Episode 4: Mike Lipson

As Chairman and CEO of Access Point Financial, Mike has serviced over $10 billion of loan products, turning the hotel industry into what we know today. On this episode, we find out first-hand to learn how this 40-year veteran gets the ink on the paper.

Access Point is a leading hotel lender and we'll get into the current market conditions for hotel financing and where C-PACE makes sense. 

We also squeeze in some CPACE + Freddie Mac talk and get Mike's background there.  He was the Chief Operating Officer there when C-PACE was first seen internally and discusses some of the conversations that came up. 

Transcript

Mike Lipson: 0:00

pace will be a big part of it. But, but also, what we see is the demand is going to be exorbitant in the next couple of years because because everybody knows, you know, if I'm going to stay in a hotel, I want to stay in a hotel that's, quote unquote, new, right? Even if it's 100 year old building, designate landmark, I want to make sure the room is new. So this the requirements upgrade. Refresh, is significant.

Producer: 0:32

Welcome to the C pace confidential, where you'll hear about the hottest happenings in the world of CPAs commercial real estate and beyond. We speak with the top players doing the most exciting projects and discover just how C pace has evolved into one of the most innovative financing options in the industry and how you can use C pace to be more successful in your business today. Now, here's your host, the C pace guy, Adam Lipkin.

Adam Lipkin: 1:01

Hey, everybody, welcome to the C pace confidential. I'm your host, Adam Lipkin, the C pace guy, although I was told this week and actually debuted it, that I might have to start calling myself the CPC plus guy, which I like, which I had that on my name tag, actually my recent event, it was fun. Anyways, we're on episode four, who would have thought we would have made it here, boy, you know, I'm really thrilled to have my guest on today, we're going to bring him on just a few minutes, but wanted to share just an awesome update that happened in the world of sea bass and happening in the home state of Florida. I was actually at at this great business event, it was just so nice to be back at an in person. You're just seeing a lot of people you haven't seen in a while. And it was the South Florida state of the market update. saw one of my guys in the pace road. He's like, I don't know, I'm really excited. You know, we got it done. And I had heard some rumblings and I saw it shared. And so I was so I was so happy to see this a really nice big deal that got done in South Florida. This is over by Dania. This is the meridian Hotel, which we constantly see as we're going by 95. And I think it's just such a great thing to be able to get on the map with a big, you know, situation like this. One of the best uses that I found for pace, and I think especially during a pandemic, we're going to talk about it a little bit more on this episode with my guests, is I think being able to use it in the hotel space. And especially when it comes to recapitalizing projects that maybe you're midway or even already completed, and using pace to be able to deliver and maybe pay down some of that senior debt, and be able to, you know, use that to then finish a project get it stabilized. I love it. And frankly, I thought I was gonna see more of it during the pandemic. So that's one of the topics we're going to talk we're going to talk about on the show. But this project that got done 37 7 million, it's a good number, I think it has people see like, wow, you know, peace could really be a solution. Specially when it comes to large projects that have expensive money, that's outstanding. And so I think there there really could be more of this, I think there should be more of it in the city. But in a lot of markets like Miami where there's big projects that need to move forward and this could be an effective tool. So anyways, I really really wanna acknowledge the guys over Petros great, great one to get done and get that closed great for the industry. And I want to I want to you know, really just take a minute and just acknowledge I have such a so excited for the guests that I haven't today i i met him several years ago, what is his way back in the day I was at another real estate finance shop. And we met when he was in a completely nother role it with one of the big agency lenders. And and I just show impressed with this the background, I always think it's awesome when you have an opportunity to hear from somebody that just has the experience has really seen firsthand just what's going on in good times and bad times. And so I'm going to bring on my guest, Mike Lipson, and you know, Mike is the current chairman, CEO of Access Point financial, one of the leading hotel lenders in the country. And just as been in the hotel business has just seen it since, you know, decades 90s, you know, really started to see early on, like how to provide innovative finance solutions to be able to solve problems. And we're going to hear a little bit more about some of what they were innovating on early. And maybe now today what what there might be some parallels with C pace and other products. But just having a chance to bring Mike on here a little bit more about his background, what he's what he's interested in today and what he sees the future is such a treat. So bring on Mike. Mike Lipson, thank you so much for being part of the show today. Great to have you. Great to be here, Adam. Nice to see you. So um, yeah, I think would be really awesome. You know, if you could share for just a few minutes, a little bit about your background. You've had such a rich history in the commercial real estate finance industry, but I think it'd be awesome to hear a little bit about, you know, maybe how you got started, you know, maybe specifically early on in how you started See the hotel industry and play a role and how it's now evolved? And then kind of bringing it up a little bit to what your what you're doing today?

Mike Lipson: 5:07

Sure, thanks. I always start off the, this part of trying to give your biography to people by by saying, I may not be the brightest light bulb in the room, but I've been in every room in the house. So I know everything. I try to know everything that's going on. And so basically, I started out my career over 45 years ago in mortgage banking, and really never left it. But I started out as a producer doing conventional and financing and then did a period of time when I was doing FHA financing for a number of years. Did a lot around the country. And then and then when the the big recession in the late 90s 1980s came up.

Adam Lipkin: 5:57

You got it. You got to give us all a D, you know, got to know which years we're talking about which

Mike Lipson: 6:02

one Yeah, the night. What's Yeah, a recession is when your neighbors out of work. Depression is when you're out of work. So the good news is I've never been through depression. But I've been through a bunch of recessions. Yeah. And watch that play out. But so in the early 90s, looking for opportunities to figure out what to do. As the economy tanked and was starting to come back. It dawned on me that I had a background in multifamily. I had watched multifamily go from being sort of the ugly duckling of the real estate market. Remember, when I first started in the street, you actually had to pay a premium to to live company to do a multifamily deal. And there were very few companies that would do multifamily. Just

Adam Lipkin: 6:52

to hear you say that, like when I'm thinking about how the exact opposite it is today, isn't it? Yeah, that's wild. Yeah. I'm almost asking. I'm picturing like, what could that look like when people wouldn't even want to touch multi? Yeah. You can't imagine it right now.

Mike Lipson: 7:05

And there were very few live companies were willing to do it. They were taking premiums 10 basis points or so. And so that got me thinking as to what was going on and had a little extra time and realized that hospitality was a pretty good place. Everybody had run away from it and proceed to be a need for financing. The conduit business was just starting to pick up we had done a couple conduit deals and we're servicing some portfolios for some of the Wall Street firms. And so I convinced Ben Lehman Brothers to back us and we created a hotel conduit, so we were doing hotel loans, develop some strong relationships with the franchise systems, Marriot. And back then days in another's choice, and that business actually grew and then had the opportunity to sell that business to GMAC commercial mortgage. She Mack was looking to get into that time, mid 90s was looking to get into specialty finance. They were looking to senior housing, they were looking hospitality, some others and we got acquired in 96 by GMAC, and obviously our source of funds was no longer Lehman but it was an hour round girl. Patience that we decided to work on as other conduits started coming and other people's start doing hotels is we got into doing new construction, teamed up with Marriott first and came up with a program that Marriott with guarantees portion of the loan. And we ended up doing several billion three over $3 billion of Marriott product around the country. We also teamed up with the Candlewood which is now owned by IHG but we ended up doing about a half a billion dollars worth of candlelit. One of the early players in the in the extended stay which is becoming a big sector today. 2000 I actually got promoted and took over the servicing group of GMAC. So I left the Hospitality Group, but practice prior to leaving the Hospitality Group I decided we need to expand the business into other areas and one of the big things that you had in hospitality was the FF funny the furniture fixture in equipments, but a lot of leasing. Some of you may know their father hotels, the franchise systems require refreshing of their property. lease roughly every seven to 10 years. Typically their 15 year contracts for franchise. But somewhere in the middle there, they require you to upgrade the property to keep it fresh because everybody wants to stay fresh apartment or fresh hotel room. So we acquired a couple of people out of what was then Holiday Inn, and started our own franchise equipment leasing company which leased everything from HVAC down to the carpeting, and a hotel room. Interesting segment. So we, we basically covered the gambit at G Mac from the FFA, short term, all the way through construction through bridge financing through obviously permanent conduit. But again, I I left that group and took over servicing. So for a little over 10 years, I ran the master servicing primary and special servicing GMAC and grew that to be that time the largest in the country. And we hit over$400 billion worth of servicing on a global basis. So many ways I stepped out, you definitely

Adam Lipkin: 11:20

see it all there. I'll tell you. Yes, talk about it. Talk about a rich dad, everything and that kind of cool, like,

Mike Lipson: 11:28

yeah, yeah, you saw everything. And we saw globally, as I tell people, I sort of got out of real estate per se and got into operational side of the business because we had operations obviously in the US, but we were in, we were servicing loans in Japan, we were servicing loans. And in Europe, we did it with platforms in Ireland, we do it platforms, and in India, as well as Japan. And actually, one of my favorite things to tell people is that we were doing and it's pertinent to what's going on today in the world. We got we were we service loans in Taiwan. And so one of the things that we want to do to mainland China. And I can tell you, I never understood politics as well, as I did until then, of well, you can't be in Taiwan, Mainland China at the same time. So we had to work our way through that. And we actually just before the the recession of 2008, we got approval to service loans in China, as well as in Taiwan, we worked it out with the government there. So we were global and definitely a great experience for me, and opportunity. And then when the GMAC went into bankruptcy and went through its issues I stayed to the end actually was president a company for a short period of time and transition them out into new ownership. And for the second time, and I then went to work with Freddie Mac, as the chief operating officer in the multifamily group was originally supposed to be a short term assignment a couple years ended up being about seven, eight years of being the

Adam Lipkin: 13:30

US gonna fix some problems, you're gonna get things going for a year or two. And yes, that's a you know, a decade later, right.

Mike Lipson: 13:36

Exactly. Exactly. So yeah. I did that. And obviously, that lasted longer. As we all know, Freddie Mac continues to operate, as well as Fannie Mae every retired up four years ago, quote, unquote, retired, I had snowcapped an interest in hospitality and the business that I had originally acquired from Holiday Inn, had gone through a couple changes. And as I was retiring, I was invited onto the board of Access Point financial, which was basically a smaller version of what we had in GMAC, it, it did Stephanie loans, as well as some type of bridge loans. And when the pandemic came, obviously, you hit the wall. And the ownership decided they make some changes. And I convinced them that hospitality lending, this is a good time to be in hospitality lending. And they say, Well, if you want it, if you think it's a good time, why don't you take over as CEO, so here I am today, I am the CEO of Access Point financial, as well as the chairman of the board. And so we're back doing hotel loans. It's right now I would call it some mini me of what we had at g max 20 years ago. So I tell people, another one of my favorite expressions is history does not repeat itself. But it tends to rhyme. So in many ways, like rebuilding what we had, yeah. 20 years. So that's a quick synopsis.

Adam Lipkin: 15:19

So yeah, thanks for sharing that. It's, it's nice when because it really is. I mean, it's when you hear that, and somebody you know, if you listen to this, and you hear some of the places that you've been what you've seen, not just great, yeah, you really, and I want to get into a little bit about just the patterns, like what you just said, it doesn't rot. You know, it looks close enough. You know, there's patterns. I think there was a Ray Dalio quote that I really love that was that, you know, it really is that most everything is kind of like something else that's happened, right. You know, there's just so much that you could see in patterns. And so I think it'd be good to get in a little of that, in terms of like what you're seeing right now, that kind of looks a little bit like something else. So we'll talk about that in a little bit. But I think we first connected when you were the CEO over at Freddie, and I thought, Wow, what an interesting time to be there. We're like, 2014, at the time, 2015. It was kind of like things moving in the right direction. But you know, just, it's just interesting to see how things have evolved now. You know, I was just thinking at the top of the show your comments about how multifamily was the least favorite asset. And not to say hotels were the most favorite all because that was definitely not the case either. But it just interesting. Now, they're the most favorite by far. And you would find in some respects, over the last year, I mean, hotels were untouchable for the early part of the pandemic. Me personally, I was I was at, you know, the other IC pays provider that I was, you know, really seen a lot of this firsthand with counterpoint. And, you know, people would come to me with like a request for, hey, could we get, you know, see pays for the, for the hotel I'm working on? I'm like, technically, yes, but I don't know who your lender is gonna be. Like, that was like the, the constant theme. So I've had some really fun conversations, but I'll just, you know, kind of focus on I remember, when you you stepped into the chairman role, I reached out reconnected to you shared a little bit about the CPA side. Had you heard about it before, then? Is it something that had gone on your radar? Or just kind of like, or was it the first one? What's, what's this guy talking? Oh,

Mike Lipson: 17:20

no, no, again, good. Bye, bye line about being in every room in the house. So when I was at Freddie Mac, PACE financing, and obviously, had been authorized by Congress and was getting out and initially got, I don't know how many of your viewers are aware, but there was a lot of issues on pace, which is for the residential market. Okay, so pace came later. And so I don't know if I've ever told you this sort of maybe I did that. But originally, we were prohibited Freddie Mac and Fannie Mae to do see PACE financing, because of all the bad actors that were involved in the pace side, the single family side of the business. The crossover into that, you know, I think education experience knowledge over time. You know, the the, the ability to do see pace, even on the agency product is now available. But I think I spent a lot of time early on talking to our regulator, with obviously, our production team, but trying to figure out how would we allow C pace? How would we allow it, you know, where would it be permitted? And so now, very early on, I saw C pace.

Adam Lipkin: 18:47

What was your team? When you first do you had already had the experience with the FF any financing? That was new for everybody? And obviously, anything news just received? You know, the way a lot of things new are, you know, there could be resistance, there could be skepticism. There's like that whole adoption cycle. And so what did what did you see when it came to that early conversation or to was see pace and agency, obviously, it already had been, you know, probably negatively, I would say portrayed on the residential side. And I got in after so I had to do the research. It's really cool to hear you like being in the conversations, I want to say it was in 17, did a lot of my research and I had heard maybe some of the earlier negative press on on residential. And then I just kind of started to look a little bit more into what guidance is there. And I started to see a little bit about you know, some of what happened with HUD some a little bit that Freddie seemed to have an openness but it was done in a way where it was kind of too restrictive to really do anything with it. But um, but I was interested to hear that how, how that evolves. So I guess you heard about it backburner didn't really see a place for it or what came about that when you're having those conversations?

Mike Lipson: 19:59

Yeah, it's Got it. Interesting perspective, if you don't understand the difference between, you know, the markets, residential versus commercial, you know, the level of sophistication that's involved. And, and obviously, you get bad actors everywhere. I think it delayed C paste a couple years, and I might push forward, I think, into the CPAs conversation even more. So I think you're still not bad actors. Okay. But I still think you're in the early days of C pace and many ways. It's great to see, you know, first deal New York was finally done. What, about a month ago, today's announcement you gave about the first deal in Florida, I think you're now up to something like 30 Some states that allow for the pace

Adam Lipkin: 20:54

that they're active with that. I mean, there's, there's, like, yeah.

Mike Lipson: 21:01

Yeah. So I think one of the things that you're still in the educational process of what see pace can be and should be, and how it really is a positive thing in multiple ways. One is from a capital stack, you know, giving the obviously some lower financing, but rates, but also from the overall new construction, as well as renovation, everybody looking at environmental savings, the ESG stuff, they just fit hand in hand. So I think you're we're still not crawl phase, the discovery phase. And then I think in the next couple of years, you'll see a tremendous growth in in sea pace, it's just the natural that needs, but just needs to get a little more traction.

Adam Lipkin: 22:00

I'll tell you, it's so interesting. We talk about this timing. And I, I couldn't even believe when I found out that this thing had been around since like, I think it was initially passed in California and like maybe 2009 2010. I mean, it had some history. And when I started to really get it on my radar, and I started to research it in the summer, it was 2017. I thought this is really, you know, something that's going to be big, I kind of had these thoughts that like CMBS, I was at another shop, l&r, in the early 2000s CMBS, already had 10 years of history and saw how that grew. I didn't think it was gonna be at that magnitude, because it was just, it wasn't the same dollars, but then I was thinking about the amount of volume of buildings that exists that likely could still be part of the data set. I was like this. This has like, enormous potential. So I thought maybe two years, three years, I mean, I kind of got the sense that there was going to be some headwinds with the position it has as an assessment and how lenders will react. But I also was a believer that there's an adoption cycle. And there's a way that things become part of the mainstream and when you know, what's going to be desirable to customers, and they're going to want it for just even if it's as simple as just, hey, can we get better cost financing, but then as it evolves to, you know, could we play more into the the ESG conversation as that's now become in Top of Mind with everybody, you could see that it's going to be requested. And for the higher quality sponsors and bars, you could see that it will eventually become available at certain levels, and then maybe it'll be more mainstream. And I remember this conversation I had with, with South who ran the shop, you know, when I was this counterpoint, it was the idea of was CMBS, in the early 2000s. There was or maybe even the late 90s, it was you wouldn't think of having an IO period in your term, you know, you'd be like, you know, ran out of the room. And then all of a sudden, one group knows what your I O, and then wins the deal. And then filter mio is just several years later, so I kind of had these things in my mind, like, it'll likely become more built in, there's gonna be more players that, you know, create liquidity for more lenders see, oh, this could be a differentiator. So I thought it would have happened by now. And so I agree with you that even these events like New York City, it's still gonna take time, it's still gonna take time, you know?

Mike Lipson: 24:22

Yeah. And I think if I could make a critical comment of that are our brothers in the industry? I think one of the problems that still exists and I find it reoccurring, as we look at business, here at access point is what is pace? Is it debt or is it equity? Okay. And too often, I think, other mortgage bankers, brokers, what have you, people that really don't understand where it fits in the capital structure. Try to present the as equity, and so therefore you are, you're behind the eight ball. If you're looking at the deal, or deal comes into the shop, and someone says to you, well, I've got my 40% equity in the deal, I need a 60% loan and you find out the 40%, more than 50% of that is coming from pace. And again, you know, if, if anyone has anyone who really understands pace, it is part of the debt stack, not part of the equity stack, in a in the capitalization of a product of a property. So I think as people become more knowledgeable and understand that part where it fits, what jurisdiction works in how to how to put it together, that I think it will, it will start to pick up some some more steam and become a much bigger segment of the market.

Adam Lipkin: 26:04

Because it's interesting. Yeah, yeah, for sure. So I was really there might go ahead. Yeah, yeah, no, I, I think that that's definitely been a challenge that I found it. There's the there's the spread, right, the bid ask, right. It's almost like picture like in the sales market, the, you know, the seller wants top dollar a lot, you know, the million dollar home and the buyers like the markets 800. I picture, the bid ask here is is the borrower wants it is equity, the lender wants it is debt. I think there's debt characteristics, but it's not dead. It's an assessment, and you have an ability to do some things with it, that can make it be a little more flexible. But I agree with you, when you get presented with a, you know, a request, and somebody says, hey, you know, I want to use half of the equity that 40% is paced, and now you're looking at leverage from 60 to 80. It's kind of like, what's not that simple? So I agree with you, there's a need to really think about how do you look at it? I think that there's still a place for it, even if you look at it as super senior debt, I think that eventually it'll be where people say, you know, it's an assessment of the property, there's no, you know, real, you know, debt characteristics that are tied to the borrower, I could see there being some kind of more coverage test, that as long as you're still covering at an acceptable enough level, I could see people saying, you know, maybe my coverage without pace needs to be x maybe with it, I could come in an extra, you know, 510, you know, instead of a 130 coverage, maybe I could do a one to a width pace. Maybe maybe almost like pref like, but look, that's the challenges, I still think people have a little bit of a varied opinion on how they choose to look at it. Yeah. So that'll that'll have to evolve for sure.

Mike Lipson: 27:55

Yeah, I think that's where we are in the cycle. And your point is well taken. When I call a debt, yep. Because I look as an expenses and assessments, equivalent real estate taxes or whatever, you know, however, you want to look at it, that structure. So I think what you got is this massive gap of knowledge and understanding, that will take some time to clear through, okay, the market. And when it does it, you know, the vines will pick up, which is very important. And I think the other things that will happen is I do believe that over time, the pricing will get substantially better. Given this notion of assessment

Adam Lipkin: 28:38

without a doubt. I mean, I've sold that property when I was a I was starting and 17. And the pricing was kind of in the sevens, I felt like I felt like I was seeing that pretty typically like sevens. I think I like that I was seeing that we could do a little bit better, but it was still way wider where it is today. Now you're seeing low fives even sometimes inside of that if you really have a just we have to win deal. And and I just think to your point, there's more people that are looking for like what can we do to get yield standout? Wow, this is a you know, triple A position to be in, maybe we could figure out how to do something with this paid thing. So I agree that it's going to continue to put downward pressure on pricing. I wouldn't be shocked if in the next two years pricing is sub four. You know, I mean, I see some of these ground leases getting priced sub four I'm like it's kind of the same position. I mean, is it that is it that different? You know, I mean, there's some characteristics some rights that you have under one and not the other but I mean, I definitely agree that you're going to see pricing continue to come in and so let's talk about what comes up with any of these things where whether it be FF any financing, pace, ground leases, let me I will throw that in the mix too. Now, EB five even there's all these types of capital that's alternative capital and It kind of plays the role of maybe a gap. Usually you need something in addition to it, it's not enough to just get pace or FFTT financing, you need what I would call a friendly lender. And so let's talk a little bit about that. And the fact that there's all types of reactions to these products. There's all types of, you know, profiles of lenders. And that becomes, I think, interesting and exciting when you know that there's some people that just specialize the way they do in certain areas. So

Mike Lipson: 30:28

it is you mentioned it earlier, is Yep. Yeah, so what is unique in hospitality finance, industry is obviously what we call the pips, property improvement programs. You know, the requirement that every seven years, you, you upgrade your property, to new standards that are in place, it's

Adam Lipkin: 30:55

an interesting point, you know, that there's just, there's a lot of these types of financing that come around every few years, I think it's only increased now. But I feel that there's this, there's this ability to move the conversation to be able to, you know, start to have it looked at in new ways. And I would say, compliment historical perspectives. But, you know, definitely what Mike was sharing, there's, there's still a real varied opinion of how lenders look at pace, some just simply say out of hand, don't want to really take time to learn it don't understand it, don't want to allow it. Others are looking at it, you know, maybe more similar to what he just shared kind of more debt, like and see it as something that, you know, maybe they could allow, but it would have to replace dollars, that they're saying that they would agree to, that works in a lot of situations, I mean, most situations where there's more expensive debt, you know, maybe priced in the 789 percent range, you know, you could see the case that if you could replace some of those dollars with, you know, financing and the fives, it could really be helpful to the economics of the deal, lower your financing costs. So I like that area. You know, we'll get into this a little bit more when Mike jumps back. But it's definitely, I think, something that anybody in the hotel space that's dealing with projects that are still mid transition, they're, you know, in construction, or even they just completed they need to have some kind of ramp up to get operating. I mean, this is, this is the time during this pandemic, where you need to look for creative solutions. And I feel like pace makes just so much sense. So we'll have a chance to talk a little bit more about those scenarios, you're seeing that pick up in every, you know, every market that there's you know, a presence, there's, there's a lot of folks that could probably think about now, how do we give ourselves time? 1224 months, right? It's like, how much time do you need to have the hotel market return in our sub market and our hotel profile, it's not for everybody, you know, going to return at the same time, convention business might be taking longer than, you know more of your limited service business or resort business. So it's something that you really got to know your market and know your specific supply demand. Just talk a little bit about some of what's going on with some of these products in regards to how you're looking at it at access point.

Mike Lipson: 33:24

Right, so what we see I don't repeat myself tell me relative to when I got cut off, but now one of the things again, we talked about earlier is hospitality, financing. And the industries is very unique in that there are the standards that the the franchise systems have. They're called pips per property improvement programs, they tend to roll around every five to eight years, seven years, normal average, where you know, to keep your franchise you need to do certain improvements to the property with the pandemic. All the franchise systems put that on hold, because nobody can make the mortgage payments, let alone make, you know, improvements to their property. And more to that point, any money that you had and a replacement reserve to be used for a pip that was used to make mortgage payments. So basically, you've had a two year moratorium on pips as well as reserves. So we think we know okay, because we're talking to franchise systems every day, that starting 22.3 that with a vengeance, the pips are coming back. The Marriott's the Hilton's how the ends choice are going to be wanting their hotels to upgrade significantly and reposition. And so what we are gearing up this year is going back and doing some of the FF and E loans that we did. These are tend to be a count elimination of real estate as well as property loss, because a lot of the PIP is personal property in a hotel, it's not part of the real estate. And what we see is we see a significant area where pace will be part of that package. So we're working on that right now coming up with designing some new programs that allow us to do paste inside of a pip loan. Yeah. So that

Adam Lipkin: 35:30

let me ask you not to share too much of the secrets just yet. But I'm just curious, are you going to provide like a one stop for your your borrowers to be able to do a senior loan and then you would be the friendly lender that also could do this FF and E, these additional needs? That's the idea. Yep. Boy, does that make sense? For you?

Mike Lipson: 35:50

We would be the answers the answers, yes, we would be doing you know, again, go back, we will be doing a mortgage. You know, first, or we will be and a pip loan or capex loan? Or we would just be doing a pip slash cap backflow. Again, the the differentiator in there is, what is what is real estate versus personal property.

Adam Lipkin: 36:21

So let's just think about it. If you added pace to that with a CapEx loan, and somebody was going to do that. Yeah, how would you look at it?

Mike Lipson: 36:35

You would, you would fund substantial portion of the PIP, or the real estate portion of that loan, with pace. And it would be your mind to one loan. So the bar is one payment, and, quote unquote, behind the screen there, the the the cash flows from the mortgage, but from the payment, because not only it's not only a mortgage payment, it's a debt payment would be would be sent on its merry way to either the pace lender, the capex provider, which is an asset backed structure, or if it's a true real estate portion to it. Yeah, it would go to the mortgage lender, which would be with us being the front face. So again, I don't know, if you're interested heard, but the concept. Pace will be a big part of it. But but also, what we see is the demand is going to be exorbitant in the next couple years. Chris, you got two things. One is a makeup for what happened the last couple years? And number two is there's more competitive forces out there. Yeah, it'd be a bit other extended stay product, you know, hotels, or as the you've had the proliferation of brands, you're going to have to have, you know, how do you set? How do you set yourself up? Because everybody knows, you know, if I'm going to stay in a hotel, I want to stay in a hotel that's, quote unquote, new, right? Even if it's 100 year old building and designate glamour, I want to make sure the room is new. So the requirement to upgrade, refresh, is significant.

Adam Lipkin: 38:27

Do you think there's like I'm just thinking of millennials, and there's just much more of a conversation around people wanting to stay at like an eco friendly hotel, I'm sorry, eco friendly businesses, let's call it and then as it applies to real estate, I'm seeing on the commercial side, tenants in office buildings, basically asking is one of the first questions What's your ESG strategy? We were just talking about that last week on the show with Will their major Office, Office Building owners. And he was saying that like, that's what they're hearing their leasing guys tell them is that the tech tenants and a lot of tenants are saying, Tell me a little bit about your ESG strategy. What are you doing? One of their big plays was is taking an existing building, putting in, you know, a lot of smart technology. And, and I'm wondering, I think that would be a bigger and bigger thing in the hotel space, you've already seen that a lot of the brands that have a sub brand that's going to be the eco friendly brand, right?

Mike Lipson: 39:20

Very much. That's, that's what's happening. You know, 20 years ago, 30 years ago, you want when you went to hotels with Marriott sold is you know that, you know, when you stay at a courtyard, that every courtyard will look the same, be the same. And so you had the same experience. I think the millennials have changed that everybody wants unique, you know, experiences and things like that. And they wanted all the way down into the hotel. So you've had the perforation of brands now. So if you look at the autographs, the primary out which is a collection of unique hotels, and there's others that they're putting putting out, but what's coming from that is not only they As the visual presentation hotel and how it makes you feel, but I think also now that's going into the environmental side, and people are asking for the, there is a environmentally friendly product that I'm looking at. So we see a lot of that going to come in the next couple years, it's coming already, again, as we plan is everybody plans for what the industry will start looking like, in 22? And beyond, you know, 2021 to 21 is the recovery. And, and and call it the discovery period as to, you know, what is going to change and what's, what's not going to change, room service, things like that. Some of the external things, but, but also, you know, big believer that that environment becomes more and more a critical component of, you know, where do i Where's my footprint? From my property? Yeah. People go look at that. So that that's gonna be another big opportunity for pace. Because that's a big, big piece of it.

Adam Lipkin: 41:06

It's so interesting, cuz everybody, when they think about PACE, they talk about like, the energy efficient side and any of the water conservation. But I think what's also just coming up more and more is safety, right? So if you're gonna have more and more components that are covered for pace that are better at filtration, better ventilation, especially in light of the pandemic, I think as a branding thing, I might say how absolutely clean and safe our hotels are at another level, because we're doing all these things that make the chance of spread, you know, non existent. And all those are environmental risk mitigation items that also in a lot of markets cover pace. So I definitely think it'll be interesting to see how it plays out. Let me get your take on this. Because a lot of folks talk about that. When it comes to hotels, you're offsetting the pace expense in the hotel guests day. And I say to myself, is that a thing that'll become commonplace? Is that something that there's going to be a negative attention to it? Or is it just like, hey, the way that there is resort taxes and all sorts of other fees? This is like, essentially, like our green fee to be able to do all these things and have a hotel like this? What are your thoughts on that? Is that going to is that going to become something? Or is that going to be something that you can't really look at that?

Mike Lipson: 42:17

No, I I don't think a lot of resistance to the resort fees, both from customers, as well as the, the, the legal side of the industry. But But I think what your people want to see in hotels want the experience, okay, even if you're staying for one night, as a businessman, there's a lot of, especially the millennials, and younger, as you know, you might may not be exactly for me, I'm still an old married, stay at a courtyard kind of guy. But but the point being is, is that the full package, the full experience, is going to be important. Now, you know, when you're beating with a pace with a client on potential pace, they're worried about energy conservation, they're worried about, you know, how can they save money, etc, etc. But the real, the real thing is, at the end of the day, it's the consumer that's paying that that nightly rent and what did they want? So the customer experience becomes more and more critical? And what are the components of that? And just like your earlier said, Yep, even an office space, yeah, the leads, designation is, is very important, becoming more and more important, you're going to see in hotels as well, which gives the opportunity even for the programs to be expanded to deal with a lot of the energy conservation issues, and which is more real estate driven, which is another opportunity for pace.

Adam Lipkin: 43:55

I think there's this window to where there's such publicity you get for just saying that, you know, you were able to, you know, have PACE financing and the capital stack, even though you're gonna be doing a lot of the exact same work. I think there's almost like this interesting period where I'm just sitting, getting a lot of coverage, like a big deal that mentions that it has this green financing. I'm so interested to see over the next year or two, what that does for attracting attention. But I just was, I was fascinated to hear that recent example, this New York project that there was just so much more press and people wanting to find out about this one compared to maybe had they not mentioned it. It's a big deal regardless, but I wonder if that'll be a thing.

Mike Lipson: 44:38

Yeah, I think for example, the New York deal, literally the day that the legislation again, this is interesting. The legislation to allow for pics came out same day as the PACE loan in New York a so you can say it was the first PACE loan in New York but see how long it took for PACE legislation to go through and to be approved. There you are in 2021, almost 22. And we finally get New York State that that will allow for PACE financing. So, yeah, it's time for this conversation. Yeah, it's a very recent thing, it's in the beginning. I expect it to keep growing and growing, everybody's gonna come at it slightly different. We've got some of our competitors that are offering pace, you know, as their own product or, you know, the white labeling themselves. You know, we've we've elected because we think it's early on, and the innovative parts of the industry are going to get are going to be in full, full throttle soon, we would rather be talking to a number of PACE lenders to collaborate and work with, as the as the industry evolves, because fundamentally, I wonder, yeah, so I get it. So we want to help the bar put together the best capital stack. But, but so far, we've not, I've held back and don't see us becoming a quote unquote, PACE lender per se, but working with a number of PACE lenders.

Adam Lipkin: 46:17

I mean, I some of our competitors feel the I feel the exact same way. And frankly, that's what I'm doing on multifamily. I mean, that's the whole focus, it's basically just saying, I want to be open to everybody and be able to have these, you know, opportunities to learn get insights, see where there's things, you can do things uniquely. So I, I take the same approach, I think it makes a lot of sense, especially at this stage to be able to, you know, have the most options to see how you could, you know, really provide the best solution. So I like it. Alright, man, we're gonna, we're going to start to wrap this up. And I had a question of the day that I pose, some people would love to hear your take on when do you think we're going to return to pre pre pandemic levels and the whole finance space? Do you think the hotel finance space is going to be another year? Two years? What do you think is what you think is happening?

Mike Lipson: 47:04

I think, again, that that answer changes almost daily, I would say we're getting pretty close to the full speed ahead. I think what you've got is a couple things. One is the CLO markets come back fairly strong, you know, the funds are there. They're using the CLO market. And, you know, the I call it the wall money that's coming into real estate lenders is pretty significant. So and they're all looking for a little more yield. The way I described it, again, let's go back to earlier comment, we talked about multifamily. You know, as we know, multifamily went from being outside the market, you know, 3040 years ago to or now it leads the market and its own, it's got its own classification itself. But if you look at the other food groups, the major four, it was always multifamily office, retail and industrial? Well, you know, we know multifamily. We know retail is really the R word. It's really restaurants now. That's all everybody's talking about is how many restaurants can I put in my retail space? Or how many Amazon distribution centers can I convert my malls to? And so they're going through some change, significant change. And you got office, we still don't know, you know, the results of the pandemic will take time. Are we all going back in the office? Are we not, you know, people gonna want more space, less space? You know, those kinds of considerations? Obviously, industrial still staying pretty strong, you should get better, but it's being driven by distribution centers, you know, and so, let's see with the, you know, how that does. So what's happening is hotels are doing what hotels do, okay? You have a pandemic shuts down, the economy shuts down, hotels shut down, the economy comes roaring back. hotels were back because they price every night. You know, they mark the market every night, right? That's what a hotel does. And I think the experience of many lenders, is they've gotten smart to that and they figured out how to play in it. So what we've seen is a lot of competition come back faster. We've done extremely well, I took over kidding, April Fool's Day. So it's been six, seven months that I've been on, you know, we've seen everything that we thought we could do through year end. And and we see a lot of competition. We see the banks continue to be their community banks and consumer loans refinance, for the clients. We see, we see that the kindness will slowly come back. So you know, are we off? Yeah, but, you know, a year from now, we, I would be unless there's some black swan of another black swan event out there. I would say we'd be back to full speed.

Adam Lipkin: 49:59

What happening with hotel construction financing an access point and just kind of ballpark maybe what you're doing for leverage. If you guys are looking at that, again

Mike Lipson: 50:10

we are starting to look at construction. The the old adage is everybody loves a new hotel doesn't matter what the flag is. So new construction does well, one of one of the products that that really did well through the pandemic was extended stay. Hotels. And, you know, we've seen in many ways, extended stay, especially the budget, lower end, extended stay products are their competition has been multifamily. Okay, B and C apartments. And so we see that we saw that rents held up, or rates held up extremely well notice I use the word rents, because many ways they are rents. And occupancy is held up well. And so we've actually started doing some construction lending on extended stay. And we see that that will be growing. I think, again, I think you in 22, you will start seeing a lot more new construction projects out there. And we got a component of that will be paced as we see it coming. So So I think

Adam Lipkin: 51:26

existing you're really active with taking existing hotels that just came out of a business plan. It seems like that's been a quite a bit of volume. Right.

Mike Lipson: 51:34

Right. Right.

Adam Lipkin: 51:36

Yeah, I think that's what a lot of people need. And I think and I think frankly, that's where it makes a ton of sense for pace to because the full funding, you could stomach better than if you're drawing up on a construction loan. I think that a lot of people really could benefit from this immediate opportunity to retro actively apply it, you blend down the rate you get to your comfortable leverage. I think that works a lot. So are you are you are you getting? Have you got any done in the last six months or so? Is it has it come up? Or is it just not? Or is it an equity request?

Mike Lipson: 52:09

I would say it's been an equity request.

Adam Lipkin: 52:12

Alright, fair enough. All right. We'll see we'll see as expectations evolve. If it starts to become something that you're like, you know, what this is it a leverage that works. But I think that you're definitely top of mind when it comes to you know, what I think we had to, you know, help a lot of people out in the hotel space.

Mike Lipson: 52:27

Yeah, and by the way, one of the it's also a little diversion, if you want to call diversion is what we've seen is the sale leaseback structure come into play. And so people are looking at pace, they're looking to say at least back so it's taking more time for people to put together their analysis of what they want to do. And

Adam Lipkin: 52:46

we've been pretty active in the sale leaseback space. I think that's a it's definitely a conversation when folks are looking at alternatives. I feel like there's a lot of attention. We've done a couple recently on, you know, even did one recently on a ground up multi project. But I think that that's what we're talking about earlier is it's been around longer, but I think it also has a need to just get people more educated on it too. So yeah. Awesome. Mike. I just wanted to thank you so much for spending some time. Really great to hear some of the background some of what's going on today with you in the group. And just thank you so much for being on the show today.

Producer: 53:24

Thank you for joining us on another episode of the C pace confidential. Give this episode a like and subscribe so you don't miss any of the fast coming opportunities in the world of C pace. Got a question? message us on LinkedIn. Adam Harris Lipkin. See you next time for another edition of the see pace confidential