Bank Collapse Update from Ira Zlotowitz, Gparency - The Lakewood Scoop Exclusive - SVB, Signature

no one could predict what's going to happen Hashem runs the world God runs the world and he'll you don't know his master plan I was asked by the Lakewood Scoop to give an update on the last video that I did so the goal of this update is really just to tell you some of the main questions have been flowing back and forth and certain things you should focus on for the going forward as you stop making decisions nobody knows what's going to happen and the hedge fund Guru yitzy Marquis explained to be a concept called Collective thinking and to me I never heard of it seems like a lot of people did hear of it and it's fascinating they say a professor took a jar of jelly beans a whole big jar and he asked this class to guess how many jelly beans are in the jar not one person came close yet when they took the average of everyone who in the class the average was within two percent of the answer many times people wake up in the morning and they ask where's the stock market going to be today and totally you thought it should go up based on the recent news went down vice versa who knows what's happening but if you take Collective thinking that's gonna rude that's going to rule the day going forward other in blessed memories that's all used to tell me that when it comes to sales it's very important that you follow the way the wind is blowing and Troy never to make a sale unless you know you're gonna get the yes ask as many questions as you want follow the win same concept so the example would be if I was doing home mortgages I do commercial mortgages but I was doing home mortgages that some people want 15-year mortgages for 30 year mortgages you're not gonna be able to convince someone that wants a 30 that's better to take a 15 year and vice versa so if you want to sell to a 30 if you have a product of 30 30 if you don't have that product you're better off not trying to sell it you better just moving on to somebody else so the first obvious question is that people asking today is my money safe at the banks so regarding let's start with signature and Silicon Valley I'll take signature as an example quite frankly in my humble opinion I can't advise anybody I think that right now is the safest Bank in the world because the government came out saying is they're backing it there's even a rumor going on that they might not sell Signature Bank the person they brought in a great person from Fifth Third Bank to run it supposedly is only earning a dollar and he has 30 or 60 or 90 days to put a proposal together to build out a team that the government will run Signature Bank as a bank and then sell it at a big profit in a couple years from now so it'll be Fannie Mae Freddie Mac and Signature Bank so yeah I think signature is the best is every other bank safe in the middle I would have to believe that they're safe I'm sure if some of the spike happens now the talk of the credit Swiss something happens there's gonna be some bank they can let fail and it won't cover the deposits above 250. I don't think it's that likely but I really think it's happening and the way the wind is really blowing is that as you heard it when the president got up and he said his speech shareholders he's not protecting depositors they want to protect I think the goal right now is going to be to get the banks to merge from the 3 000 plus lenders that are out there to less than a thousand have like accounting firms have a big four have the top four Banks top five banks top 10 Banks and have regionals a couple in every single state that have down to the sub markets have Community Banks Community Banks are very important they know the local bobber they know the local businesses Regional banks have more money and they're pretty close to be able to helping out businesses as they grow and then it comes to the National Banks that that could be for the masses at that point it's on the banking side I think the money is gonna is relatively safe in the short term wherever you're going but the long term once you have the wind of the government what are they going to do to enforce that win they're already talking about raising regulation making certain requirements but think about it how many people Collective thinking say you know something I have my hard-earned money and I'm not going to keep it in a local bank unless they pay me a lot more than the top few banks that I know are safe like people think Chase is safe too it's never again it's too big to fail they're never gonna let Chase go down so that's the case they're going to pay higher deposits they have more regulation they can they're gonna have to keep more money on their books and they're not able to lend it out they have to lend at a very high rate are they going to get the good borrowers so I think it's going to force Banks to stop merging many of the banks that I'm close with the and I and I speak to them I ask them what is the number one reason that Banks haven't merged in these last few years so the number one reason is ego there are humans at the bank and if two Banks merge who's gonna run the bank do you think someone ran a bank their whole life they want to merge now and they'd be number two or baby pushed out so therefore the mergers didn't happen at the rate they should have happened but now when they're facing unfortunately what happened at Signature Bank that all the bankers think about that their life savings in stock gone to zero and the shareholders are zero when investors in the banks aren't realizing hey we may come to a problem soon we might be worth zero when the guns to the head of it or the shot clock is running out they're going to make those moves pretty quick and you'll see a lot more merges between all the the wind blowing in this direction where the government wants it with investors are talking and just practically under the hood how can they be profitable those numbers what is the biggest risk to the market right now is the same risk that happened to the bank what's called Mark to Market what Mark to Market means is that you have to own up and admit that how much are you really worth so when you have a stock it's very easy stocks trade throughout the whole day so if I have 100 shares of a stock that's at a dollar I'm worth 100 worth of stock if the stock goes to a dollar fifty of 150 worth of stock what happens when you buy a building how much is the building worth you bought the building a few years ago for 10 million dollars what is it worth today is the building worth more than 10 million less than 10 million now it's not really relevant to me how much my net worth is how does it affect my day-to-day life but this is where it starts making a difference a bank that makes a difference because the bank has to have a certain amount of liquidity available to them a certain amount of backup they could sell in case they have to go ahead and recoup things that's what caused the issue right now these Banks had treasure bills into maturing in let's say 10 years 20 years of 30 years if they would have held it out to maturity they'd be fine the problem was the short term they were losing money because every day they were collecting they were they were they were getting paid the amount they're getting paid on the bond the amount they were collecting in interest it was an issue instead of losing a couple of percent a year but if they held out to the end they recoup all their money so the issue came in that the mark to Market because they had to sell today they realized hey all these bonds aren't worth as much if I had to sell today and based on that that's where the lenders started showing issues the risk to the industry is with other lenders have to stop Mark to Market other things or would they not have to mark the market other things and if yes what is the damage going to be from that that's why the government right now is finding is willing to lend to the banks to keep them afloat if they have bonds treasuries they're able to they're able to use the government will lend them against those treasuries for years this way they could work things out over the next year this Mark to Market concept starts applying to Commercial Real Estate commercial real estate owners all have adjustable rate loans which basically means they don't have a 30 they have a 30-year loan but if they're five seven or ten years it matures and they have to refinance so right now every real estate on a commercial real estate on it for the most part is doing great they have their building everything is fine they're cash flowing on paper the value of the the the the the building is up and down but if they have a loan coming due in two years three years four years five years at that time there's gonna be a Day of Reckoning what is the value of the real estate really at that time and so right now they can be fine but the question is what's it worth then the reason why that's important is because I have to refinance but they can be coming into an environment where hey they could have bought a building for nine million dollars they could have took a seven million loan the building could be worth could have gone up to worth 10 million at one point and now with cap rates up rates up maybe the building is below worth less than 9 million in it still might be fine but it goes a little bit down to 8 million because cap rates are really higher like I explained in the last video they might all be able to refinance and be able to borrow six million what are they going to do they're gonna have to go on an 8 million dollar building only be able to finance six million dollars but the bank is owed seven they don't have the money they have to sell the building for 8 million and pay the bank a million and then now the net worth is a million dollars really instead of being worth 3 million at one point that 10 million dollar value and a seven million loan but if that to underwrite today that Mark to Market that means a bank has to admit today that the seven million loan they have is in trouble because they won't be able to refinance it for seven refinance it for six unless they force the bar to sell what's going to happen this is the complicated Piece At what point are people gonna have to recognize Mark to Market and how it affects them so unlike the banks who were great at maturity on their bonds real estate owners have to deal with the fact that reality where the cap rates aren't going to be at that time but values are going to be number one but there's now two new issues popped up what are the rates going to be even if the value is good but can they afford to refinance their existing debt at the higher rate there's an article printed this morning that first time home buyers are now becoming um homeowners are now becoming first-time renters because if you're selling your house are you going to sell a house that has a three percent mortgage and then now borrow at a much higher rate and lose that three percent or you're going to take your house you have right now rent it out take the extra cash flow and help you on the new house that you bond to make those payments same thing is going to happen over here we have a someone has a building seven years out ten in five years they're gonna have to now deal with the fact the rates are up but there's a third piece now how's regulation going to take a place A bank's still going to lend at 75 leverage 80 70 what's gonna happen my personal recommendation on this is that if someone has a loan coming due in the next two years even refinance today even if today they're paying a little bit higher secure yourself a new five years from this point going forward so you don't have to worry about anything and everything will flush out over these next five years where I see opportunity and YG currency with brokering LP Equity means regular investors that want to put money directly to owners is because in that situation which leads me by 1031 exchange is the next big issue is that in that scenario the building is now worth 8 million on paper and they can only refinance for six million because of that instead of selling it the person would rather take a partner for that million and instead of maybe giving away 50 try to work out a deal and find a partner that believes in the upside and only take 40 percent so the owner doesn't have to sell the building and and only be left with a million and lose half their Equity instead they could hold on to it and go go forward here's the other piece of the puzzle 1031 exchanges whoever did a 1031 exchange cannot let the bank take their building back because then they're on the hook for the tax liability at that time a major major real estate honor I don't have permission to mention his name so I won't mention it told me that 10th or his father trained him that 10 31s are like borrowing money from the mafia but there's no interest rate the difference is if you have to pay them back because you have a problem you have to pay them back you can't avoid paying them back it didn't accrue at any interest rate you're gonna have to pay them back so now this scenario is in a case like I just gave you someone who owned that building is a 1031 exchange doesn't have the option to sell and if the building is only worth 7.2 million dollars he just has to sell 98 of the building to somebody else but he must maintain some ownership or else he's in trouble because he'll be do the tax savings that he deferred he'll have to pay at that time so because of this in general there's gonna be a lot less sales because I think in the going forward people are going to say you know something tell me a great line that in the last Market it created sellers when I buy something for 10 million out of left field someone offers me 12 yeah so when the Market's 10 you order from your 10 I'm not selling 10 to 9 for sure not unless I have to so are the people gonna be in trouble yes don't listen to people say oh these people in trouble have to sell let me tell you two points number one the amount of people that are in trouble and versus how big the pie of business is is a very small percent most of the deals happened healthy transactions that took place and even some people are in trouble they might recapitalize they might raise equity on their deals and that's why the focus of putting on is Raising LP Equity to find people who want to invest directly with the GP to be able to go ahead and make those direct make those sales going the other reason why there's been less sales I describes about 1031 exchange even if a deal shouldn't make sense to sell but if they sell the deal there's not enough money to pay off the tax liability at that time I go back to a story that we had a client who had a building two clients brought together a building one had used 1031 exchange money and one bought it without 1031 exchange they got an amazing offer unless there's a 50 million dollar deal they got offer to sell it for 60 million dollars but if they sold it for 60 million based on the balance of the mortgage the first person with 1031 exchange didn't have enough profit to pay the 10th or one exchange so therefore kept holding on to the building at that time I hope this was beneficial to you to just give you the next steps for the market is don't let anyone tell you they're an expert no one is an expert your job is to do the establish the non-jewish word for establishes inputs do the proper inputs in every step of the way do the research and get Collective thinking we'll rule the day as we move forward best of luck and keep the Avenue