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Aviva (00:00)
This week's listener of the week is Leah at home. Leah, thank you so much for leaving us a five star review. And for those of you listening, if you leave us a five star review below, you might be next week's listener of the week, week, week. This week on Commercial Real Estate Secrets, we have Jake Clopton. Jake is the founder of Clopton Capital. Jake, thank you so much for being on the show today.

jake clopton (00:30)
Absolutely, thanks for having me on.

Aviva (00:31)
Jake, can you please tell the listeners who you are, where you come from and what you do?

jake clopton (00:39)
sure. Yeah. Jake Clopton, I started Kloppen Capital about 15 years ago. I live in Chicago now, but I'm originally from upstate New York. what I do at our company, well, when I originally started this company 15 years ago, we were just capital markets. I still handle all of our capital markets activity today. we are a commercial real estate services company. so we're also an insurance company and we do commercial property insurance nationwide.

We're a 1031 qualified intermediary and we do commercial solar. We are starting up a brokerage side this year. I don't run the other sides. I still retain all the capital markets services. The deals we do are a couple million bucks and up from there. All asset classes primarily nationwide, fixed rate mortgages, bridge loans and construction.

Aviva (01:36)
Can you explain what capital markets is as if I were a fifth grader?

jake clopton (01:42)
Capital markets is really just a generic term for the pool of lenders, right? Or capital sources that would be available for like any one deal. So when I say capital markets, it's for instance going to banks or private debt funds or life insurance companies, right? It's anybody that would potentially provide financing for something you're trying to get done.

Aviva (02:09)
So you are, for all intensive purposes, a full service commercial real estate provider that serves with, like you said, capital markets, insurance, 1031s, you're rolling out a brokerage. It's like a one -stop shop for...

jake clopton (02:30)
Yeah, exactly. I mean, we're trying to be involved in kind of like every spot along the way of the life cycle of the deal. I mean, not necessarily do all of those like if somebody comes to our door and they have a deal, they don't have to get involved with all those. Each silo kind of operates independently, but quite often, we're working on several different angles for one particular deal, especially financing insurance go hand to hand.

Aviva (02:30)
You're -

jake clopton (02:57)
We're gonna find deals for people in the future, financing terms will go along with those. A lot of times we're working with people to when they sell properties to go into 1031 exchanges to help finance the new property. So you can see how all of this kind of ties in together with each other.

Aviva (03:11)
Sure. So what got you to start Clopton Capital 15 years ago? What spurred this full service approach?

jake clopton (03:21)
Well, that was the credit crisis, right? So the idea was to help people find capital for their deals. And at the time, there really wasn't a lot going around. Before I started this company, I traded interbank, hedging product futures, three -month live work, Fed funds. And I had the idea to start the capital markets firm at that time. For a very long time, we were just capital markets, but the services angle kind of came about about five years ago. We started adding service lines as we were able to.

to get them started. And I think we're getting pretty close to where we wanted to be once we can get this brokerage cycle.

Aviva (04:00)
Hey, that's cool. Can you share with the listeners a bit about what is going on in the debt market today? Today is June 6th, 2024. What are some of the struggles we are finding in the current debt market?

jake clopton (04:20)
Yeah, so I mean, there's debt out there, right, for sure. It's just more expensive. That's the general theme of what's going on. Depending on what capital source you're going to, like, I mean, each type of capital source is having its own challenges. Banks are finding themselves with less liquidity than they did before. The Fed is doing a pretty good job of bringing liquidity out of the system. So when you go to a lot of banks, sometimes you'll find some that...

really aren't even lending because they don't have the capital to do so and they need to raise deposits to be able to lend. Private lenders, again, generally speaking, higher rates, but they're picking up a lot of the slack where banks are leaving off. A lot of those private lenders have lenders themselves, which are banks, so you see there's still kind of some challenges on that side as well. But there is liquidity.

I think it's just the math problem for a lot of deals is more difficult because that's really what it comes down to, right? To make sure to get a deal with pencil, it's just math, right? And when you have a more expensive variable that doesn't cost capital, a lot of these deals that are tight are just not penciling. So we're seeing a lot of activity in deals where there's a lot more margin in them, like special use stuff, like hotel cell storage, car stuff like that.

There's still a lot of core product out there getting done, but not as much as we saw before with rates for supermarkets.

Aviva (05:47)
interesting if if there was one product type that you would love to see in finance which would it be what's like your gold standard product type all day you know that you'd finance all day long

jake clopton (06:02)
Like, well, I mean, we'll do any asset class. The stuff that we end up seeing the most of is whatever's kind of trending in the cycle, right? So, you know, even though we're nationwide, a lot of the deals we end in Chicago, right? A lot of the deals we end up seeing are in areas where you would expect, right? Like areas of high demographic growth.

some about states, nationalists, places like that. The asset types, again, is whatever's trending out there and currently seeing lots of storage, lots of car washes actually, private equity has gotten very interested in car washes. And generally speaking, the major finance type we're doing is construction. So I think a lot of people are finding value in being able to build new things today versus kind of like buying stuff I think they're still giving.

bid-ask spread between buyers and sellers. That's still a little difficult. So I mean, that's what we're doing a lot of at this point right now. I did rate lock a multifamily deal earlier today. So that's, you know, there's still just straightforward acquisitions going on, but that a lot of that volume has kind of, you know, come in, which really, you know, on the acquisition side, it's really just cost capital driven at this point. So I think, you know, as rates come down, we're going to see a lot more of that stuff.

Aviva (07:27)
sure.

On the other side of that coin, are there any assets that you're struggling to finance right now? Or I suppose the positive way to put that would be any opportunities in the market.

jake clopton (07:46)
Yeah, I mean, the stuff, office is pretty tough to finance. Anything with headline risk, that's pretty tough. Or like stuff that's needing really high leverage just to get done, that's pretty tough. I mean, generally speaking, the debt out there is a little bit lower leverage than it used to be, right? That is definitely a function of cost of capital.

And then anything that you would expect, you know, has headline risk, it's going to be difficult to get done. So, you know, office is the major one of those that a lot of people are just staying away from.

Aviva (08:28)
Do you think office is done or do you think, like what's your personal opinion on the office space and the trends that we have seen and are seeing?

jake clopton (08:38)
Yeah, so I think it remains to be seen, right? The problem with office space is the work from home stuff. And I think all the work from home stuff, yeah, I get it during COVID, but it didn't reverse because the labor market was so unbelievably strong. I mean, there was two job openings for every person looking for a job. That is really starting to come down and unwind. And I think a lot of the...

the problem with office is all of the power had reverted from employers to job seekers, right? In the hiring process. So, you know, job seekers of course can say like, hey, I'm more going to work from home. There's 10 more jobs out here. I think that's starting to reverse. And, you know, the power in the hiring decision process is going back to employers. And I think, you know, we've probably seen the bottom for office. I don't know if it goes back to where it was before.

But I do think there's upside from here if the labor market starts to contract. Because employers would, I think, for the most part, like their employees to be in the office. And if that kind of power dynamic goes back to them, they're going to be able to control that a little bit more. So we'll see. I mean, I don't think office is dead. And I think it's this, do you have to work in the office as a function of the hiring process?

Plus, I think, you know, just the ecosystem around offices that were built up in downtown areas, there's a lot of people pushing for that to happen, especially cities, right? Because it's not just offices that suffer, it's all the restaurants around them, it's all the retail around them, you know, the logistics stuff. So I don't think it's that, I don't think we need quite as much office space as we have, but I do think there's upside from here.

Aviva (10:28)
It's so funny. It like just reminds me of the exact conversations I had about retail two years prior to when office was the headline. It was like, we overbuilt retail and retail is dead. And now it's like, retail is thriving. Office is dead. So.

jake clopton (10:48)
Well, yeah, it was the Amazon effect, right? I mean, it was like, all right, Amazon effect. So all retail is done, everything, you know, and that's just not the case. I mean, you know, a lot of big box. Yeah, yeah, yeah. But there's still big box retail out there. So, but, you know, a lot of it just converted to stuff that you need to go to. Right. Like I remember when all the jump zones were first coming out, you know, nobody wanted to touch those things. And now it's like, it's a jump zone. You actually have to go there to do it. So.

Aviva (10:55)
Yeah.

jake clopton (11:18)
Yeah, so I mean, yeah, perception's definitely changed over time. And I think, especially, how many headlines were, that said death of retail were there? I mean, it was like every day. And there was a lot of death in retail, don't get me wrong, but I mean, that doesn't mean every retail center is gonna disappear. Enclosed malls? I don't know. Yeah, I know a lot of dead malls, but retail still.

Aviva (11:29)
Yeah.

Yeah.

yeah, no, it's just, it's humbling to see the headlines and then be in the trenches and yeah, I don't like to talk in absolutes because anything could happen. So tell me, I know you said you have an arm of your company that does insurance. Tell me about some trends that you have seen surface in insurance.

jake clopton (11:55)
you

Aviva (12:12)
in the last two years because I feel like I'm talking about it to tenants and landlords all the time.

jake clopton (12:20)
Yeah. I don't think anybody hasn't realized that insurance costs are higher. Materially higher, right? Like some of these policy renewals we see out there that people are getting are like 100%. No, it's double or more. I mean, depends where you are. I mean, anywhere with wind. Yeah, we've seen some pretty big increases, but not only increases, we've seen insured like some.

insurers just completely leave certain markets. They're like, yeah, no, you can't even pay us to be here. So I mean, I think the days of when people would model just 3 % growth on insurance year over year, I mean, that's done, at least for now. And the days of just kind of auto renewing insurance policies without taking back out to the market, those are done too. I mean, you really need to do the work.

to find new carriers every year to try to get the best rates. And it's funny, this is why we started the insurance side too, right? Because we were seeing that happen over and over and kind of with a lot of like the larger insurance agencies out there, you have like, let's say like a $30 ,000 policy, they really don't care, it's not that big, right? So they're not gonna market it. And a lot of what we saw is people were getting their renewals like two days before their insurance was up.

hey, by the way, also went up 80 % and you have no choice but to sign this or else you're gonna have no insurance, because there's not enough time to market insurance for two days. So we've really been on people to let us widely market their insurance to as many markets as possible and to do it way ahead of time so that you really have enough time to properly market this stuff and get the best prices, because there's new carriers coming into markets, there's...

carriers leaving. So I mean, it really, really takes like a lot of grunt work to get to the right, you know, places where it needs to be today. I think if you sit around and just kind of accept it for what it is, you're going to end up with some really inflated insurance costs and or just a cancel policy if the insurer leaves.

Aviva (14:27)
Yeah.

I it's it's so crazy to me how they how insurance companies can leave an area. But what do I know? I'm just a I'm just a warehouse peddler. So it's fascinating.

jake clopton (14:43)
Yeah, I mean, they're companies like any other, right? They can choose to or to not be in certain markets.

Aviva (14:51)
Yeah. Let me let me ask you, what are you finding to be the most common capital sources in this ever changing market?

jake clopton (15:03)
that's a good question. You know, the main capital sources that we use are banks, credit unions, and private debt funds. and a lot of that comes down to what the equity looks like. Right? Like if I'm working on a deal that's syndicated or something like that, right? Where, you know, you've got one guy with a bunch of investors, it usually needs to be non -recourse. So if we're looking at like, you know, a value add or construction or something like that, typically ends up, you know, the guy doesn't

the one guy that's the syndicator doesn't want to go on recourse for 100 % of the debt. So end up going to like a non -recourse and a private debt fund kind of route. Or if it's like a perm loan, right? Agency or same gas or something like that. We do use life companies for some non -recourse debt as well. If the deal, if there's recourse available, we're really going to banks. And...

Finding the right banks today is definitely a lot of grunt work. You can take this wide netcast approach, talking to three banks isn't gonna do it. But that's what we're really good at is creating an individual capital markets around each deal and wrapping in everybody that can even geographically land on the thing and talking to all of them. So it really is situational which capital source one's up using. And we take this top down, like understand the equity first approach and then kind of filters into where we're.

Aviva (16:29)
Well, that's fascinating. Jake, what makes you happy about what you do every day in commercial real estate?

jake clopton (16:39)
I think the thing that I like the most about this business is, I mean, there's two things. One is, you know, commercial real estate is not just this commoditized product. It's all relationships, you know, and the people that are in it are pretty entrepreneurial, good at problem solving, you know, and motivated. So I definitely like the people that are involved in the relationships. You know, the second aspect is putting the puzzle together.

I mean, every deal is a bit of a puzzle and if you figure it out, the thing just works. So that's really kind of the aspect of it that I really like.

Aviva (17:16)
yes, I call it a... I call it, I refer to it as like being in the trenches, but making it sound like a puzzle, it's a much lighter way. I think about a puzzle in the trenches, but it is. Every deal is a puzzle. yeah. Hey, that's a, it really would not be half as fun if it weren't a puzzle. And it makes it even that much more rewarding when it's one of those really easy puzzles.

jake clopton (17:29)
Sometimes the pieces of the puzzle are personalities. So, yeah.

Aviva (17:45)
that comes along once every few years. But yeah, I don't like I said, once every few years after after you're in it for a while. So.

jake clopton (17:48)
Let me know if you see one of those.

Yeah, yeah. And the whole time you'll still be thinking, man, something's coming eventually. I just know it.

Aviva (18:03)
Yeah, yeah, it ain't over till it's over. Jake, thank you for being on Commercial Real Estate Secrets. Where can the viewers find you, contact you, and follow you?

jake clopton (18:21)
LinkedIn, you know, just type Jake Clopton into LinkedIn and very easy to find. I think I'm almost at the max amount of connections, but you know, I'm really easy to find on there or just, you know, all my contacts info is on there or our website, cloptoncapital .com. We're extremely easy to go.

Aviva (18:40)
Awesome. We'll put all your information in the show notes and for everybody listening, we'll see you next week.