Joel Kraut has over 20 years of commercial real estate loan structuring experience, specializing in difficult-to-finance specialty niche market segment products, hotels, gas stations, car wash/oil change, self-storage facilities, and construction loans. His experience as an owner, broker, and direct lender enables him to provide his clients with the best-structured arrangements possible. Mr. Kraut, a former developer, and builder in New Jersey has a wealth of knowledge to share with clients about the subdivision, approval, and regulatory processes. Furthermore, Mr. Kraut is regarded as a gas financing expert in the Tri-State market, with extensive experience in the environmental arena as it relates to specialty use properties.

 

 

Episode Highlights Here:

 

Joel Kraut:

The loans that we’re making in the fix and the flip world, a lot of those are kept in our own personal portfolios. So there are two different things happening. It definitely changes dynamically in terms of our returns.

Pierce York:

So what is the secret sauce? You just said the power is in the leverage, right? The money’s in the leverage. So unpack that for us.

Joel Kraut:

Especially when interest rates are so low. We’re in a very unique time, I’ve never seen so much liquidity in the market. I know, everybody tells us we’re at the top. I’ve thought about that myself many times. But I’ve also, from experience never seen this kind of liquidity available at a market top, usually were leveraged out as a group, and we don’t have the gunpowder anymore. Here, that’s very different. So you have a lot of large institutions, Goldman Sachs is in a world that type size and larger hedge funds that are desperately seeking yield. And in that, they’ll put out money and rates and allow people like myself to make a spread on that money. So that leverage factor gives us the opportunity to bring money to the market, very fair pricing, and still make money. That didn’t exist when we were all lending our own dough. And it was very different. The markets are so significantly large nowadays in the billions, and maybe even a trillion I’m not sure, but certainly in the billions, even in the private space, not talking about anything to do with primary residence ownership. This is all non-owner occupied, all investor is driven, and the properties that we lend against, for the vast majority are already cash flowing. Thus we feel have the ability, not perfect, but the ability to help weather storms as they come up. That’s very important for us, a lot of the loans are being securitized away into the third market, or sold off to insurance companies, and not kept in our own personal portfolios. The loans that we’re making in the fix and the flip world, a lot of those are kept in our own personal portfolios. So there are two different things happening. It definitely changes the dynamic in terms of our returns.

Pierce York:

Yeah, I’m gonna pause you there for a second, just so I understand. So basically, what you’re saying is because they’ve printed so much money in the past few years, that the liquidity is just so abundant that they’re willing to just loan at such a cheap rate that you can basically just borrow it. Then now you’ve got your own list of people that are borrowing for it, and you just basically pocket the Delta and put the difference in your pocket. Is that a fair summary?

Joel Kraut:

In a very simplistic layman’s terms, yes. It’s not quite as simple as that or on the broad stroke what you just described. Yes, that is correct.

 

 

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