The Commercial Real Estate Collapse Will Spawn Generational Wealth

Shah Gilani|December 6, 2023

Everyone knows there’s money to be made in real estate…

You buy and hold it and make a fortune.

Right?

Not always.

What most people don’t know is that there’s actually more money to be made – and a lot faster – when property values crash.

That’s the lesson we learned from the 2008 residential real estate crash and financial crisis.

There’s just one major caveat: You have to see a crash coming and play it smartly.

That’s what I did in 2008…

And the lessons we learned back then are even more important now… mainly because we have another property crash coming – a $21 trillion goliath of an implosion that will be unlike anything we’ve ever seen.

We’re at a point of make or break… so buckle up. If you’re on the wrong side of this collapse, you’ll get killed. But if you’re on the right side… well, this is how fortunes have been made over the past 15 years.

Here’s what you need to know…

Who made how much on the 2008 crash and how they did it…

And how we’re going to use what we learned back then to profit today…

Transparent Bubbles

There’s something about bubbles most investors don’t see.

Maybe it’s greed that blinds them, especially if they’re eagerly inflating the bubble they’re hoping to make a fortune on.

Maybe they can’t see the proverbial forest for the trees.

Maybe they believe in perpetual motion machines.

Whether we’re talking about tulips, internet companies or cryptocurrencies, bubbles are ingrained in our understanding of capital markets.

But as you’re about to see… bubbles create situations where we can profit in two ways.

Irrational exuberance allows us to ride the bubble on the way up, and the stark realization that the bubble is based on fantasy allows us to play the downside when it inevitably bursts.

It was easy for me to see the residential real estate bubble inflating in the mid-2000s. It peaked in late 2007 and burst like nothing else the world had ever seen in 2008. I was part of it, and I was analyzing every aspect of the bubble as it was inflating.

I was invested in a residential homebuilder that was developing several residential communities and amassing land in Florida, including the largest tract of undeveloped farmland in a rapidly growing county.

I was also analyzing what was happening with home price appreciation, the market for residential loans, prime and subprime mortgage-backed securities (MBS), and derivatives and credit default swaps on pools of mortgages. I was watching as banks stockpiled hundreds of billions of dollars’ worth of MBS assets in “off balance sheet” silos so they wouldn’t have to set aside reserves on them. I saw how leveraged Fannie Mae and Freddie Mac were… and I was paying attention to how credit funds and investment banks that sponsored and financed credit funds were doing.

In other words, I saw the market from the inside out and the outside in.

The Moment When I Realized Something Was Awry

The first thing that caught my attention was on the investment side. In late 2007, the homes we were building weren’t selling while they were still under construction, as they had before.

Prices were still going up… but at a much slower pace. And closings were taking a little longer.

We were still plotting sites, still planning infrastructure buildouts, still moving forward in growth mode… until I saw hiccups emerge in the mortgage securities market.

Price volatility picked up. Credit default swap prices started ticking upward. Pools were taking longer to amass. Crazy derivatives like synthetic MBS pools, “reference pools” that didn’t consist of actual mortgages but were portfolios of mortgages that “referenced” (meaning paper copies of real mortgages) how they were trading in the real world, stopped selling… and bankers stopped creating them altogether.

On the ground, something scary was happening. Other big builders in South Florida were offering me pieces of their deals, whereas before we had mostly been competing for land and prime building sites.

They all had been in the business for years before I started building and speculating on land… and they were looking to lay off some of the leverage they’d built up.

That leverage was everywhere.

When home price appreciation slowed to a trickle, I knew it was about to be game over.

Before prices started to fall, I sold all my deals – all the properties I’d contracted – at breakeven. I, too, was leveraged, and I knew I had to get out before prices started to plummet and the bottom fell out.

I got out unscathed and warned my investment banker and hedge fund friends to…

SELL EVERYTHING.

No one says that, ever. But I did.

A handful of people made insane fortunes on the crash because they saw it coming too.

John Paulson’s hedge fund made $20 billion in a year off the implosion. Paulson alone made a cool $4 billion.

Michael Burry, of The Big Short fame, made $400 million for his investors and took home $100 million for himself. (If you haven’t read Michael Lewis’ book or seen the movie, I highly recommend them.)

There were other hedge fund honchos who saw the crash coming too and made fortunes… but not a lot of people saw it coming or knew how to make money on it.

That’s the nature of bubbles. They’re transparent for a reason. You just need to look through them.

There’s another real estate crash coming – this time in commercial real estate.

I am again watching the situation unfold from the inside. I have friends who are big financiers of commercial real estate in New York City and around the country.

I’m also watching it from the outside. I’m tracking prices, vacancy rates, debt maturities, new credit standards and refinancing restrictions. And I’m watching what pensions are selling, what private equity portfolio companies are unloading and how leverage is forcing markdowns and distressed sales.

On Friday, I’ll talk about what’s going on in real estate post-pandemic… in shopping malls, restaurants and every other business affected by the pandemic lockdown three years ago.

And I’m releasing an urgent bulletin tomorrow that will detail the unprecedented opportunity we have in front of us. Stay tuned.