great is like, just because you,
[01:00:52] you, you could doesn’t mean you should.
[01:00:54] But Churchill, right? But you know, Churchill’s got a bunch he spoke about back in the day. Like the English critic would do well to acquaint himself with inherent probity and strength of the American speculative machine.
[01:01:07] It’s not built to prevent crisis, but to survive them.
[01:01:11] Here’s a few of these that are really, really good. The foremost dangerous times in words in investing are this time it’s different. Sir John Templeton.
[01:01:19] Yeah, right. There’s so much like I could. Well, he’s a great one. Walter Deamer. He was a great trader in Wall Street. He wrote a book. This is the name of the book.
[01:01:27] When it comes, when the time comes to buy, you won’t want to. That’s great. Like these are like, you learn from these people and just, it’s so like I live my day based on these quotes.
[01:01:39] Donald Rumsfeld. Unknown unknowns. The ones we don’t know. We don’t know. Right?
[01:01:44] Kevin Choquette: Yeah.
[01:01:44] Shlomo Chopp: Bad people, bad things. That’s me.
[01:01:47] Right. It’s just, there’s, you know, one last. I’ll let you move on. He was six foot tall and the average depth of the river was only four feet. He was drowned Reverend Edward Latham.
[01:01:57] So there’s, there’s so much just, just I keep, I have so many of these quotes. But you know, when you learn from people who have gone through life,
[01:02:08] some of these their entire lives, right.
[01:02:10] And give these quotes and then when you live through it, you say this is, this is genius. Right?
[01:02:15] Kevin Choquette: Yeah. It’s gold. So it’s gold. Literally somebody has put a breadcrumb on the trail for you to find. And when you find them, you can, you Know, you have to. You probably have to have the experience to have the vantage point to appreciate that it is, in fact, gold.
[01:02:32] Otherwise you just walk by it. But you know that the one you just threw out, which is when the time comes to buy, you won’t want to. I mean, OMG.
[01:02:40] Like,
[01:02:40] yes, that.
[01:02:42] That is 100% the thing.
[01:02:45] Um,
[01:02:46] so I think you said 2010 is when you started, when you’re like, hey, I gotta do something.
[01:02:50] Shlomo Chopp: Yeah, yeah, so.
[01:02:52] Kevin Choquette: So go back to, you know, I have no idea what that looked like, but I can imagine there was a lot of elbow grease and long hours, and you’re trying to skill up and, and get to a point where your credibility is sufficient enough that somebody’s gonna take you on as,
[01:03:06] as their advisor.
[01:03:07] Shlomo Chopp: Right. I gotta thank you on that one. Yes. There we go. I gotta thank someone. But continue. Yes.
[01:03:11] Kevin Choquette: So. So Shlomo’s in business.
[01:03:13] He’s. He’s rolling. And now I think you have a team of around 10 people.
[01:03:20] And look, from all indications,
[01:03:22] it seems like you guys are short on time and long on opportunity.
[01:03:27] What’s that like? How are you managing the transition from,
[01:03:32] please give me a shot to, oh, my God,
[01:03:35] I can’t do all this work.
[01:03:38] Shlomo Chopp: So the reason I got into the business,
[01:03:40] my attorney at the time was former in house Citibank CMBS counsel Amir Komblom. He’s my attorney still today,
[01:03:46] and I always thank him whenever I can for putting me in this direction.
[01:03:50] But I, you know what, your results speak for itself,
[01:03:53] right? And,
[01:03:55] and you know, you got to grease the wheel sometime, which is why I do a lot of social media marketing. But I don’t say, hey, I’m the best. I actually tell people problems.
[01:04:01] I tell. I tell people the things I work through and I talk openly about it initially, to the chagrin of all the go getter syndicators that I’m too much of a negative Nelly.
[01:04:10] But I was seeing things before they saw it. Right?
[01:04:13] Um, but yeah, I mean, I don’t have to tell people that I’m great at what I do or give me a shot anymore.
[01:04:21] I had the cold call when I started,
[01:04:23] but, you know, it’s just funny. Hey, you need brain surgery. I’m a good surgeon. Here’s my number. Call me.
[01:04:28] So, I mean, that’s,
[01:04:30] that’s sort of how it was.
[01:04:32] But today it’s just, you know,
[01:04:35] I’ll give you an example. A REIT called me about one of their assets, right? And I have to happen to be introduced to them because I put Out a white paper.
[01:04:44] And the head of Asset management’s like, some of the white paper. He saw the white paper, and he’s like, let me introduce you to the head of capital markets.
[01:04:50] Introduce capital markets. We had a conversation. He’s like, okay, we spoke about the deal. He says, okay, let me get you an NDA to talk further.
[01:04:57] I get a message from another attorney who’s been following me on social media. He’s like, hey, Shlomo, the REIT called me. I told him, I really like you. I’m like, wow.
[01:05:05] It’s like, you know, it’s just.
[01:05:07] It’s just you just put in the effort and the imp. And the. The effects happen, right? And you got to be good at what you do.
[01:05:15] Here’s the thing for me, you gotta have empathy.
[01:05:17] Absolute empathy, right? The guy on the other side of the table, he could be a Nick. He could be. But the end of the day,
[01:05:24] he’s losing it. He’s losing his project. He’s potentially losing everything. And he’s relying you. He’s coming to you with his, you know, with tears in his eyes in many instances, okay, Like, I don’t know what to do,
[01:05:36] right? And you gotta help the guy, and you gotta figure it out if you have empathy and you understand that. It’s not like, oh, we’re doing the best we can, or you advise the guy, okay, do something that’s risky.
[01:05:45] No, you. It’s as if it’s your asset. And I do take it to heart. And it could be hard sometimes,
[01:05:49] but, you know, I really, really try to deliver those people. And. And that. And that makes it that people care. People care. It’s not just somebody trying to do a deal.
[01:05:57] So that’s,
[01:05:59] you know, that’s. Thank God. That’s how the business has grown.
[01:06:01] And I. I just don’t plan on changing who I am. Yeah, I’m a tough negotiator, and, yes, I’m. But I’m. I’m not a snake, right? And I’m careful, and it’s about the long game, and I won’t compromise my.
[01:06:11] My ideals for anyone,
[01:06:13] but I’ll be there for anyone that’s legit. I’ll be there for them, and I’ll figure it out.
[01:06:17] Kevin Choquette: I dig it. I’m gonna respect your schedule. It’s caseinv.com, i believe. Is that correct, Shoma Shlomo?
[01:06:25] Shlomo Chopp: That is correct.
[01:06:26] Kevin Choquette: Yeah. So anybody wants to find you guys, he’s all over the web,
[01:06:30] LinkedIn, and there’s the website.
[01:06:32] I’ll leave it with you, Shlomo, for any closing remark and thank you for taking the time. I appreciate it. Listeners do do the stuff of. Follow us, like us. Subscribe, do all that stuff.
[01:06:44] It beats the algorithm.
[01:06:45] You’ve got the mic. Slamo. Thanks so much.
[01:06:48] Shlomo Chopp: Yes, I appreciate it. Thank you so much for having me. It’s very generous of you. And I guess my message to the average person is whether you’re in distress or not,
[01:06:57] if you haven’t done this yet,
[01:06:58] take your loan documents,
[01:07:01] give it to an attorney to review,
[01:07:03] tell them to come back to you and talk about every single paragraph in it. You want to have a four hour meeting. You want to talk through how you need to operate your property.
[01:07:11] You want to talk to every single clause in there. Because even if the lender didn’t call you on it, if there’s ever an issue, they’re going to point to it to come after you from the day that something happened.
[01:07:19] Understand it.
[01:07:20] Coach your management around it.
[01:07:22] Make sure you understand the implications of everything you do. Because there’s lots of landmines hidden in there. Some of them that your lawyer planted for you, unfortunately.
[01:07:32] Leave you with a very quick story. I have a client came to me and right in his carve outs it says that if he didn’t adhere to every term of their reporting paragraph reporting section, it triggers full recourse on the loan.
[01:07:45] Kevin Choquette: Oh, God.
[01:07:45] Shlomo Chopp: Take that for a sec.
[01:07:47] You’re late a day or that’s not, doesn’t, doesn’t conform to gap.
[01:07:52] And judges tend to enforce documents as they’ve been agreed to. So like get in front of your docs, review your docs. Know ahead of time if you have an issue.
[01:08:02] You know, the problem with Go Go times is that you don’t watch your flank, right? And then all of a sudden, boom, you’re, you’re, you folded up. So just watch your back and, and you know,
[01:08:13] good luck.
[01:08:14] Kevin Choquette: Right on. Thanks though. I appreciate it.
[01:08:17] Shlomo Chopp: Pleasure. Thank you so much.
