Below is a transcript of our July 2020 Mastermind Call with several experienced real estate investors across multiple asset classes, joining us in this month's mastermind were Beth Azor, Victor Menasce, Andrew Lanoie, Todd Sulzinger, Christian Cascone, RK Kliebenstein, Steff Boldrini. Each investor shares what they are currently going through in their specific situation, market and asset class.

Steff Boldrini, San Francisco, CA (Retail, Self Storage)
This year, I will be definitely heavily focused in California. From my end, I will be sharing what is happening here where I live in San Francisco which is most likely happening In cities like New York City. Today, the city is a ghost town. Nobody wants to quarantine in four walls with no access to work at a coffee shop or in common areas of their buildings. Nothing is happening in these common areas of the buildings, we're not even allowed to go there. A lot of people are moving out of the city. There are deals in the rental space that are completely unheard of and we would have never imagined they would be happening like one to two months off, and significant discounts on apartments. My friend, for instance, moved out of $4,500/month junior one bedroom that is now in the market for $3,000. That's a 30% rent decrease. And there are a ton of units available because nobody's moving into the city, there are especially lots of deals in condos and apartments.

Why do I mention that when I'm not in the residential space? Because it has a trickle down effect in businesses, most businesses are still closed or doing very little business. As far as retail, I have a very good friend that owns quite a few properties here in San Francisco. And he is getting rents from only 25% of his tenants. He also has some notes that are outstanding and are not being paid, for properties here in California. Deals are already happening. I already saw a retail property for sale at a 10.9% pro forma cap rate in San Francisco, at $373 per square foot. And I came across a boutique hotel at over 10% pro forma as well here in San Francisco. I spoke with someone who tracks CMBS delinquency rates and there's a 24% delinquency rate in hotels as of June 2020.

California is a very difficult state to deal with and many levels. And San Francisco is even worse. Prior to COVID, they were talking about implementing a fine for retail space that has been vacant for X number of months. And right now on the ballot, as some of you may know, Prop 15 for the second time comes back to tax all commercial properties based on their current market value. The only exception is agricultural, multifamily, and if you own less than $3 million in properties here. Given all of this, I still think that it is still an incredible opportunity to invest here, especially now. The people that are moving out are moving out temporarily. Young professionals will always want to live near or in larger cities that actually have a good social life and it's easy to go to. And I strongly believe that companies like Facebook and Google will never be created without people being in an office and innovating. Given all of this, I will be raising a significant fund for the remainder of the year in order to be prepared to take advantage of distressed properties. As we all know, opportunities like this only come every 10 years. Loe wasn't able to make it today, but he mentioned something really interesting in terms of strategic investing. He said that you should invest in blue cities in red states. And I think that's a very good approach.

Andrew Lanoie, Phoenix, AZ (Mobile Home Parks)
The cases got really bad the last two weeks, I think we're number one or two maybe behind Florida. Restaurants are still open for the most part, they closed down the gyms though a lot of business owners are fighting back against the governor to stay open which has been pretty interesting. We own and operate mobile home parks and collections, in general have been down a little bit, not too bad. A lot of parts of our business have have been frozen, we sent our construction company home. And as everyone knows, some of the lending dried up a little bit, some lenders are back, and some stayed the same through all this.

We're just figuring out how to get back into acquisition mode, and all of the Capex and all the projects and things that we have in our world for our portfolio. So we haven't really been traveling and didn't send anyone out. In lieu of all of these new developments in the past couple weeks, we're just trying to figure out how to get back to work with a lot of our team. We sent everyone home about four months ago, too. So we've office space that's sitting like a lot of people. Very interesting times to say the least

Todd Sulzinger, San Mateo, CA (Mobile Home Parks)
I manage Blue Elm Investments, which is also a mobile home park operator. And I also work as a consultant for a company called CCI investments, that does mobile home park consulting and property management. In our parks, we've had some struggles with collections as well, I have parks in Georgia and Tennessee and we've had more issues with collections in Georgia. It has been a combination of some tenants who were affected by COVID related situations where they lost their jobs due to the pandemic. And in those situations, we reached out to them and said, Okay, if you actually were then please fill out this form, and get proof from your employer that your job was affected by the pandemic. In other cases, we've had people really take advantage of the fact that the courts have been closed.

In Georgia around the end of March, the governor froze evictions. Many tenants were aware of that and stopped paying rent. The courts opened back up in the middle to end of June, so we've started the eviction process for a few of our tenants, and try to work with them as much as possible to arrange payment plans and not go through that process. But for some of those we had to start it. We're not sure how long that process is going to take we imagine it's going to take longer than it normally would, because there's been a backup in the courts, not just related to evictions, but also related a lot of other court related activity. Time will tell over the next month or so, how things go through that process for some of our residents. There has still been good demand for new tenants. We always talk in the mobile home park business about it being recession resistant, and this is a different kind of recession. When we think about recession resistancy you think that there's always going to be demand for jobs at a lower wage level, whether that be restaurants, nail salons, barbers, you think that all those things are always pretty secure. In this environment they're not. It's a different kind of economic recession that we're in right now, that has affected some of our tenants that are on the lower income spectrum.

But that seems to have been offset by some of the homes, we've actually brought in some refurbished homes to rent and the demand for those has been been strong. So it has been an interesting combination of continued high demand for affordable housing with people that have been affected by the downturn. On the other side, on my on the mobile home park consulting business side of the business I work on, there's still a strong demand from buyers out there. I think sometimes you do hear a sentiment of people just waiting on the sidelines, waiting to see what happens over the next six to nine months with pricing, and that is still happening out there. But we're also seeing a really strong demand from individuals, small partnerships, family offices who are looking to acquire parks and they're contacting us wanting to start that process, it has been really active on the acquisition side. So that's positive to see that there is still activity in the mobile home park business where people still find it to be something that they think is worthwhile investing and building a business around.

Beth Azor, Miami, FL (Retail)
I own six retail shopping centers and a lot is going on in our industry and in our community. We've had a ton of retail bankruptcies from Tuesday Morning, Pier One, Ascena is about to file, 24 Hour Fitness, GNC Gold's Gym, Bed Bath and Beyond just announced that they're closing 200 stores, Starbucks will probably be closing 400 stores. The national dealmaking will be on hold until 2021 because of the inability to travel, so anyone that owns shopping centers looking to fill retail space in the next six to nine months, will be focusing on local and regional players. So we're doing maybe some short term leases, there is activity. There's a lot of fast casual restaurants that are doing crazy volumes with to go and curbside. So there is activity for new retail. But retail has been hit hard obviously.

As far as the pandemic, we just reinstituted a curfew of 10pm in South Florida. 7 million people were fragmented into three areas: Miami, Fort Lauderdale, and West Palm. Miami announced that they were going to close indoor and outdoor dining and gyms. And then they had such a huge fight on their hands with the restaurant community and the gym community that they agreed to let the gyms open with masks and limited occupancy. And they opened outdoor dining back up, there would have been riots if they didn't. In Fort Lauderdale where my properties are located, they instituted a 10pm curfew, no food and drink after 10pm and they will punish the violators. If you don't have masks and you exceed the occupancy, they will shut you down for 24 hours if you violated the first time. And if they catch you again it will be 72 hours every time they catch you, no warning. We as landlords and owners of properties like that because we're punishing the violators versus the whole industry. Public REITs around the country are putting away millions of dollars to save and help their tenants. One REIT is trying to negotiate with PPP to get $200 million to be the conduit to help save mom and pop businesses, that has fallen thus far on deaf ears. Another REIT has earmarked $10 million for restaurants and another REIT has earmarked $6 million. They're creating pools and escrows of their own money to help out what has been and has become the current traffic driver at most shopping centers where 10 years ago food and beverage was less than 10% of a shopping center, it has grown in the last five years to 50%.

So being that they are our traffic driver, if the owner of the shopping center or the landlord feels that that tenant is worth saving, that they're going to be here after the vaccine, landlords are pretty much going to save them and help prop them up beyond just a rent deferral or a rent waiver. Across the country, there's a report that gets published of national tenant rent payments and on average I think they're about 80%. There are certain groups that are not paying at all. In my portfolio, I'm at about 88%. But my portfolio is heavily weighted with non national tenants. It's been a lot easier dealing with my mom and pops than it's been dealing with the nationals. And all of us retail property owners are anxious to see what happens to credit. You do the big national deal at the lower rent and the big tenant improvement dollars and the huge co-tenancy provisions because the national tenants would always say we're the ones you can count on. And we have all learned now in Covid, that they're not the ones you can count on actually.

As far as lenders for retail, all community bank lenders will have deferred 90 days mortgages. Early on people were getting IO deals, interest only. I publish blogs all the time, I said go back, you can get full deferrals, pretty much if you asked your community lender, they gave you full 90 day deferrals. They are reaching out back now in South Florida offering more deferrals, just putting it on the end your mortgage terms. Not CMBS, there's no deal with CMBS, and if you call your CMBS lender, you will be put on the bad list and you don't want to get on that list. So if you have a CMBS loan, you're paying your mortgage, even if you're having to pay it out of your pocket.

As far as deals, there have been no deals at all. Yet, we're all waiting for those deals, but there's been no deals yet. We do see a huge default coming with CMBS loans. So those of us that have capital that want to acquire more are waiting, but there are no big deals. In one of my centers. I lost a Kirklands and my vacancy went from eight to 21%. It's a small center, and I dropped my rents from 50 to 40 because I want to lease space but there hasn't been a lot of write downs yet on rents.

In the Miami office market, I have a friend who owns a boutique office leasing and management firm. She is working currently with 200,000 square feet of new office requests as a tenant broker from New York, Chicago and Dallas. 200,000 square feet, that would be a new absorption that would beat the last six months of 2019, so that's a pretty big number. However, even though that would be great new absorption, we do have the empty Class A office buildings where you have the public companies that are not bringing their people back to work, they're ghost towns. And you have the flight to suburbia from the C and D asset class office buildings that don't have good air quality, or have smaller elevators. What we're seeing in high rise office buildings, the COVID police and the fire departments are creating elevator appointments, they're limiting four people to an elevator and if you miss your 9:07, elevator appointment ride up, you then go back to the end of the queue. This is all in preparation of when businesses are coming back. And if you work for a public company, who knows when that's going to happen. She has said they're starting to get some calls on some rent discussions, but very few. Unlike the retail world, new developments are dead in the water. If you don't have a shovel in the ground, it's going to be two to three years for sure. The positives are activity is up, not with nationals, you're kicking the can on any nationals because none of their companies are allowing them to travel, so we're looking for national deals to not happen until 2022.

Why are you finding that it's been easier dealing with the mom and pop tenants versus the nationals?
They have a conscience. I have 59 tenants and the first four weeks we got bombarded, I would say starting in the fourth or fifth week, and I was talking to tenants every day. For my own mental health I had to bifurcate the calls I was having with mom and pops and the calls I was having with nationals. I literally picked Tuesday as the day I'll talk to mom and pops, or I'm literally talking them off the ledges. They're crying on the phone, I'm propping them up because I don't want a mass exodus, and they're feeling so bad that they can't pay my rent. On Wednesdays, I'm talking to national big companies who are saying, We're not going to pay for 12 months, what are you going to do about it? And have no conscience. They could care less. When this first started I would be talking someone off a ledge, they're crying and then I was being spoken to completely rudely.

The good news is that when we did reopen on May 18th the pent up demand was unbelievable. People came out in full force, sales were up, parking lots were full. A gentleman on CNBC said in January that this will be behind us, I hope and pray that it is. So landlords of retail have to just tread water, keep their tenants in, if you're a restaurant, and you can do curbside, or you can do delivery, or you have a retail operation where you can do online sales, they can maintain semblance of business. The hair salons haven't pushed a cash register in four months. So they reopened, had a great day, groundswell, great pent up demand, and now people are canceling left and right. And that was the call that I had today, I just said, Look, don't worry about rent until January, just don't worry about it. I said, What are you going to do for income? Well, I'll go rent a small share in a salon suite somewhere. I said, Don't go pay rent to someone else, let's just work it out. So any landlord that is smart is going to help their tenants if they can. If you have a CMBS loan, and you don't have the capital put aside to weather through the next four to six months, I guess you're giving the keys back, or go find a partner, because there will be people like me that will be out there that, for the right opportunity, will help because you cannot mess around with the CMBS lender. I will I have two of my six, and I'll never do it again.

Victor Menasce, Ottawa, Canada (Development)
I think your comments on forbearance are very interesting and spot on. A lot of businesses that are in the bond market are finding that there's no provision in a bond for any kind of forbearance. Whereas if you're dealing with a lender, that is an actual bona fide lender, you've got a lot more flexibility. So there is that dramatic difference in particular in the world of commercial. And that's why Hertz is in bankruptcy, there are a lot of businesses that have not been able to work it out with their bondholders.

I'm a developer in several different locations. Unlike what Beth was talking about, we are actually making some progress on getting debt for new construction and even some equity as well. It's tougher than it was. We're not doing anything in retail or office, thankfully. But in the multi-family and senior housing asset classes, we are able to find both debt and equity. For the moment, it appears as though rent collections in multi-family are pretty strong. Of course, that has all been propped up by the fact that the Federal Reserve and the Treasury are helicoptering money over the population, pretty liberally. That's not going to happen indefinitely. And of course, it's a process that does breed some degree of dependence. And so when that stops, that's when things will get interesting, we don't know when that'll be. We are in an election year, I don't think either party is going to want to be seen as the one that turned off the financial taps. That's not going to win an election for anyone. So I think we've at least until November of continued money printing and money printing works until it doesn't. And when it doesn't, it turns very quickly, at least if you look at history. If money printing was the path to prosperity, then Venezuela and Zimbabwe would be the richest nations on earth, and they're not. So it's going to be interesting to see.

In my market of Ottawa, Canada it's a little bit of a bubble. It's a hot market right now. Our inventory is down 49%, prices are up 14% in the retail market, 17% in the condo market. We've 1,900 units in inventory, we did 2,058 units in the past month, and days on market is hovering a little bit below 30 days. A lot of properties are selling with multiple offers in one day. So it's like our market hasn't noticed that there's a problem out there. It's kind of bizarre, but Ottowa is a bubble. The Federal Government is the dominant employer, the anchor tenant, or the anchor economic driver. So I think they're probably seeing similar effects in the Washington DC market, I don't know that, but I suspect you're going to see very similar type of activity there. Certainly a lot of the coastal cities have seen drops in rental rates and we've not seen it here, rent rents are holding. We're up $3/sf for rents, which is pretty solid. So it's maintaining the high historic norms, at least for the past year. In fact, I had a conversation with someone from from the Bay Area last week. We were talking about the the rental rates in San Francisco proper dropping an average of 9-10 percent, but rents in Oakland are up 4-5%. So what seems to be happening is people are saying, All right, I'm just going to go for something that's cheaper, so there's a bit of a Brooklyn effect happening in Oakland. And we're seeing the same thing in Dallas, Plano and Frisco are the corporate hotbeds, rents are down 9%, they're up 5% in Arlington, that's the lay of the land right now. We are still seeing deals. We're being selective, obviously. And we're being cautious. And we know that the market conditions could turn again in a heartbeat.

Where are you guys with the pandemic?
In Canada, we're doing much better than the US, we're 1/10th of the population of the US, we're having hundreds of cases a day. We've a moratorium on both evictions and foreclosures. In my province, there's a backlog of 80,000 cases in front of the landlord tenant tribunal, for evictions. And of course, that's not a complete number because knowing that there's a moratorium, not everyone's going to file, so the real number is obviously higher. That's a big number. It's going to take a long time to work through. So what's going to happen to those rental properties where the collections are down? I don't know. I expect we're going to start to see something appearing on the market.

RK Kliebenstein, Port St Lucie, FL (Self Storage)
I do most of my consulting on a nationwide basis and have everything from a cadre of larger operators down to small independent owner operators. Our industry has always been regarded as recession resilient. It has been one of the reasons why a lot of money flowed to our sector, particularly from the Wall Street side of the business. And it is why today, we still see that money trying to take safe haven in self storage. Relative to our operating metrics, and I'm going to speak more on a macro basis because it's easier to do so, most of my clients are sharing almost the exact same sentiment and this is the same for larger operators as for small and that is that our operations become bifurcated between the major metropolitan areas and everywhere else. So from an operating standpoint, our occupancy and tenancy has not seen any kind of withdrawal from the pandemic. And as we try and move from pandemic to endemic, I think we'll see some variance in that. But we're still focused on the new tenants coming in. At the beginning of the pandemic, we saw a rush in business in any town that was near a major university that had dorms because the dormies all needed to vacate. And when they vacated, they put that into self storage.

In self storage, one of the beauties of our business is that our lien laws are the most highly skewed toward the landlord as opposed to toward the tenant. As owners have a great benefit from that because as long as we follow the statute, we are basically 45 days, maximum 60 days if we follow the statutes, the worst of them in California and Oregon, the best of them in Nevada and South Dakota.We're very quickly able to recover our space. In lieu of recovering that space, most of the operators are taking a buyout position, which is you go to the tenant that is past due, and you ask if they would vacate the space as a courtesy to me. When we were under mobility restrictions and stay in home restrictions, we were not able to do that because they couldn't get their space out. So we took promises in lieu of and had them sign docs that say, When I can within the next X number of days of the release of mobility, I will move out of my space. And so we saw a fair amount of folks moving out, but there was sufficient demand to replace those spaces coming back in so the net move in/move out was basically covered by incoming demand for those spaces. And we didn't see much of a diminution in occupancy metrics.

Relative to collection activity, because we went into the suspension of collections beyond telephone calls. and we did not as an industry pursue the lien process of collections who are usually limited to losses in our industry of around 2-2.3%, that's a typical Self Storage property that's well managed. We'll only lose that amount of money and economic occupancy over a year in rents because of collection losses. We don't know the true collection loss because we just started the lien process again, which is 45 to 60 days, so now we'll see those units go to auction and will what the effect is. Delinquency is now hovering somewhere between 5 and 7%. We look at it as not being devastating, but certainly as being cautionary. When money from the Cares Act runs out and we no longer have that subsidy flowing in anymore, that to me will be a truer test of what our guest base is going to do and how they're going to react. Once the rent money is no longer being provided by unemployment, we'll begin to see what that really does to our rent base and how it affects us.

Self Storage has typically had the either benefit or detriment of being at a place on the food chain relative to payments. So people will pay for their basic living, followed by the rent, gas. In selft storage, the one that's right before us is the cell phone. So they'll pay their cell phone bill before they'll pay their storage bill. Transactionally on a bigger level, we are seeing still high closing rates on properties that are for sale. And we are also still seeing new listings coming to market and the players in that are typically the cash buyers that are not requiring a CMBS loan but can go to a community bank, or have lines of credit that are already established that have not been affected by the pandemic. We are closing an acquisition, we have some survey and title issues, nothing that is relative to COVID or the pandemic. And our lender who is a CMBS lender. And they also closed a CMBS loan for us 14 days ago in Arizona. So we were able to close those loans without any issues. We were only late in making the application because they were out of market when we were applying for financing. As soon as they came back in and called us up and said, We're ready to continue taking on new debt, go ahead and bring the loans in. We did and we have not been negatively affected from that CMBS lender who by the way, is not a loan warehouser. They tend to sell those in that market as quickly as they possibly can. But their track record so far has been an offering they had that came out I believe in the first week of May. They sold well, they did strip out retail, office, and hospitality out of their asset classes. And that primarily is what gave them the impetus to continue funding the CMBS loans.

Christian Cascone, West Palm Beach, FL (Developer, Multi-Family)
We're a little bit unique in that we do value add, and some traditional investments, we own apartment complexes and we've owned everything from the vacation rental sector all the way up to apartment complexes and we do a lot of disruptive tech, VC, first round, capital investing and alternative assets as well. We've taken a little bit of a different approach. We decided to diversify more internationally. We have property in Central America, throughout Europe, and we've decided to focus more on those markets. We see more stability in those markets. We see that there's just too many unknowns. We're a little more conservative, even though we do a lot of initial rounds and investing in classes that most people wouldn't consider. The market just has gotten a little too unpredictable at this point, a little too overheated. There's capital being injected in the wrong places and we feel like it's causing some problems as far as the free market is essentially dead at this point, in our opinion. We see a lot of manipulated markets, we see a lot of markets that are being favored. A lot of funds going into places where people want them to go and a lot of propping up zombie companies and that kind of thing. While we haven't seen a huge drop off in rental payments, we do see a lot of late payments, we see a lot of people uncertain and very fearful. From the multi-family perspective specifically, we feel like there are some better real estate opportunities in other places through some of the research and due diligence that we've been doing, and through the networks that we have around the world. And so we've been going and looking outside, taking this as an opportunity to further diversify our portfolio outside of the US. Worst case scenario, if we're wrong there, then we just stand pat with what we got, and we're fine and maybe we miss a few opportunities along the way. But we're willing to do that to mitigate risk.

We're trying to see if there's some chance that there's really going to be some opportunities down the road for really high quality assets and great locations in the US maybe, say 12 to 18 months down the road. We're certainly open to them. We're seeing opportunity zones get hot again, as people have huge capital gains that they're able to deploy into, away from things like stocks, and they can now put that into real estate. So we're getting a lot of calls on those zones. We own some opportunity zones. And there's a lot of interest in that. And we would be interested in that as well as people look to deploy all these capital gains that they're selling. We do feel like we're standing a little bit at the edge of the cliff on the recovery curve. This is sort of the return to normal phase, those that are familiar with those curves, the next thing is a precipitous drop. And we just don't know where that's going to happen, if it's going to happen, where it'll happen, how it'll manifest itself. And so we're standing a little bit flat right now in the US.