A Convergence Bigger Than 2008

the great debt reckoning that's coming after what we all know to be the great vacation of the 2020 shutdown and the printing of trillions of dollars. But for 14 years from 2008 to 2022, we lived in a fantasy world of free money. And now the bill is coming to 875 billion in commercial mortgages maturing this year 2026 alone. The maturity wall of CRE is increasing every year because the Fed has given banks tools to allow them to modify and kick the can down the road. The 8.9 trillion dollar national debt as of today. I don't like the fact that climate is more of a political issue than a science or financial one. Climate change is not an environmental issue that happens to affect real estate. It is a real estate issue that happens to have environmental causes. So when your insurance company calls to cancel your policy or triples your premium, that's not some abstract environmental. Oh my gosh, climate change is real. Climate change isn't real. The reason I wrote this book was the data. Welcome to the debt doctor podcast where we deliver the definitive prescription for navigating distressed real estate debt. I'm your host and America's most qualified debt doctor bill by now. I spent my career investing in diagnosing and reviving thousands of distressed real estate situations. The debt doctor prescribes proprietary remedies to help you identify, acquire and monetize undervalued real estate assets. Each episode gives you insider access to the strategies top cohorts use to transform market volatility into double digit returns. If you enjoy what you hear today, hit the follow button. Subscribe so you don't miss an episode. And please share your support with a quick review. You can find me on the web at billbimel.com. Thanks for joining this episode of the debt doctor. Good morning. Good afternoon or good evening. I want to start today with a memory. August 12, 1992, I'm a kid growing up in South Florida teenager in high school. I had evacuated in Linde, watching from a friend's house in plantation, praying our home survives. Hurricane Andrew, a category five hurricane, was about to obliterate communities in my South Florida community. Areas like homestead in Florida city. Entire subdivisions reduced to match sticks, decades of construction, possessions, history gone in hours. Now Andrew felt like a once in a generation event. And for a long time, things felt stable. For throughout the 90s and early 2000s, we would say things like remember Andrew and before that, it was remember the great hurricane of 35. But hurricanes like Andrew are not just anomalies anymore. That was a preview back then. And what we've seen coming and what we see coming now makes Andrew on its face look like, you know, just a small, small weather event. Because this time, our storm is not just weather related. It's financial, it's structural, and we're just not connecting the dots. By the way, thank you for joining the debt doctor today. Wherever you're joining from, I appreciate you. I hope you subscribe to the channel. Click like. Give us some feedback, a comment. Love to hear from me. Core of this concept I want to talk about today is that everyone looks at one piece of the puzzle. Folks are talking about interest rates one day. Some folks talk about insurance costs one day, deregulation. And they treat things like standalone problems. I wrote a book called the storm. And what I lay out in the storm is a case that these are not separate issues. They're converging ones. See, when independent risk factors converge, they don't add they multiply. And that's the concept that folks are missing. One plus one plus one doesn't equal three in large economies and societies. It equals something much bigger. Let's talk about 2008. Because the coming convergence makes 2008 look small. Most people remember 2008 is a housing crash, right? Subprime mortgages, Lehman brothers failed, bail out, sub banks. And that's true as far as it goes. But here's what people forget. 2008 was actually a concentrated crisis. It was largely one asset class, residential mortgages, funneled through one mechanism, a securitizations. And the damage was all centered on a handful of institutions that were too big to fail. Now, in that case, the government was able to identify the problem, point at the bad actors, throw money at specific institutions. It was ugly. It was expensive, 700 billion in tarpa loan. But it was targetable. You could draw a circle around the crisis and focus. After 2008, we've been on a 17, 18 year run of up markets, cheap capital. After 2008, the government created powerful tools, the Dodd-Frank, vocal rules, CFPB, stress testing requirements. These guardrails were created to prevent the next crisis, focused on residential mortgages. Now, they seem to have done a pretty good job. But that private money and that was chasing securitizations off on Wall Street and private equity markets back in the early 2000s, that had to go somewhere. Where did it go? Went to private credit. And now we're seeing the steps of private credit are starting to crack. I did an episode here on the podcast in the fall of last year, where I named Tri-Color or in the failure of those large private credit firms as a key canary in the coal mine to watch. And look what's happened since then. We've seen the stocks of big companies like Blue Owl, Deteria R8. We've seen redemptions at major private equity firms skyrocket. So much so that many private equity firms now are gating these redemptions. Big money. Fourteen years of zero, near zero interest rates. You know what that did in the return from 2008. Well, especially in recent years, at cheap money, papered over a lot of the problems. Created a generation of bankers, loan officers, asset managers, lenders who have literally never operated in a normal interest rate environment. Now I talk about convergence. That's a lot about what the book, the storm is about. It's about the convergence of multiple factors. Insurance costs, uninsurability of realistic state, the rising cost of capital and the fact that we won't see interest rates like that ever again, huge debt levels, both on the consumer level and on the governmental level. Changing demographics, we all saw a major shift in the way we live and work after COVID 2020 and who knows what AI is going to do to the workforce and to how we choose to live our lives going forward. And these convergence points, we've seen some glimpses of what a convergence example is like before. The 1980s, the SNL crisis, over 1,000 savings and loans institutions failed before 1989. Cost taxpayers about $160 billion in those days. And that happened because of a combination of deregulation, rising interest rates and speculative lending. Does that sound familiar? But even that was largely contained in one sector. It affected commercial real estate and we saw a huge turnover. And by the way, it seemed like dark days. It seemed like a really bad storm back then, but it spawned the entire next generation of millionaires and billionaires because of the opportunities that a market cycle like that created. And that's something to keep in mind. A good storm clears out the dead brush and makes way for new opportunity. So let's just talk about what's different today. One of the forces that I'm talking about that are creating this storm. Let's talk about force number one, the great debt reckoning, I call it. And it's a reckoning that's coming after what we all know to be the great vacation of the 2020 shutdown and the printing of trillions of dollars that now sit in savings accounts of some people. Here's zero interest rates. Fed's discount window handing out capital like handy. And during that era, an entire generation of financial professionals came of age never knowing what the normal cost of capital looks like. And now the bill is coming do. Let's talk about some numbers that keep me up at night. 875 billion in commercial mortgages maturing this year, 2026 alone. That wall to continue to increase every year. The $8.9 trillion national debt as of today, promising that debt is getting more expensive because rates of state elevated. And the average rate that the government's paying on the existing debt is in the threes. And as they turn that money over, they're having to pay for us. Meaning they're seeing a 30% job. We, they, we, we are the taxpayers. This is our debt. This is our children and our grandchildren's. We are seeing a 30% increase in the payments alone. And you know, what it's caused is a lot of other issues. DSCR loans not working anymore. That's kind of the new subprime in my opinion, non-qualified, non-government back, not in an insured banks even bought portfolios of these things thinking they were short term, easy yield. But those DSCR portfolios are, that's the debt service coverage ratio portfolios. Those are defaulting in increasing numbers. And properties, especially, you know, on the CRE or the residential rental side, they, those that pencil beautifully in 2021, low debt service, manageable insurance, strong demand. There's many people underwater in 2026. I hear stories every day about people, you know, firemen and doctors that graduated from single family homes to rentals as their retirement plan to buying a 12 unit apartment building. And they got themselves a 5% mortgage seven years ago. Well, commercial mortgages mature, even if they're written to 30 year or 20 year payment terms, all, all, most, if not all commercial mortgages will mature in five, seven or 10 years. So anybody that got a cheap mortgage seven years ago is now dealing with the fact that that 5% rate they got a few years ago is now 8%. And that's a reality that's facing a lot of small individual investors in real estate today. This is where we want to just call out something that I want to point out that I've spoken about. It's called the interest rate fallacy. This belief that interest rates are going to go back to Zerb. They're not coming back. That 14 year period was an anomaly, not the. And so anybody that's holding on for a rescue of that, you know, get real. So force number two, climate as a financial reality. I am not a big lover of politics. So and I don't like the fact that climate is more of a political issue than a science or financial one. That distinction matters. Environmental issues feel abstract, distant political, but real estate issues are immediate, quantifiable, and personal, and financial. It's a financial reality. And the reason I wrote this book was the data. It was about three years ago in Washington at a think tank that concluded fund managers, scientists, government officials, private equity, high net worth, all coming together in a environment to speak the truth. And the data at that time hit hard, the data still is what it is. 28 weather and climate disasters in 2023 that exceeded a billion dollars each. Some of those tens of billions of dollars of damage. And that is more than double the annual average from 1980 to 1922 over a 2060, 40 year period. In the 1980s, we averaged $3.3 billion as aster's events per year. And since 2020, the average has been about $18, 19 billion a year of climate related, weather related events causing damage to real estate. And this is while real estate values are going up. The cost to replace stuff has gone up. Now Florida homeowners insurance average is about $5,800 a year for a $300,000 house if you can find a $300,000 house of Florida. Some commercial properties in Florida are literally not able to obtain insurance at any price. I have friends of mine who are divesting of their Florida real estate or at least taking some of those chips off the table and reinvesting in higher ground. 12 plus insurance companies have failed or withdrawn from Florida in the last four years. Farmer California's largest insurer announced in 2023. It would stop accepting new homeowners insurance policies for the entire state. Not just high risk areas, the entire state. And then of course there's the policies, fires, precedent fires and last year, 2025, trillion dollars of devastation. I can tell you. you when I first had a glimpse of the climate change thing was when I moved back to Florida in 2002. And I was gone for about a decade at that point. I drove by an old fishing spot. It was on the intercoastal, a seawall, you know, where my friends and I would sit like pelicans and dangler legs and fish for tarp and or mullet, whatever we could find. As kids in the 80s, there was always three or four feet between the top of that seawall and the waterline even at high tide. But by 2002, water was lapping at the top. In just over a decade, the effect of waterline had risen over one foot. And some properties where we played as kids were simply gone or pieces of it reclaimed by the sea. See, the water doesn't care about our politics. It just keeps rising. And it's a fact. It's a fact that countries all over the world are feeling and taking the appropriate steps to do something. This is not just Florida. I speak from Florida because 38 of my 50 years on this planet I lived in the state of Florida. But Arizona halted 100,000 housing units overnight in 23 when they couldn't certify water supply for these developments. Water rights is a real issue throughout this country. Tornado alley, the Midwest, you know, we're not in Kansas anymore. It's expanded to cover roughly a third of the country. It's no longer an alley. It's more like an expressway. It includes Alabama, Mississippi, Tennessee, Georgia, Illinois, Indiana, and Ohio. Iowa, age or flooding events up 37% since 1990. Properties that were once outside official flood zones have actually started to see floods. And we're seeing those that real estate now sell at eight to 12% discounts if you're near a flood zone. This climate discount is real and measurable. And probably the statistic that I recently heard was about 15.8 billion in lost appreciation on the high flood risk zones, lung coastal areas throughout the country. And you know, there's also deregulation. The lack of analytics, the lack of, you know, we built a bunch of great ideas that, you know, created some bureaucratic inefficiencies and cost to private investors that were not great. But a lot of the real regulation had guard rails. And those guard rails have been quietly dismantled in recent years. You know, it's not just the regulation. It's the lack of companies and qualified individuals to deal with special situations. It's what we call special assets groups. These are the lost mitigators, the chief credit officers at banks and institutions. These are specialized workout teams that, you know, would be trained on how to work with borrowers and deal with creative solutions to these distress depth of as well. That's kind of gone away. That hasn't existed for about 15 years. There's no need for it because people are going to refinance their way out of the problem. You know, even us in the private equity space, we were giving, you know, 5% or 3% mortgage modifications that made sense because we're buying those loans and such a discount. You can't do that. Now picture what happens when 875 billion in commercial mortgages start coming to and climate events are hammering those property values, making the, there was a time when in the PITI, the principal interest taxes and insurance, which is all of the elements that make up your mortgage payment, both in residential and commercial. There was a time that the I or the T and the I, you know, was a very stable number. So you only had to worry about principal and interest. If you now gets a mortgage at a 50 DTI or high 40's DTI on your house and then all of a sudden your insurance payment goes from a thousand to 2000. You know, that's a measurable difference. Mid-West Bank, I know had about 400 non-performing loans recently and three people to manage them. Three. And that's also from the banker friend's mind, I speak to. It's not because, you know, they don't have a desire. It's because there's really not the qualified talent out there that knows how to deal in this world. So here's why convergence today is going to be bigger than 2000. In 2008, you had one dominant force, the housing bubble and toxic mortgage products. You could draw that circle around it, right? What we're facing now are multiple independent forces hitting us simultaneously. And the critical insight is this, they don't just add up the amplify. So think about it this way. Refineancing trouble, doubled interest rate, insurance through the roof. But, you know, now you've got the cancellation of your insurance or you've got regulatory guardrails that, you know, have put that might have cushioned a blow. But, you know, these forces do act together. And I don't even really get into the geopolitical aspect. You know, this book that I've written over the last two years, you know, I stayed away from a conversation about world geopolitics. Although we did see we have been kind of like frogs in a boiling pot. As we've seen more and more wars break out around the world. And now find ourselves deep in the midst of it. I guess the most closest historical point that I can make about what we're looking at today is, isn't 2008. It's the 1970s now. I only know the 1970s from my history books because I was born in 1975. But I certainly was born in a time where this all was happened. Back in the 70s, you had oil shocks. You had stagflation. You had the breakdown of the Bretton Woods monetary system kind of all hitting at once. And those crises amplified. And that's what convergence looks like. But the 70s didn't have climate volatility layered on top of it. They didn't have mother nature coming in twice a month and destroying whole communities and causing all of that. And this time we've got this risk that's distributed. It's not just one institution or asset class. You know, you've got thousands of properties dealing with these issues. Hundreds of banks, dozens of markets, the whole private credit market, asset backed, securitization market has grown into products that you and I, when we look back on this, we're going to say, how is it that that made sense? And then insurance systems. Insurance is a very interesting thing because the insurance companies control a significant amount of the capital that's out there in the world. And on the one hand, insurance companies are pulling out of markets and they're still making profits every year, by the way. They are, you can see in their actions how worried they are about taking losses. But what's also interesting is on the other side, insurance companies are also investing in a lot of private credit, not all of which is actually backed by something tangible like real estate. And there's the fact that insurance also has a re-insurance market that is consolidated and gone offshore that also has me concerned. You know, you can't tarp the insurance market if we have a major disaster on the climate side or God forbid a war and you combine that with maybe some interesting investment choices, insurance companies that look so strong and so powerful might be something to keep an eye on. So what do we do? Because here's the thing, convergence, crises aren't problems you just solve. There are transitions you navigate, and that's actually where I think there's real reason for optimism. You know, throughout my career, the biggest opportunities emerged during these transitions. When one old model is breaking down, and a new model is being formed, that's exactly where we are right now with climate, real estate, financial markets, AI, banking, we've got a bunch of practical elements that we can talk about. I started the book with the memories of me standing at a seawall, right, watching the tides rise and fall with predictability of a metronome. And that, you know, 23 years later, that seawall, the water was lapping up. I mentioned that earlier. Well, the water is already rising around all of us. And not enough of us in the real estate and mortgage and private equity business are talking about it. It's just a fact. We face a choice. We can pretend that these convergence and convergences aren't happening, and just keep making decisions based on historical patterns that no longer apply. We can panic. We could sell everything in our coastal markets, run for the hills. But the hills have their own problems. Look at the Carolinas. They get hurricanes. Or we can adapt. We can become resilient. Make clear-eyed assessments of actual risk, have intellectual conversations, come together as a society to invest strategically in resilience, personally and on the community level, demand better information, and position ourselves to benefit from any transition rather than be crushed by it. And that's why I give you up a lot of credit, because they've been way ahead of the curve when it comes to these conversations around the climate reality. See, because I mentioned frogs in the boiling pot. Here's the thing about frogs in the boiling water. That story. Real frogs do jump out when the water gets uncomfortable. It's only a metaphor that they sit there and allow themselves to boil. See, we're not helpless. We're market participants with the ability to assess risk, make decision, and adapt our strategies. We're smart. We're human beings. We've done this before. The water is rising. The storm is here. And it's a big question. It's got a lot of nuance. This is not something that gets solved in a 120 characters. But that's what the storm markets meet. Mother Nature is about. About looking at the nuance, about looking for ways to build resilience. I wrote it because now's the time to have this conversation. Storm markets meet with mother nature. It is the framework. And that is it. We got a presale now open. And the books are going to be released in a few weeks. And you'll be hearing me talk a lot about these topics. You've seen it in previous conversations with some brilliant people like Tony Moss, who was way ahead of the curve on this. She was the inspiration for this book. You'll hear me talk to my friends like Chris Whalen, who a brilliant marketologist in the mortgage and finance industry. And thanks for listening to the debt talk. Have a good day. That's a wrap of today's episode of debt doctor. I enjoy bringing this content to you each and every week. And I really appreciate you tuning in. Remember to follow us so you get notified when ever new episodes release. If you haven't already done so, please share one of your favorite episodes with a friend, family or colleagues. And if you don't mind, leave us a positive review on Apple's Spotify or whatever your favorite listening platform might be. Until next time, thank you for investing your time with us on the debt doctor.