When It Comes to Distressed Real Estate, Shlomo Chopp Takes His Own Advice
Social Media Maven Launches Firm To Profit From Troubled Offices
When Shlomo Chopp looks out his office window on Sixth Avenue in New York City, he sees the stunning exteriors of some of America's most iconic office buildings.
But inside he knows office spaces in New York probably look the same as anywhere else.
"It's just drop ceilings," Chopp said. "It's a letdown."
That lack of creativity puts some buildings at a disadvantage as working from home, compounded by this year's layoffs and other corporate cost cuts, curb demand for the real estate that long defined work culture. In fact, the U.S. office market could have 330 million square feet of obsolete space by the end of the decade that would need to be repositioned, according to an analysis from Cushman & Wakefield.
The time to prepare is now, Chopp argues. It's a theme he returns to often on his social media channels, where his free advice landed him on Commercial Real Estate Influencers' most-recent list of the top industry pros on LinkedIn, Twitter and Instagram. He's closing in on 10,000 LinkedIn followers and has more than 8,800 on Twitter.
"Too many investors are waiting for the flood of capital-intensive distressed debt acquisition opportunities," Chopp tweeted March 29. "Ya gotta go get it and be smart about it."
The New York broker and real estate social media influencer is doing just that. He officially launched real estate investment firm Terra Strategies last month with seven employees.
Top Assets, Top Markets
Terra Strategies is focusing on "top assets in top markets" across the U.S. for investment, though it doesn't have a specific goal in terms of deploying a set amount of cash, Chopp said.
Chopp predicts the opportunities for buying and converting office properties into new uses will be similar to those that emerged from the savings and loan crisis of the 1980s and 1990s.
The real estate investor is fond of one of the great profiteers from distressed real estate, Sam Zell. The billionaire made hundreds of millions of dollars in the 1970s off distressed real estate and wrote an article called "The Grave Dancer" in the 1970s, in which Zell said, "I was dancing on the skeletons of other people’s mistakes," according to the New Yorker.
Chopp doesn't consider himself a grave dancer. But he forecasts office space taking a beating in the years ahead, particularly for those who got far too comfortable buying unexciting spaces and then doing little to improve or make them more appealing to workers.
The equity and debt structure, or capital stack, used to buy and finance office properties is poised to be hit hard because of the sharp rise in interest rates and lessening availability of capital, he said.
"I believe office capital stacks will get decimated," Chopp said. "I'm talking about REITs, pension funds."
Chopp already has played a role, through other companies he's worked with, in numerous real estate transactions. He was a principal in the acquisition of the office condo component on six floors of The Setai at 40 Broad St. in New York City before later selling the units. He was also a principal in the team that bought the East Town Mall in Green Bay, Wisconsin. In addition to those deals, Chopp bought some Washington Mutual notes when the bank collapsed.
As for Zell, the founder of Chicago-based Equity Group Investments told Bloomberg in March that figuring out how rising interest rates will affect property sales and lending will take some time. Zell said many buyers and sellers can't agree on what a building is worth.
"The seller is still looking for the number that was on the table six months ago when interest rates were zero," Zell said. "Now, interest rates are three to five and he hasn't adjusted his price. The buyer, on the other hand, is looking at his cost of capital doubling. His availability to capital is diminishing and he's saying, 'Wow, under these set of circumstances, I ought to get a better deal than I previously got.' "
Faith in Offices
Chopp grew up in Brooklyn and didn't start out investing in distressed commercial properties.
In the early 2000s, he worked for a flooring company called Lock Tile after dropping out of Touro University, a private Jewish school in New York City. Later, he worked for an uncle who sold kitchens to landlords before getting into property tech at a company that sold software to real estate brokers.
In 2003, he was hired to work at a property technology startup and sold software to major brokerage firms including Marcus & Millichap. That piqued Chopp's interest in commercial real estate.
Chopp decided to get into commercial real estate full bore by buying property. In 2008-2009, when the Great Recession hammered commercial real estate, Chopp's attorney suggested he look for opportunities in commercial mortgage-backed securities, or CMBS, loans.
The conversation with his attorney was Chopp's light-bulb moment.
The real estate executive started downloading Securities and Exchange Commission documents and asked a lot of questions before getting into CMBS debt restructuring. He's worked on these types of deals ever since.
As he ramps up Terra Strategies, Chopp is leveraging social media to build his brand and business, while working behind the scenes on deals that range from simple acquisitions to more complicated CMBS work.
Chopp is looking ahead to what happens next in the office sector, but he doesn't feel the office sector will face the Grim Reaper.
"Office will not die," Chopp said. "It'll be crippled. But it will be reborn."