Here's a Great Idea for a Business
Someone please take this and let me invest in it
Commercial real estate is done for in a lot of the US. It’s pretty old news by now but default rates are rising wildly (I unfortunately cannot find newer data but news of new defaults are coming out almost daily now).
This rate is sure to rise. And there’s money to be made.
As an investor, I’ve always made my most money when calamity is happening. I shorted the market with way out of the money put options on February 16, 2020. When the market crashed, they did well. I sold and repurchased them the entire way down until Powell slashed interest rates and my party came to a very sudden end.
That is to say, I’m a short investor. Much like what I do for a living, I earn money seeing problems before anyone else. Just how my investment brain works.
My ex-wife and I used that money to live through Covid when we were both unemployed and buy our first house.
But I see another, even bigger opportunity, but I don’t have nearly the capital to make the investment happen.
See, you can bet against loans. That’s what a credit default swap (CDS) is. If you watched the big short, all those people who predicted the mortgage crisis made their money by buying credit default swaps against residential mortgage securities called MBS.
Well, there are two opportunities. First, commercial mortgages are packaged the same way into CMBS (Commercial MBS) and you can also buy a CDS for a specific loan from a bank.
That is, if you can find a counter-party willing to take the risk.
Now, I’m not sure you could find a willing counter party, but if you could, you could use AI to pretty easily identify CMBS and individual loans likely to default. You could even put in commercially available cell phone and keycard use data to see which buildings are empty.
If I had the capital, I’d start an ETF and use the funds to bet against commercial real estate. My guess is it’d be pretty successful.
Just my wild idea of how to make money today. If anyone wants to do it, leave a comment or send me an email.
I've been trying to figure out the easy way to do this. Just saw a headline over the weekend that Ashford Realty Trust ($AHT) is handing back the keys on 19 properties. Would have been nice to be ahead of!