In this episode of the BigMikeFund Podcast, Big Mike welcomes his good friend Chris Litzler, Senior Managing Director at Marcus & Millichap Capital Corporation and seasoned mortgage broker with years of experience navigating complex capital markets. From the Midwest to the national stage, Chris brings a dual perspective as both a mortgage broker and investor, offering unique insights into the current real estate landscape.
With transaction volumes still off their 2021 highs but showing signs of recovery in 2025, Chris and Mike dig into the opportunities and challenges facing commercial real estate. They discuss distressed sales, refinancing hurdles, preferred equity structures, and how investors can think creatively about capital stacks in today’s market. This conversation is packed with valuable perspectives for sponsors, operators, and investors alike.
About the Guest:
Chris Litzler is a Senior Managing Director with Marcus & Millichap Capital Corporation, based in Cleveland, Ohio. With over a decade in mortgage banking, Chris has deep expertise in multifamily, industrial, retail, and more, working with both institutional and private clients. Known for his clear-eyed analysis of market conditions, Chris also invests alongside clients, offering rare dual insight into how both lenders and investors approach deals.
HIGHLIGHTS OF THE EPISODE
00:00 – Welcome to the BigMikeFund Podcast
00:25 – Meet Chris Litzler: Senior mortgage broker & investor with Marcus & Millichap
01:02 – Market volumes: 2021 highs vs. today’s recovery
02:14 – Transaction volumes down 40% from 2021, up 20–25% from 2023
03:30 – Multifamily resilience vs. challenges in office and self-storage
04:52 – Retail snapshot: open-air thriving, enclosed malls struggling
05:18 – Valuations: Midwest multifamily ~15–20% off peak, distressed sales deeper
06:53 – Bridge loan maturities forcing sales and discounted deals
08:58 – Motivated seller dynamics and distressed transactions
11:01 – Refinancing outlook: stabilized vs. non-stabilized properties
12:28 – Bridge-to-bridge refinances and costly preferred equity solutions
14:00 – Economics of pref equity: high returns, high control, and risk trade-offs
16:50 – Underwriting standards tightening: banks, sponsors, and coverage ratios
18:22 – Appraisals vs. debt service coverage constraints in refinancing
19:04 – Deals getting done: opportunistic distress vs. core quality trades
20:15 – Fixed vs. floating loans: Fed outlook, rate cuts, and lender floors
23:04 – Hedging strategies: caps and interest rate management
24:17 – Creative capital stacks: LP equity, preferred equity, and rescue capital
26:07 – Benefits of preferred/common equity structures with 100% bonus depreciation back
28:03 – Q4 opportunities: motivated sellers,
If you found this episode substantial and want to dig deeper into real estate, or maybe you want to discover better investment opportunities, be sure to check out www.tempofunding.com.
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Email: clitzler@marcusmillichap.com
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Full Transcript:
Mike Zlotnik: Welcome to the BigMikeFund Podcast. I’m the Big Mike, Mike Zlotnik, and today it is my pleasure and a privilege to welcome my really good friend. Chris Litzler. Hey, Chris.
Christopher Litzler: Yeah. Hey, Mike. How are you? Good to be with you.
Mike Zlotnik: Appreciate you. It’s great to have you on the podcast. Your wisdom is always deep and appreciated. So, also to have you, you are a CRE mortgage broker, one of the really senior people in the industry.
You are young, but you’ve been doing this for a long time, and you are now with Marcus & Millichap, one of the largest players in the space. Any other quick accolades? Just any other comments about you?
Christopher Litzler: Yeah, I sit in Cleveland, Ohio. I’m with Marcus and Millichap. We’ve been here since 2018 when they bought our little, boutique mortgage banking company.
And, maybe I’m one of only a few, few podcast guests that are as big as Big Mike.
Mike Zlotnik: Yeah, we’re both a tall guys, so that’s, that’s, you can’t, you can’t tell it on a podcast, but, yes, you, you get up. I think you’re even a little taller than me and I’m 6’4. You’re probably like 6’5 or something like that.
Christopher Litzler: Well, when, well, a few, few more years. I might shrink, shrink an inch or two and you’ll have me.
Mike Zlotnik: I don’t know about that. I’m a little bit older than you, so, yeah. Publish shrink faster than you. Alright, so let’s, let’s jump into the, what’s going on in the commercial mortgage, business? What are the opportunities?
You know, we’re recording this early August, 2025. A lot of things have transpired since kind of the market being hot and healthy in 2022. We, we have seen pretty difficult, 23 and 24 and 25 is sort of, hopefully the year of recovery. Anyway, I’ll let you. Share your wisdom and your thoughts? What, what are you seeing out there?
Christopher Litzler: Yeah, so that’s definitely what I would, what I would say. So transaction volume is considerably off the highs that we saw in 2021.
Mike Zlotnik: What does it mean considerably off the high? Are you off 20%, 30, 40, 50 more? I,
Christopher Litzler: I think in, I think industry wide, we’re probably down 40 ish percent from 2021. But we’re probably up 20 to 25% from 2023 in the first half of 2024.
So we’re probably, you know, so, so I think transactions just
Mike Zlotnik: 25. Think after year, year to day,
Christopher Litzler: 20, 25. Yeah. The last, last two to three quarters, we’ve seen a decent amount of volume pick back up.
Mike Zlotnik: So, okay, that’s great. That’s the, the first sign of recovery is volume, right? Yeah. You get more and more buyers looking to buy
Christopher Litzler: de Definitely.
So as you, you know, so 2021 banger banger years, I would say that that so far, year to date and kind of what the outlook looks like is, we’re kind of back to that 20 19, 20 18, 20 19, amount of volume.
Mike Zlotnik: So that’s, that’s not bad. It’s, you know, all things considered, it’s, it’s, it’s a recovery in progress.
That’s what you’re observing volume wise.
Christopher Litzler: Definitely. Of course. It depends, depends on the product type. Right? I think, you know. Probably 60 to 70% of my business is multifamily. And that has been pretty resilient, right? You have the agencies, that are mandated to, provide liquidity to apartments. So that’s stayed pretty, pretty strong.
industrial fine. Retail’s been pretty resilient. but, you know, there are some asset classes like, like office and even self storage that, that have been troubled for, you know. For other reasons, right?
Mike Zlotnik: Yeah. It’s the supply demand disbalance. Those asset classes have been, you know, like, or if it’s per, almost permanently damaged storage has been oversupplied and, and it’s very difficult to grow demand if you have too much supply.
You know, you, you got pricing wars to, you know, to get the occupancy. So it’s good to hear Multi is, is, is recovering obviously open air, shopping, retail, it’s been. remarkable. I mean, I just came from a trip and just a quick comment. I was in Rochester, New York and what’s really fascinating, there’s an enclosed mall, mall called Marketplace Mall that’s really kind of dead or die, almost have died.
And then, you know, a little bit of recovery in the form of like, go-karts and a few other things going in. And then you have open air shopping plazas next to it, like five minutes away, and they’re thriving. They’re so busy. It’s just amazing how. Consumer shifted away from that. but let, let’s continue.
so transaction wise, you see recovery price wise, are you seeing any, any improvements in multi shopping industrial things that are doing relatively well? Are you seeing any bit, I mean, through the cap rates, I don’t know how else, I mean, basically how do you look at the, the valuations? my assumption, the cap rates, that’s the, that’s the industry standard.
Christopher Litzler: Yeah, that’s right. I mean, I think, I think the metric that we’re kind of tossing around is that a apartment values are probably off plus or minus 15% from peak levels.
Mike Zlotnik: that, that’s not bad. By the way, that’s not bad because I heard 20 to 40%. So if you are at 15% mean, meaning that you’re seeing already recovery from those bottoms of the really bad market.
Christopher Litzler: Well, you, I think I should preface that by saying that I sit in Cleveland, Ohio, so most, you know, 50 to 60% of my volume is in the Midwest. So the Midwest by nature is gonna have less volatility, less swings, but less appreciation. We’re definitely seeing some deals that are, you know, 30% discounts to, to pricing.
you gotta be careful though, because when you evaluate values, right, a lot of things can change, right? Did the property have rent growth and we’re just seeing cap rate expansion? Or, you know, is occupancy down? Because the operator didn’t operate the property as well, but all else equal, Midwest, you know, 15 to 20% discounts from, on, on, you know, basically the same type of assets.
So we’re seeing, yeah. Got you. So we are starting to see a little bit of that stuff unlock for the last couple of years. Not a lot of trades, right. guys just trying to hold on thinking that there’s gonna be some sort of catalyst that’s gonna save em. but we’re starting to see the lenders predominantly force borrowers hands, because these deals wouldn’t be able to be refinanced.
Cash neutral. so there would be equity having to go in. So if the lender’s not willing to, willing to work with you, on, you know, at some point these things gotta sell. So we are starting to see some of that stuff on lock, predominantly bridge loans, you know, that we’re on the three plus one plus one.
You know, kind of getting to the end of that, you know, end of that business plan and, and lenders just saying, it’s out of time, you’re out of time. Let’s, it’s time to sell.
Mike Zlotnik: So you’re seeing for sale, I guess these are essentially depressed, discount, and motivated seller transactions because they can’t refinance or are not able to refinance.
raising equity capital is hard, so if they can’t raise fresh profit equity or someone with this, they’re forced to sell in a, in a for sale situation is a, there’s a, there’s a, there’s a discount for the, you know, for the, for sale conditions, right.
Christopher Litzler: Yeah. definitely. And, and as a result, probably the properties are not performing as well as it otherwise could be.
Right? If, You know, if you’ve made it five years on a bridge loan, probably a lot of that excess cash flow has been eaten up by debt service. So you haven’t had the free cash flow to reinvest into the, into your units, make, you know, cure any deferred maintenance that’s built up. you may have been suffering from occupants, you know, occupancy issues, maybe down units that aren’t online.
So, he has multiple, multiple, factors that are not driving great values.
Mike Zlotnik: So are, are most of the transactions sort of bridge to bridge or I guess they’re for sale? because Fannie Freddi, they’re stabilized. I guess that doesn’t, it’s not a for sale, that’s a refi of sort, or a stabilized property gets sold, to, you know, an agency loan.
These are. Normal transactions, but you’re saying it’s not as many you, you’re seeing more of a distressed product.
Christopher Litzler: You’re just not seeing a ton of guys that have owned this property for 10 years, property stabilized. There’s no imminent maturity event. Maybe they refinanced in 20, you know, 20 21, 20 22.
You’re not seeing a lot of those guys say, now is the right time for me to sell this asset. Right. so the stuff that, you know, typically would be, on the market, right? You know, for some event, right? Partnership, you know, dissolution, death, whatever it is, normal reasons for selling. you’re not seeing a lot of that stuff, right?
Folks just haven’t kind of gotten to the point where that 20 ish percent discount from, from 2021 is, is attractive to them if they don’t need to do it. so the stuff that we’re seeing, seeing get sold right now is, you know, having some sort of, event, right? Maturity, covenant breach, capital call, some, some reason for the sale rather than just this is the right time.
We think that we’re maximizing value.
Mike Zlotnik: Well, everyone is, you know, survive until 24, then survive until 25. Now survive until 26 if you can. Hold on. I mean, if you think about it. Refinancing from 2122 when interest rates were very low. On a five year term, you still have plenty of time to wait, wait out if you’re a bridge, like you said, you, you know, on a three year bridge, your bridge matured and, yeah, I mean, I, I, I certainly, certainly see this.
So let’s go to refinancing scenarios. what are you seeing on the refinance front? So for sale, yeah, obviously those things are not fun, not good for sponsors, great for buyers, probably. on the refinance scenarios, are you seeing required equity contributions, rescue and recovery capital, recapitalization capital, how sponsors are navigating basically tight credit conditions if they’re trying to get a fresh mortgage and some new pre equity?
Are you seeing, you know, what are you seeing out there?
Christopher Litzler: So, I’ll, I’ll break it into kind of two. two situations. The first is if the property is stabilized and performing, so 90 plus percent occupancy, lots of options, right? CMBS, life insurance companies, agency, lot of options for private credit, bank, credit union, lots of options for stabilized properties, right?
In that scenario with kind of where we’re seeing interest rates on. Performing deals for the most part, we can get close to cash neutral on deals that were purchased between 2020 and 2022. so even though, you know, even though price was high, we’ve seen enough rent appreciation, and the first mortgage, you know, typically was 75 or 80% of that cost, right?
We can typically roll that loan amount where rates are today, if the, the property is not performing. So sub 90% occupancy, maybe some down units, some deferred maintenance. That is a very challenging situation to be in. There’s just not a ton of options. so those deals typically require, some, some amount of cash going into the deals to, to, to roll them either to a bank or a, or another bridge loan.
Mike Zlotnik: Yeah, when we have a deal just like this, we kind of got refinanced and with the new bridge, they basically bridge to bridge and it required new, significant, fresh pro equity. And that pro equity, boy, it’s expensive. I mean, I wanna be in that position. We actually love doing this. We are doing this to whatever degree we can.
but equity today gets ridiculously good terms from risk, risk, return, perspective. and, but that’s the only path, right? If you have a matured loan and the lender doesn’t wanna give you any more time, they want to get repaid from their liquidity needs. Exactly. That scenario. And that’s, I guess, we’re all seeing the same thing.
It’s a, it’s a tough scenario going from bridge to a bridge and that that other bridge lender also is playing tough. So,
Christopher Litzler: yeah. And even, you know, even if the economics work, right, the bridge to bridge scenario is just a. It’s kind of hairy. So the lender typically requires cash in just to feel better about it, right?
Like even if it’s a fine debt yield, even if it’s kind of like an okay business plan. You know, bridge to bridge is just such a hairy situation that, typically requires, you know, some, some percentage of cash in regardless. so guys that can get their property stabilized at least have a lot more options.
Mike Zlotnik: Yeah. Yeah, I agree. It’s, it’s all about, it’s all about execution. What are you, what are you
Christopher Litzler: seeing? for the economics that you guys are getting on the pref,
Mike Zlotnik: I mean, well, one of the deals was just done. so here’s an example how attractive the pref is, right? It is basically they, you know, they’re behind primary debt.
They, they get one and a half X on their money, I think in, in three, in three years, or our minimum iara between 15 and 20% plus plus. Like 25% of an ops site.
Christopher Litzler: Okay.
Mike Zlotnik: So if you run the math on that, IRR, between the pref, coupon, what we call it, kind of the minimum earn, right?
Christopher Litzler: Mm-hmm.
Mike Zlotnik: And the 25% ops site, you are pretty much easily in the twenties, maybe mid twenties.
Mid twenties. They even higher in the thirties, right? Mid
Christopher Litzler: twenties. Right. If it, if it works out right.
Mike Zlotnik: Yeah, if it works out, of course. but that prof equity pushes back common equity. I mean, that’s another thing that happens, right? So you, as a common equity, you don’t really have a wonderful choice of options, right?
You, you either wind up in a for sale transaction or you want, you take fresh pref equity with these pretty steep terms. and what, what I also see a really important component within the deal that got closed. I think it’s actually a blessing. The, the prof equity shops, at least the bigger shops they require that they bring in their property management.
Christopher Litzler: Mm-hmm. They
Mike Zlotnik: want to take over execution and control over who is managing the property because they’re putting all the fresh capital money talks. So they, they want their property manager to run the show. So,
Christopher Litzler: and, I, I don’t think
Mike Zlotnik: it’s a bad thing, right? I mean, and probably, and probably cash, cash
Christopher Litzler: management and all, and all the other hoops that, that come along with it, right?
I mean, it’s,
Mike Zlotnik: Well, they get paid first right at, at the end of the day. You and common equity at that point don’t really have too many wonderful options. You’re still in the deal, but the, you, you are behind them. They’re running the show with their property manager. If they execute well, they’ll get their 1.5 x and then they’ll get a decent, amount above if the market’s recover and they execute well, and that, that’s what, that’s what these transactions look like.
Is this a bad choice? I think that’s the only choice, right? It’s kind of like. You sell, you take a big haircut or you, you know, if it, there, there are a few scenarios you sell, you lose all your equity, you sell, you lose 60% of your equity, for example, right? Horrible scenario. Pretty bad scenario, right? Or scenario number three, you, you, you refinance and then you live.
And if the property gets back to the 2022 valuations, right? With execution and et cetera, et cetera. You have a decent chance of, of recovery, but you do have to obviously recover more than the, the cost of that 1.5 x.
Christopher Litzler: Yeah. Right, right.
Mike Zlotnik: So, let’s continue the discussion. how the underwriting standards, and valuations expectations change from 22 until now.
Christopher Litzler: Yeah,
Mike Zlotnik: 25.
Christopher Litzler: okay. So let’s start with, with how lenders are viewing this stuff. The banks are still kind of uncovering what’s going on with their book. So the banks have been a little bit more conservative, which is to say, better sponsors, better quality assets, better locations, and better in place cash flow.
So the banks have been a little bit more conservative. so what they’re, they’re basically lending on stabi stabilized properties. Same, easy,
Mike Zlotnik: easier underwriting, right? They can easily underwrite that service coverage ratio. They can underwrite LTV and many other variables. Yep. But how are they valuing these properties?
’cause the, the volume is, is low and not too many comps. So I’m just curious how they are looking at the valuations and that service coverage. Of course.
Christopher Litzler: Yeah. I mean of on, on a refinance, right? Deferring to an deferring to an appraisal. Right. Most deals today are constrained by coverage versus value, right?
So they can pretty easily get to what actual in place cash flow is. Throw in their, their, loan terms, and you can size to a 1 20, 1 25, 1 30, somewhere, you know, depending on the assets. So that’s typically the constraint of, of the, of most loans today.
Mike Zlotnik: so debt service, I would, I would think it’s the reverse, right?
I, I would think that the LTV is more of a constraint, but you’re saying LTV is fine, but the debt service coverage is a bigger issue. If insurance is up, if your costs are up, if your rents didn’t grow fast enough, you can’t service the debt from. You, because it’s harder to do that
Christopher Litzler: because on a, on a refinance, without the amount of trades, we’re still getting pretty good appraisals, right?
Pretty low, pretty low cap rates, right? So, so the constraint is still on, is still on coverage and on acquisitions, right? Value is price, right? So that’s your, That’s your value there. So there’s two types of deals that are kind of getting done right now. The first is like low basis kind of distress, like opportunistic type deal, where you can absorb the higher cost of capital because most of the lenders for that is a, that’s a bridge loan.
So that’s a little bit expensive. so you need that more opportunistic stuff to, to be able to make that math work. And then the second type of deal that’s getting done is, is the better quality core, type asset that is trading at a discount to replacement cost where equity’s okay with that five, 6% yield.
because they like, because they like the real estate and they like the discount to, You know, to 2021 valuations. And that’s getting done, you know, with pretty tight re spreads agencies pricing. I mean, low one, hundreds for, for full le for full leverage deals, with a lot of io. So you can still
Mike Zlotnik: over, over 10 year,
Christopher Litzler: yeah, 5, 7, 10.
You could go longer of course, if you want to. we’re seeing a lot of five and seven year deals, but of course, you know, 10 year money is available for the right, for the right sponsor.
Mike Zlotnik: Yeah, I got you. on the bridge side, just curious, there’s, there’s a general expectation that the short-term interest rates will come down the fed, even though they’re very hawkish today.
I mean, Jay Powell is sort of a, a big hawk at this, at this time, but over the next 12 months, or 12 or 18 months is a pretty high expectation that, whoever Trump appoints will be a, a dove. They will cut. You know, faster than, Powell for sure. And even Powell will cut, right? I mean, the expectation is he’ll cut in September, maybe one more cut in December.
Probably if he stays full term, he’ll cut, I don’t know, twice before his term expires, in 26. So just, just Powell doing his thing without, new, fed chair where, where probably by, you know, end of May. 1% less than we are now. And then a new person comes in and Trump says, cut it by 3%. So they’ll probably continue, maybe even do some fifties instead of quarters, right?
So we expect the rate, short term rates come down. So when, when they, when they do bridge loans, do they have like a floor on them? I, is that how it functions? Because the lenders don’t wanna be, you know, cutting the rates when this thing, you know, when when fed cuts.
Christopher Litzler: Yeah. So there’s definitely some, some floor.
it’s ne it is negotiable. We’re not seeing a ton of elective floating rate loans. Right. Like a bridge loan of course needs to, needs to be a floater. and you’re usually getting a floor, you know. A hundred to 200 basis points below, where you’re at, at closing the current level right below the current level.
Mike Zlotnik: So it’s not bad. It’s, it, it’s, it may be attractive for those people who actually feel that, they need to have the flexibility of a refi option within, you know, let’s, two or three years or something like this, and then they expect the rates to fall. It’s almost like. The more I think about it, if you’re getting any, any kind of a value deal, you don’t even have a choice, right?
You have to get a Florida, type of bridge loan. But even, even if you are at 90 plus percent occupancy and locking in fixed rate as prepayment penalties, that whole conversation was completely reversed. When the rates were low, it made sense to luck. long term. Now it’s almost like you on a cashflow basis.
It’s hard. To make the numbers work, but if you, you know, overfund enough and you have interest reserves, maybe it’s better to consider a floater today, because the interest rates really have only one direction to go down. The speed of these cuts is unclear, but it’s just 1, 1 1 directional thing for the next.
I don’t. A year and a half, two years, right? Yeah.
Christopher Litzler: And, and you could always buy it in the money cap to bring your, bring your, pay rate down to, you know, some level where you can support it, in the near term if you think that it’s, you know, only 12 months out or 18 months out before you can, before rates are at a level where you want ’em to be at.
So yeah, there’s definitely some hedging options that that could be, you know, that could make, could make sense. We’re not seeing a ton of guys electing to do that though. Just,
Mike Zlotnik: well, it is psychological, right? People, people have been burned on, on, on the floating rate that and too many of them prefer to lock.
Yeah. The rea
Christopher Litzler: and the reason you would traditionally do that is to have that flexibility in the, in the prepayment. So what guys are doing instead is they’re just doing five year loans and maybe you’re doing three years of yield maintenance and 1% thereafter. If you really think that, That you wanna get out of it early or some private credit options are available with a little bit better prepayment penalties that get you in the same fixed rate as you would be, on the floater today.
So just some different options where you can achieve the same thing.
Mike Zlotnik: Very cool. next question. We have about five, six minutes. I just wanna make sure we, we cover so. what are the capital stack structures are emerging, common equity versus preferred equity versus rescue capital? What are you seeing in what’s transacting today on the refi side, and then even the new acquisition?
Are people using pre and common equity mix?
Christopher Litzler: So the, the pre is available, but it’s expensive as you, as you mentioned. So I think the, the preference today is traditional, like traditional lp, just kind of the typical, you know, GPLP structure. First mortgage as high as you can get it, and then just traditional LP equity on top of that.
but what we’re seeing is in these, you know, kind of these private client deals, so sub $25 million, so substitutional, it’s becoming more difficult to raise equity, right? You just can’t, generate high enough IRRs and equity multiples to entice, you know, the traditional, You know, smaller check mom and pop, investors.
So what some guys are doing are doing a little bit lower first mortgage, right? So, you know, call it 55 to 65% leverage, better pricing. Little bit of pref on top of that. And then common, To fill the gap. So that’s, you know, that’s one thing that we’re, that we’re seeing. But the pref is expensive in these guys if they don’t need to.
They don’t want to give up, but, you know, as much control or, you know, as much of the economics if they don’t have to.
Mike Zlotnik: Yeah, I agree. And obviously on the refi front, that’s super expensive of the rescue capital. on the new money. I mean, we’ve used that structure. One of the deals early in the year, Waverly with the institutional pref, and.
The beauty about that, if you can get that and takes no depreciation, right? The comment takes an outsized depreciation, and a hundred percent bonuses back with the one, big, beautiful bill. So from that perspective, I think actually it’s even more attractive now than ever before for the reasons you mentioned.
One is bonus depreciation back two very hard to raise, common equity. So if your exercise shrinks by 50%, you have 50% preferred, 50% common. and the preferred comes from some kind of institutional shop. Your job on the common is way easier. at least you could still pencil, you know, decent IRR numbers.
I mean, it comes down to the right type of deal, right? It comes down. You have to have very high confidence. You’re buying right today and the extra level of, you know, risk of a capital stack position. It can’t be justified easily if you, if you buy Right, right. Make the money on the buy if, if that, if that’s an approach, it feels good.
If you feel uncomfortable, then yeah, I mean, you shouldn’t be, you shouldn’t be doing this.
Christopher Litzler: Well, we’ll have to see if that, if that a hundred percent bonus coming back really spurs some year end transaction volume. Historically, the end of the year tends to be a little bit, a little bit busier. So we’ll see if that’s kind of, spurs, kind of spurs some stuff because the last few years haven’t been a hundred percent.
So with it being back, I hope that, I hope that you’re right. You couple that with a little bit lower rates, you know, a little bit of decline the last couple of days if that keeps up, you know, we’ll see. It could be a little gasoline for us.
Mike Zlotnik: Yeah. Your words to God’s ears, right? It’s, it’s kind of like we want, well, we want to believe it.
It, it feels a little bit like that with interest rates sort of coming down the long, the, the, the longer end of the yield curve. And then, you know, I, I, I’ve, I’ve talked about this quite a bit. The difference between the old rule of 40% and the new rule back to a hundred percent is two and a half x. If you are an REP, if you are somebody who could use that depreciation, it’s a huge difference.
I mean, honestly, it’s a huge difference from tax efficiency perspective. So you should be a little bit more flexible to write the, check you into, into the deal, but we’ll see. So like we are looking for the deal for Q4 right now we wanna do this preferred common e preferred common equity mix with heavy depreciation because we have a lot of mutual friends, CG mastermind guys and girls who want it.
So we’ll see. It’s, it’s what kind of
Christopher Litzler: anything, anything looking promising. What, what are you looking for?
Mike Zlotnik: Well, you know, like multi is a good asset class to do this, right? I mean, we, we’ve done, we doing open air shopping, you don’t get the same. Mm-hmm. The leverage is way lower. Right. And, and, and you get a higher cap rate, but your leverage is sub 60% in, in the extreme cases, 65%
Christopher Litzler: and you’re not getting as much bonus, right.
Because of the, you can’t appreciate, you don’t
Mike Zlotnik: have the doors in mm-hmm. You know, appliances and all that other stuff. So you have to, your overall ratio is way lower. So multifamily is the asset class. we haven’t done much in mobile, but I, I’ll tell you, mobile theoretically de depreciates. Well, yeah, so at this point it would be a multi, we, we need to start with a great deal.
That’s the best way to describe it, is we’re looking for strong, good sponsor who’s not overwhelmed with too many deals and they’re really struggling to keep everything else afloat. Somebody who is, is got a, you know, could be even a small sponsor, but a great quality sponsor. Mm-hmm. And, and, and, and they’re able to get a great deal and it probably has to be a decent market.
We looked at some smaller markets, pretty good cap rates, but you’re dealing with smaller markets, you don’t know what the future will be. Mm-hmm. So it’s basically being on the other side of the motivated seller situation where they, they, they gotta sell because of a forced sale. If you can get ’em into one of these situations, then it’s interesting for us to raise the capital for the deal, structure the right way.
So that’s, that’s, that’s kind of the. The 40,000 foot picture and then the devil’s and the details. Sure. You know, I’m course optimistic will find it, but you know, you’ll find it not this moment. At the time of the recording, we, we don’t have a locked in deal, but Q4, like, you know, we we’re still, we still got good, we still got time three and then yeah.
Q4 to close.
Christopher Litzler: Well, keep me, keep me in the loop. Like we’d love to, we’d love to, either do both, throw a little money at it and see if we can help with something.
Mike Zlotnik: Yeah, yeah, I’m absolutely, I mean, gotta call you with, with a mortgage, with debt and then we’ll figure out, the equity as well. So, Chris, I appreciate your wisdom.
what’s the best way for folks to reach out? Website, any, any, any information you wanna share?
Christopher Litzler: Yeah, clitzler@marcusmillichap.com. I’m not really on the socials, but you can find me on the Marcus Millichap website. We’d be happy to help any of your guys. We don’t run through any scenarios that are, that are interesting.
Mike Zlotnik: And you are both. What, what’s really amazing and fascinating, you are of course a mortgage broker, but you’re also an investor. So, investors can even reach out to you and have a conversation from an investor perspective because the, these discussions are so helpful to, understand how lenders think about it.
But you wear also an equity hat, which is, you know, not many people do this. They either have one or the other. You have both hats?
Christopher Litzler: Yeah. happy to, I try not to operate my own real estate. I mostly just invest with, with my clients. but yeah, I mean I, we’ve seen a lot of stuff the good, bad, the ugly. So happy to, always share my opinions.
Mike Zlotnik: Thank you Chris. Appreciate your wisdom and thank you so much. Enjoy the rest of the summer.
Christopher Litzler: Alright, Mike, talk to you soon.
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