The Coming Real Estate Debt Storm: Distressed Loans, Maturity Walls, and Market Risk

Bill Bymel (00:00)
These are, this is an industry ⁓ that is short, has a short memory, unfortunately. And there’s not a lot of guys, I’m pride, I’ve pride in the fact that I am part of a group of individuals that is stuck with this industry, even when there wasn’t a lot of non-performing to work. Those chickens are coming home to roost, markets are cyclical, and ⁓ we still have the market knowledge. I mean,

My father used to say anyone could make money in an up market, but what separates the men from the boys and the ladies from the girls is the dislocation when the wind is no longer at your back.

Michelle Tack (02:13)
Hi everyone, I’m Michelle Tack. I am the podcast leader for today’s podcast session from Real Estate Pros. Bill is our subject matter expert today on

loans and a number of other things. Bill, do you want to introduce yourself?

Bill Bymel (02:32)
Hello,

Michelle, it’s great to be with you.

Michelle Tack (02:35)
We’re happy to have you, Bill. And ⁓ one of the things that while we were preparing for the podcast today that struck me that I’m really excited to get a better understanding is that you’ve been one in the real estate. ⁓

market for a long time, both commercial as well as I understand you’ve done some residential as well. I think you’ve been a broker for 30 years. That’s a ton of historical views on the real estate market overall and experience. And what you are doing today, I think is really super important is that you are taking distressed mortgages and loans and being able to

work them out such that there is still a profit ⁓ in terms of that and take it on where a lot of institutional investors today, because of the nature of the conglomerate, et cetera, are not doing. Will you?

Bill Bymel (03:43)
Mm-hmm.

Michelle Tack (03:46)
Please give us an idea of what your business is for those that may not come from your world and the markets that you operate in as well.

Bill Bymel (03:55)
Sure.

Right, sure,

great. I became a broker in the early 2000s and ⁓ it was really with the intention of having access to the MLS so that I could become a fix and flip realist single family investor. So I spent those early 2000s in that world. Migrated into commercials, started doing some development, CVS, more institutional restaurants. I did all this in South Florida. Grew up in Fort Lauderdale, raised kids,

in Jupiter and it was the summer of 2008 that I fell into this niche that I now live in. It was literally three months after the fall of Bear Stearns and three months prior to the fall of Lehman Brothers in the summer of 2008. I got a phone call from a fund manager in Southern California saying that he was buying a pool of new construction loans that were non-performing in Port St. Lucie, Florida.

was buying them from a failed bank. He basically could name his price. All of the properties were underwater because prices had dropped so significantly from 2007 to 2008. And

he really had no idea what the valuation of these properties were worth or what he should pay.

That was a light bulb moment for me. I actually wrote about this in a book in 2017 called Win-Win Revolution. This book, when I got into this business, I didn’t wanna be a debt collector, but I saw the value of what the secondary market for mortgages could provide. And that is this opaque.

air market it’s not like you can actually go online and find a secondary market but it’s the idea of large institutional investors pension funds banks lenders credit unions ⁓ insurance companies who hold on to these pools of mortgages and

Michelle Tack (06:34)
Mm-hmm.

Bill Bymel (06:52)
They do that to invest in performing mortgages. Nobody’s interested in what or capable of how to handle a loan when someone stops paying. And in 2008, 14 % of the market stopped paying in like a matter of a few months. So it was a overwhelming ⁓ situation. So I got into it saying, wow, this is really great. We can actually make some money doing this. We were buying loans back then for

28 cents on the dollar, which was somewhere around 50 to 60 % of what the new value of this real estate was. And then I didn’t want to be a debt collector, so we devised this whole paradigm around how do we treat borrowers with dignity? Can we modify a percentage, which we did. We saved about 35 % of the non-performing loans that we purchased. We helped people re-perform. We forgave debt. We got them to stay in their homes. We put them back in an equity.

position. For the middle 50 % that didn’t see that possible, didn’t have a way to keep the home, we would allow them to exit with dignity.

cash for keys, Dean Lou, short sales. And then you would have to foreclose on about a quarter of those people as well. And through that for 18 years, that’s what we’ve been doing. We started in the residential real estate business. We mostly dealt with owner occupied homes from 2008 to the mid teens. And that business became kind of dried up by the mid teens. Most non-performing was gone. A lot of the people that were in the distress space left the distress.

space to go into private lending or private credit, ⁓ all the areas that are popular today. And it left a few of us to do what we continue to do today, which is to buy mortgages, primarily first lien mortgages. I actually called my company First Lien Capital, buy them on the secondary market at a discount to the face value of the debt and at a safe underlying LTV to the collateral, the real estate it encumbers.

and then working with borrowers ⁓ to figure out the exit. And hopefully somewhere in between that time, we make a few dollars, they exit with dignity, and you’ve got a real estate deal now redelivered to the market. And we’ve done this with residential mortgages, thousands of them. We’ve done this with reverse mortgages, what I call the Tom Selleck mortgages, when the borrowers pass away and the…

You know what I mean, right? The Tom Selleck advertises that kind of thing.

Michelle Tack (09:31)
Yeah, I do. I was like, what? ⁓ Well, that’s incredible. Bill,

let me ask you.

What I was really impressed with when we spoke earlier is the perspective that you have historically about the market. And you and I joked about, and you said, that people could always make money on an up market. You don’t necessarily need to be a subject matter expert to do that. But to make it through downs and

Bill Bymel (09:49)
Right.

That’s it.

Michelle Tack (10:40)
really is difficult.

Can you tell me how you’ve done that to make your machine, your business operate efficiently and smoothly? Can you discuss that a little bit?

Bill Bymel (10:55)
Well, it hasn’t

been easy and it hasn’t always been profitable either. ⁓ I staffed up when COVID hit thinking we were going to have all these foreclosures and then the government shut down the whole industry, poured a bunch of cash on the people. ⁓ yet I didn’t want to let people go because I knew that at some point markets cycle. ⁓

Michelle Tack (10:57)
Nothing good is easy, right? Nothing worthwhile is easy.

Bill Bymel (11:24)
You know, this ⁓ is a lost art what we do. As a matter of fact, the newest ⁓ way that I’m spending my time is I’ve got banks, private equity funds, insurance companies calling me saying, hey, ⁓ our servicer, they do great for us on the performing stuff, but now that our book is starting to increase in default, they’re not as good. And that’s because that’s a dying art. You know, these are people that…

Michelle Tack (11:50)
Yeah.

Bill Bymel (11:53)
These are, this is an industry ⁓ that is short, has a short memory, unfortunately. And there’s not a lot of guys, I’m pride, I’ve pride in the fact that I am part of a group of individuals that is stuck with this industry, even when there wasn’t a lot of non-performing to work. Those chickens are coming home to roost, markets are cyclical, and ⁓ we still have the market knowledge. I mean,

My father used to say anyone could make money in an up market, but what separates the men from the boys and the ladies from the girls is the dislocation when the wind is no longer at your

And that’s exactly the real estate market we face today. More than 60 % of counties saw either a stagnant or decline in values in the last year. ⁓ And…

Michelle Tack (12:46)
That’s across the

United States, correct? Yeah, thank you. Go ahead, I’m sorry. Okay, yeah.

Bill Bymel (12:51)
That’s correct. That’s United States. Yeah. So we work on a nationwide level. And

so we’re sitting, you know, we’re looking at, you know, a period of dislocation. We have a rise in interest rates. We have a generation of TikTok real estate investors that have never really had to deal with the realities of a cyclical market.

Michelle Tack (13:15)
That’s true.

Bill Bymel (13:20)
And, ⁓ and my company is really here to kind of, you know, fix all that, whether it’s take, whether we have the opportunity to buy the loans at a discount and profit from the workout or advise these lenders that are tick tock lenders, you know, that have gone out and given these mortgages to people that don’t have the experience and the qualifications to really do what they do. And so we are out there advising banks, advising private lenders.

Michelle Tack (13:39)
Sure.

Bill Bymel (13:50)
and passing that knowledge through ⁓ to keep the industry from getting stuck. it’s a lost art that I just happen to have a good crew of people that know what they’re doing.

Michelle Tack (14:02)
Yep.

Well, speaking on that point, in terms of running your business smoothly, we have talked about the operational piece, how important people are, and specifically with, you you can talk to that if you don’t mind. And also, I know that you have a number of mechanisms, I’ll just leave it at that, that you’re utilizing to keep the business running, that, you know, it’s not all, you know, just the institutional knowledge,

Bill Bymel (14:22)
Mm-hmm.

Michelle Tack (14:36)
the infrastructure that you’ve built to keep it running smoothly. Can you talk to what that looks like? Okay.

Bill Bymel (14:39)
For sure. Yeah, absolutely.

On the team building side, I see this a lot. I hear it a lot from folks in our industry.

The guys and gals that were working distressed assets either after the GFC or if you want to go even further back to the RTC days, those folks are retired. ⁓ They are, or they’ve gone on to different careers.

There is a very, I meet with bank special asset managers on a regular basis and I hear it over and over again that even if they can get their CEO to approve the additional budget dollars to hire more loss mitigation team.

there’s not a talent pool out there because the next generation was never trained for distress. All of it got outsourced. A lot of the outsourced companies have now consolidated. so for me, and where I’ve had probably the most difficulty in building my new business is I have a core group of really talented individuals with a lot of experience. And just because the…

the assets aren’t flying through the door in a non-performing state, I’m not necessarily willing to let some of those key talents go because tomorrow I could get a call from a bank saying, need to work three, I got 3000 assets and I need to have that brains. Now, what’s exciting about it is that ⁓ now that I have these people, I’m also heavily into AI.

Michelle Tack (16:43)
Yes.

Bill Bymel (17:01)
I don’t see AI replacing anyone in my team, but it’s going to make them all more effective. And it’s going to allow us to deliver a better product, a better service more quickly. going to have, ⁓ we have AI agents auditing our work, executing a lot of the work, mundane workflow and allowing my talent to then sit back and really do what they do, which is provide the service. I’m not going to, I’m not building technology to sell it.

I’m building it to sell our people. And when it comes to our people, not just talking about the two dozen folks that work for me directly, I’m talking about the hundreds of cohorts that we have built a network around the country of. estate is so localized in nature. So as we all know, right, from years of experience, and if you’re going to be a player on a national scale,

and not get your hand handed to you. You need to have boots on the ground, local knowledge, people that you can trust, real estate brokers, appraisers, mortgage brokers, contractors and lawyers. And so we’ve spent 18 years, keeping this, staying in this business since the GFC, keeping it going, building a network, kissing some frogs along the way, replacing them with better.

better vendors, we have now built a network of trusted professionals who have knowledge that AI is not going to replace either and have the ability to work our assets on the ground. And it’s a great symbiotic partnership because real estate brokers would much rather do valuations for me and go check out a property than sit and, you know, have listing appointments, I think regularly.

Michelle Tack (18:54)
Yeah, absolutely, absolutely. That’s awesome.

you we talked about your network before, the fact that you were a broker for 30 years. You had the brokers, know, you have the institutional people you’re breaking in or have done before that are feeding you some business, but you have a array of folks, you know, that are…

that over long term you’ve kept that going and feeding that, which I admire. ⁓ What’s next for you in terms of the opportunities in the next six months, a year? Because it seems like you’ve got a bunch of things you’re thinking about, you’re excited about. Can you share what those are?

Bill Bymel (19:33)
Yeah, I started a special servicing division of the company. Rather than just focus on deals I could buy, two years ago I said, I just kept having my competitors calling me saying, hey, you guys do this better than we do. Can we just hire you to do it? And so we started to build a special servicing advisory firm. First Lean Capital has now a First Lean Resolutions division where we get hired by banks and investors to manage their existing

Every day I’m meeting a new private lender that I didn’t know existed and they popped up and they lend in three states and it’s been great. But then with the change of interest rates, two, three years ago, a couple of their borrowers got underwater and they, they’re self-servicing and you know, they’re a young generation. They’ve never dealt with this. They just don’t know. So we’re offering that as a service and using AI technology to obviously report and manage that.

I’m heavy into the Hecum business, the reverse mortgages. I have a relationship with HUD and HUD actually has over 16,000 reverse mortgages on the books of the taxpayers’ balance sheet right now that they are planning to sell to investors over the course of the next few years. And then about 3,000 4,000 more loans come into the system when the banks come to HUD to

their insurance paid every year. That is a steady supply of single-family homes that HUD should be bringing to market and we’re part of that process. So we buy them from HUD, we work it out with the heirs, most of them can’t afford to buy the property back so we take the property through a deed of lieu or a consent and then we either fix it up and resupply it to the market and it’s a real win-win especially given you know this the fact that there are certain areas of this country where inventory remains.

⁓ And then see commercial real estate, think, is the next real wave of opportunity. ⁓ know, through everyone, through every dislocation rises a new opportunity. And because commercial real estate is an investor class of real estate, it is subject so heavily to the whims of interest rates, taxes, insurance, and what tenants will pay.

Michelle Tack (21:48)
Yep.

Bill Bymel (22:03)
And

everything’s going in the opposite direction. And I was surprised to learn myself, I didn’t know this until about a year ago, that more than 70 % of small balanced commercial properties, properties of less than a $10 million value, are actually single member LLCs or private individuals that own them. So this is not a big institutional network. And the big institutional guys, they’d rather get out of bed for 20 or $50 million deal anyways.

Michelle Tack (22:27)
Yeah, yep.

Bill Bymel (22:33)
also a very overlooked segment of the market.

Michelle Tack (22:33)
Understood.

Yep, so that’s it.

Bill Bymel (22:40)
You get a doctor who buys an office building and rents to seven other doctors. He does gross lease. He didn’t think about the fact that rates might go up. He got himself a 5 % mortgage seven years ago. It’s coming up on a balloon payment. Can’t get a mortgage at pencils anymore. That dislocation exists in every part of this country right now. The banks have done a pretty good job of extending and pretending a lot of it. It’s the reason you see an increasing

Michelle Tack (22:41)
Done.

Bill Bymel (23:10)
maturity wall each year. like at the beginning of the beginning of it last year, the 2026 maturity wall was like 700 billion. Now we’re looking at almost 930 billion that is scheduled this year. Well, that’s because about 200 billion of last year’s maturities got kicked another year. So there’s a it is you know, they’ve done a great job, but that’s those chickens are coming home to roost.

I happen to share a servicer with the FDIC and the NCUA and I can tell you from my meetings with both the FDIC and the NCUA, NCUA is the FDIC for credit unions, ⁓ they are doing everything they can to stop a deluge of bank value.

Michelle Tack (23:57)
Well that was a great detail. One last question before we wrap up today is…

You and every operator that I talk to that continues to bring on more opportunities, continues to, as you said, this uncovered market in terms of the commercial real estate, things get complicated. ⁓ And in the past, there may have been a point where you had a deal go sideways.

⁓ and you had to pivot fast to recover. Can you talk about that maybe the last year or the last couple of years, maybe an instance where you did that and basically what you employed, the tactics or knowledge that you employed to turn it around. It may not have turned around exactly the way you wanted it, but you were still able to salvage it. Could you talk to that for a minute or so?

Bill Bymel (24:44)
Mm-hmm.

Mm-hmm. Yeah. Yeah,

I can speak to two different case studies. ⁓ One is a commercial deal where the mortgage, the leverage given by the original lender was higher than it should have been. valued to, they misvalued the property at the beginning with, ⁓ yet it was cash flowing. So ⁓ the…

what we were able to do was come in and take a big first mortgage that the sponsor was unable to pay because they lost a big tenant and now their cash flow is down so they didn’t have the coverage. We were able to take that mortgage, separate it into two notes. The second one being a non-interest bearing second and then the first one being what was paying and could be covered by the existing tenant.

It’s given this bar sponsor an op a runway now and the second the B note is it’s got a short It’s got a balloon. He’s gonna try to figure out a refi But he’s about it allows the sponsor the breathing room to retenant the building Increased cash flows cut his expenses and now he’s already still profitable again. Whereas he was underwater before ⁓ Not every lender can do something like that a bank would you know banks have gotten creative in that way as well, but it’s not

Michelle Tack (26:13)
Yes.

Bill Bymel (26:16)
You know, it’s not, it’s not as easy, although the Fed has done a lot to give banks and all types of lenders, the flexibility and accounting rules through TDR and Cecil that allows them to do some more creative stuff. the residential side, we bought in 2020, right in 2023, as interest rates were going up, we bought some condos in Florida. And if you remember, there was also the surfside event that caused.

Michelle Tack (26:45)
Yep,

exactly.

Bill Bymel (26:46)
you know,

that caused the new laws requiring condos to recertify. So the convergence of the condo costs going up, the special assessments throughout the state of Florida, the huge increases in insurance and the increases in interest rates, you saw condos kind of peak out. And I’m talking about maybe it’s on the high end, there’s still some appreciation going on because, you know, all the rich people are moving to Miami, but ⁓

But I’m talking about the average low rise, ⁓ senior citizen country club condo and off the shore. Those hit a peak in around 23.

Michelle Tack (27:18)
Yeah.

Right, yeah, the average condo, right.

Bill Bymel (27:32)
And so we valued these deals to that 23 when we bought them. And now all of a sudden we were looking at, if we, know, a year later, a $300,000 condos were 260, know, 250. Um, and the way we were able to pivot in those cases was renting. We were able to get back some of the, some of our costs by renting those units for a period of time and then exiting. So the IRR was not good, but instead of taking a significant loss on the deal, we were

Michelle Tack (27:53)
interesting.

Bill Bymel (28:02)
to return the equity at least on the transaction.

Michelle Tack (28:06)
That’s awesome. You have.

provided a whole host of really detailed information, What I’d like about what you also mention, ⁓ and I love the words, with dignity, exit with dignity and helping people, because along the way, you’re being of service, not just through obviously taking distressed loans and finding a way to make them work. So I commend you on that. Bill, before we close, can you provide your contact

Bill Bymel (28:27)
That’s right.

Michelle Tack (28:38)
information for those that are listening today that may want to contact you.

Bill Bymel (28:43)
Sure, I’ll give a couple of different plugs. I have a cell phone that you can call, you’re better off texting. It’s 561-222-9803. I have a website that’s myname.com (billbymel.com). My company websites are firstliencapital (firstliencapital.com) and firstlienresolutions.com. As I mentioned, I wrote a book in 2017 called Win Win Revolution and my shameful plug today is my new kick is this. I just released The Storm. That’s my new book.

Michelle Tack (29:11)
cool.

Bill Bymel (29:13)
It just came out a few weeks ago. It number one on risk management, number one in banking for about 36 hours opening weekend. ⁓ First print sold out, believe it or not. So I don’t know how many that was. I think we underprinted it. ⁓ But this is all, a lot of this is about.

Michelle Tack (29:19)
Awesome, congratulations. That’s awesome.

Bill Bymel (29:29)
the world forces that are coming into play and affecting real estate, I mentioned, insurance costs through the roof, interest rates rising, huge debt levels, highly leveraged properties and highly leveraged people all across the world. And it’s all kind of converging at this time that could create a perfect storm, not just in real estate, but in markets in general. So that’s my new mission and I appreciate the acknowledgement for, because nothing I do goes without a

Michelle Tack (29:37)
Mm-hmm.

Yup, yup.

Bill Bymel (29:59)
helping serve our humanity.

Michelle Tack (30:02)
Yeah, I love that.

I love that. I really appreciate your time today. For those that are listening and have enjoyed the content and et cetera, please continue to subscribe to Real Estate Pros. And for those that have not subscribed yet, please do. Build continued success. Thank you for your time today.

Bill Bymel (30:22)
so much. See ya.