Surviving The Commercial Real Estate Recession With Attorney Leo Jacobs: Debt Relief And Lender Remedies

REID Leo Jacobs | Commercial Real Estate Recession


Are we approaching – or actually experiencing – a commercial real estate recession? With the FED increasing rates in perhaps the fastest pace ever in history, everyone must be well-prepared about what’s coming next. Ava Benesocky and August Biniaz chats with Attorney Leo Jacobs, Founder of Jacobs PC, who discusses everything limited and general partners have to know about the nuances of foreclosures and every possible remedy out there. He explains the differences between a Ponzi scheme, gross negligence, and incompetence, as well as how to address each one differently. Jacob also talks about using bankruptcy as a strategy to buy time and how much money you can get back after spending on litigation or mediation.


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About Leo Jacobs

REID Leo Jacobs | Commercial Real Estate RecessionLeo is a commercial litigation and bankruptcy attorney and the founder of Jacobs, P.C., a boutique law firm known for finding creative, direct, and expedient solutions to complex and high-profile issues.




Surviving The Commercial Real Estate Recession With Attorney Leo Jacobs: Debt Relief And Lender Remedies

We’re excited about this episode.

We are. We can’t keep saying we’re super excited, but we are excited. We’re excited because it is November 2nd, 2023. The Fed had a meeting and they decided not to increase rates, but they have increased rates now, I believe twelve times, one of the fastest pace ever in history. My analogy in Fed raising rates and what effects it has on the economy is that the economy was a bodybuilder and the interest rates are a squat rack, the weight on the shoulder of the economy. As the Fed increases rates, the Fed is slapping more plates on that. The economy’s trying to get up and do squats, and it’s going to make it more difficult every time.

The fact that they didn’t increase rates doesn’t mean the weight came down. The weight is still on the shoulders of the economy. Using that as a foundation of our conversation, especially with our guest, we saw this coming. We haven’t done a deal in months and that’s been terribly hard on our company because of so many overhead costs that we have.

We constantly communicated with investors why we were not doing a deal. Investors are coming through the funnel constantly, “Where’s the deal? I have money to deploy.” We just told them, “We’re patiently waiting on the sideline. We’re not going to be doing any deals. Follow us along in the journey.”

We almost feel vindicated now that there’s so much distress, not only as far as smaller and newer syndicators. We’re talking about institutions. These are large firms that have a larger analyst team than our whole company. They’re finding themselves in trouble. You always hear about syndicators or institutions going into foreclosure or default. People understand what happens on the single-family side, but what happens on the institutional level? What happens when you have a $50 million property that goes into foreclosure? What takes place? Who helps you there? What happens? What options do you have? What remedies do you have both for LPs and GPs? We believe our guest is going to decipher many of that, or as we like to call it, demystify, and we’re excited about that.


REID Leo Jacobs | Commercial Real Estate Recession


It’s truly unbelievable what’s happening. I’ve been talking to investors every single day since we started our company. They’re saying, “Good job not buying any deals.” What we’re seeing with the distress that’s coming to the market, we’re going into a tremendous buying opportunity. We feel like we’re in a great position in our company here. We’re excited to move forward into 2024 and discuss all that.

We’re going to discuss that with our guests as well. You can see the stress coming to the market every day, like the deal in Houston that this syndicator lost $200 million of assets and lost all the LP equity.

We have been submitting LOIs and underwriting properties like crazy here in Jacksonville and Tampa. We loved Florida Market. By the time we got accepted on a deal, five distressed properties came across our desk. We looked at each other and we decided not to go ahead with that particular deal, but we’re excited to see what happens moving forward.

Let’s get into the meat and bones. We have a guest who’s an expert in this space of distress, and we’re hoping to get a crash course on what happens when deals go sideways. Let me introduce our guest. His name is Leo Jacobs. Leo is a commercial litigation and bankruptcy attorney, and the Founder of Jacobs P.C., a boutique law firm known for finding creative, direct, and exponent solutions to complex and high-profile issues. We believe this interview with Leo will bring great value to both limited partners and general partners to learn about the nuances of foreclosure and remedies that exist in this space. Leo, welcome to the show. We’re so happy to have you.

How are you? It’s a pleasure to be here. It’s wonderful to hear you. I’ve been following you guys for some time. I’m excited to share all of the knowledge of what our team at Jacobs P.C. has to offer. I’m your guest. Thank you so much, and I’m looking forward to our time together.

Likewise, Leo. Before we get into discussions, could you tell us what interested you in this type of law you practice? Sometimes attorneys have a great story on why they got into a certain type of law. For example, there was a guy we watched on YouTube, and he got into law because his father was ripped off in business. That’s why he became a lawyer.

Maybe stories about movies like Rubin Hurricane Carter and what happened with him and Lazar Martin, who became an attorney as a result of that story. They’ve vindicated him. You hear always these different stories lawyers have about becoming.

What was your why, Leo?

My inspiration was that I wanted to become a doctor before I wanted to become a lawyer. It derived out of the passion to help others. I realized very early on in my life that what I was born with was the ability to carry great weight on behalf of either patients or clients who would follow my advice. As you may now understand, I didn’t become a doctor because I wasn’t good with blood. I became an attorney because I thought that ever wanting to help someone was as transferable from being a doctor to being an attorney. My want and desire to become an attorney doubled when I began representing debtors. Representing debtors, you have to be a specific type of counsel.

I always say that I’m inspired by the name of attorney and counselor at law. The attorney is an advocate, and a counselor is being someone who sits with the client and takes them through the divisions of their problems. What inspired me to become an attorney is my invariable need to help others in a very specific way to a very specific clientele. I found that type of aid is important for the debtors that are the debtors in this environment and those who are becoming the debtors in this environment who may have been the creditors, etc. It comes out of the need to help.

It wasn’t any particular circumstance in your life or a situation that took place. It was broadly trying to help people and you found your way. You’re a perfect son. You can either be a doctor or a lawyer, and he becomes a lawyer. Before getting into the mechanics of foreclosure and going over everything, let’s break this down a bit and for our audience to understand it as well. Let’s differentiate between an absolute fraud or a Ponzi, a scheme that’s put together to rip investors or partners off, or negligence and incompetence. In our space, we’ve seen all three of those. Ava’s going to get to this in a moment that others are being very aggressive. Before touching on that, could you differentiate between those three different situations?

In our office, there is a specific case that regards a ticket reseller. It’s in the bankruptcy court now. I’ll take you through a little bit about what happened with the procedural posture. It’s an overwhelmingly interesting case. It happened back in 2019, still a case now. Let me tell you the macro background quickly for you to understand. I’ll back to the question of the Ponzi scheme.

There was a ticket reseller for major events, like tennis and Met Gala. This is all over the world. It is all types of tickets, like basketball and royal events. We’ll call him a mathematician. This mathematician thought of a business plan. He said to himself, “Why don’t I, like Ticketmaster, begin buying these tickets in bulk?” He began buying these tickets in bulk. What happened was his burn rate, which is called carrying costs, got high, but he was selling the tickets also really quickly. The part where he messed up was he failed to project certain specific events in the market that would slow the value of those tickets and slow how quickly those tickets are sold. That’s called a business judgment.

In any case, you have what’s called a business judgment. It’s called the Business Judgment Rule. Your judgment could be arbitrary, it could be unfair. It cannot be fraudulent. That’s what you’re talking about. You’re talking about negligence, recklessness, intention, and fraud. Those are very specific concepts and I am going to break them down. Continuing our story. He began not being able to sell those tickets as quickly, but he took on people’s dollars in the form of debt, equity, and in the form of debt that may be converted into equity.

We’re talking about $200 million. We’re not talking about $5 million. I left that bomb in the middle of the story. This is a very large-scale operation. Unfortunately, he committed fraud. He has since taken the plea and has gone to jail. He took a plea because they got him on a recording. They would be his main investors who invested in debt to be converted into equity. In the event he sells all 100 million tickets, he makes $1 billion. They’ll convert their debt into equity. Once they convert their debt into equity, the equity’s worth is greater.

What he did, which was a fraud, is he photoshopped his numbers every month. That was the actual fraud. We don’t represent this person. We represent people who gave him money. We represent one of the biggest net winners that invested millions of dollars into this individual. What happens is he admits to the wrongdoing. Now, there is a set of creditors that who waiting to be paid. These creditors are now fighting with each other because they’re saying, “I’m first.” “No, I’m first.” “No, I have to get paid first.” We have what’s called a priority fight. There are no multiple creditors. There’s a priority fight.

There has to be a forum, an arena where this fight occurs. What happens is in the event that you can prove somebody was concocting a fraud, you are able to move in the state court for what’s called a receiver. That’s what happened. You’re able to call for an attachment of that person’s asset, both corporate and personal, to stop dead in its tracks any sale of boats, Ferraris, houses, or buildings that person might have to take that money and run to Australia, Thailand, Cuba, the United States, Ohio, wherever he wants to go.

The firm was Morrison Cohen, an excellent firm where oftentimes their adversaries are excellent firm. They move for an attachment and a receivership successfully. They appointed a receiver, they attached the assets, and they plunged it into bankruptcy. Take a chicken with flour on it and some egg yolk, and drop it into the frying pan. His goal just blows up. Pardon the imagery. Now he’s fried is the point. What happens is the receiver goes away and a trustee is appointed in the bankruptcy arena. You’re in the bankruptcy arena, and you have the creditors lined up.

Now, what happens is the creditors are sitting there and they’re like, “We are real creditors. We have a real UCC lien. We have placed a UCC lien. We have perfected ourselves properly.” This is the magic trip. I’m answering a question. “We need to kick out ten of these creditors with an aggregate amount of $50 million, and if we kick them out, we get to keep that $50 million.” The trustee is like, “I’m going to kick all of you guys out and I’m going to keep the money if I can prove that it was a Ponzi scheme.” We get to the question of what is a Ponzi scheme and how do you prove it.

A quintessential Ponzi scheme is when you take the dollar of one and give that same dollar to another and say, “I’ve made a return,” where there was no quantifiable product or service that is created, or the level of investment equal to the output. You take $1 billion, you make two eggs and you keep the rest for yourself. That’s essentially called a Ponzi scheme. How did the creditors think of this? They said, “This guy wasn’t buying enough tickets. This guy wasn’t buying tickets at all. He just used it for himself and bought himself Ferraris, planes, women, wives, drugs, booze, or whatever that he did.”

A quintessential Ponzi scheme is taking a person’s dollar and giving it to another while saying it has made a return despite having no quantifiable product or service being created. Click To Tweet

There is a big brief that is due in front of the bankruptcy court to answer the question about whether the dollars of our client that were given and the dollars that were given by other clients that have received their investments back already. Would they have to give it back? Why would they have to give it back? That means that the client that I’m representing has the money that is not the mathematician’s money. It’s the money of that other investor who’s an actual investor or an actual creditor. I hope I’m not losing you, but I’m trying to explain it as best as I can.

You’re doing a good job.

If we answer the question that the mathematician is not a Ponzi scheme, which from my point of view, of my client, we don’t want it to be a Ponzi scheme, because if it is, we’re giving back the money. If it’s not a Ponzi scheme, and we have reason to believe that it’s not a Ponzi scheme, it falls within the Ponzi scheme exception, which is not taking the money and giving back it to the investors. Aside from the fraud that was concocted, the fraud that was concocted was that he photoshopped the numbers, which is not in and of itself going to prove a Ponzi scheme. What it proves is just general fraud.

What is general fraud? There are two types of fraud. There’s false pretense, and there’s fraud in the inducement. The Ponzi scheme exception is taking the dollar of one and giving it to another without any value or service that’s created. This is an oversimplification of the Ponzi scheme for our interview. If anybody wants to get a pristine shot to shot elements of them, I’m happy to tell them. The oversimplification is a dollar for a dollar, the same dollar, not a different dollar, and no value or service that is actually created or very little in the amount that’s put it in, that’s a Ponzi scheme.

Our client is saying, “It’s not a Ponzi scheme because he took our money, although it was on 24%, 25%, 18%, 15%, 1%, and he gave us that money back with our interest, not using the money that was given from somebody else, but from the value of the services that was created.” Now the trustee has to divide. Can you imagine dividing? How do you know what dollar was from a Ponzi scheme and what portion of the dollar was not a Ponzi scheme? It’s an almost impossible feat. There’s a lot of research analysis that needs to be conducted to determine that question.

I’m pretty sure I answered your Ponzi scheme question. Let me answer your negligence, recklessness, and intention. Let’s go through negligence. Negligence is you are not aware of, and you can’t consciously disregard something. For example, you’re driving, and you hit somebody. It’s an accident. Not whether you were drunk, because that could be a different thing, but whether you weren’t paying attention or the sun was in your eye, that’s negligence. You weren’t aware of it, and you couldn’t consciously disregard it.

REID Leo Jacobs | Commercial Real Estate Recession

Commercial Real Estate Recession: Negligence is being unaware of something, and you cannot consciously disregard something.


Recklessness is a green light and a red light. You are consciously aware of it and you consciously disregard it. That’s already recklessness. Aware of and conscious disregard. The intention is you guys are racing down the street, you see the green light, and your intention is to run through that red light. That’s the intention. Every one of them holds a higher degree of punishment, whether it be civil or criminal. We’re talking about civil. There’s civil punishment and there’s criminal punishment. We deal with civil punishment, and we have outside counsel that handles our criminal affairs as well. That’s the answer to the negligence, recklessness, and intentional question.

There are different degrees there. Allow Ava ask this quick question because this is going to play perfectly here.

Leo, another follow-up question on this is LP, in most cases, have to sign a lengthy, like 200-page document. It’s called a private placement memorandum, which outlines many risks associated with the deal. Explain to us. If the GP loses all the LP equity due to incompetence, but not fraud, are they legally sheltered even if they took unreasonable risks? The reason why we ask this is because deals are not making sense. They’re not penciling out, is what we say, but there are groups that are syndicating deals and they’re being extremely aggressive on their exit cap rates or the rent growth that they’re predicting.

We’re assuming that. We’re taking a deal, we’re underwriting a deal, and it’s coming back at 15% average annualized returns on our underwriting. We’re doing everything pretty industry standard, and we’re seeing our team buying it for 10% more than we paid. When we put that number into our underwriting, their returns come back at single digits.

Eight percent, so is this considered business or does this fall under fraud? The way we look at it is when they go out there and they’re saying, “I’m going to get you 20% average annualized returns,” but we know internally with our sophisticated growth, it’s impossible. What does this fall under?

We’re going to take this as a hypothetical because I can’t give legal advice on a show to both of you. We’ll take it as a hypothetical. Bree and Jane have an investment fund, and they have a bunch of LPs. We’ll blur the facts a little bit. They have an investment that they have created. It’s an investment vehicle with a projected return that is annualized for the market and in their private placement memorandums, probably a 506(c). They go and solicit the investors that make the available amount every quarter or every year. Ten investors come back and they all sign up.

In there, there is what would be called a warning notice about securities. They’re private, they’re volatile, and they might crash. There’s no guarantee, and the market could cancel itself. There’s a business judgment rule that I was discussing. That business judgment rule can be arbitrary. You can promise people the world, and if it doesn’t work out, as long as those people were on notice that it’s not going to work out.

You can promise people the world, and if it doesn’t’ work out, it will not work out as long as they are on notice. Click To Tweet

For example, there’s an oil refinery in Africa. It’s going to be a big deal. We’re going to be billionaires. This is the analysis return if it works. If it doesn’t work, you’re going to lose all your money and that’s a problem. The person’s like, “I understand. You’ve told me what those returns are. You told me how they’re possible.” First thing is first. Before you get to fraud, fraud is reliance. It’s an estimation of a present fact that you know. I’ll make it very simple.

Someone comes into your house for a piece of apple pie. You don’t like this person so you begin to tease him and say, “I’ll give you a piece of apple pie if you clean my bedroom or my room.” You don’t have apple pie. You have pecan pie, and the person’s allergic to pecan, and you know that he/she is allergic to pecan. You’re like, “Don’t worry, I got apple pie in the fridge.” There’s what’s called reliance on a current fact. Not a fact of the future, but of a current fact that is not true.

What did you do? The person agrees, relying on a current fact that is false. When she cleans the room, you give her a pecan pie. What does she say? “I’ve been bamboozled. You’ve concocted a fraud against me.” You’re like, “No, it’s cake.” You’re like, “You promised me apple cake. I have pecan pie cake. I’m allergic to pecan. Give me my money. I need to punish you for two reasons. 1) You need to pay me for the value of my services on interest. It took me two hours. 2) I need to punish you so you’ll never do that again to anybody else.” Did you understand what fraud means?

Fraud means it’s a current fact. Getting back to your example, you said, “I’ve annualized the return, Leo, and it’s single digits. How could anybody else promise double digits? How could they not promise single digits?” It has to be an actual, current fact. Fact is very tough to prove because everybody has different opinions now. It’s a little bit more sophisticated, and that’s why we’re using hypothetical. We don’t want to get into legal advice. We want to introduce the concept of what fraud means. Fraud in the inducement is just that based on a material fact that is untrue. I was induced to do something that wasn’t true. That’s where fraud comes in. It’s a feeling of bamboozle. It’s not a feeling of, “The market went sour. The market has failed and we’ve promised these returns and they didn’t promise.”

REID Leo Jacobs | Commercial Real Estate Recession

Commercial Real Estate Recession: Fraud in the inducement based on a material fact that is untrue.


That is not to say that somebody’s not still going to sue you. They might sue you for all other reasons other than fraud because fraud is a very high standard. When I speak about fraud, I speak about it generally as a New York attorney. There is the uniform fraud statute. It has been adopted in many states. New York has adopted portions of it like fraudulent conveyance and so on and so forth, which I will not talk about. To be on point for a little bit, you want to make sure that in your documents, you are dictating current present market conditions, and that your projections are based on current facts that are objective.

If I’m projecting 50% returns based on my apple pies, which are really pecan pies, that’s no good. You can’t tell somebody we’re going to give you an annualized return of 50% when half of your workforce already quit. You can’t be promising that because you know that your projection is not true. That is what people have to rely on when they’re talking about fraud. Fraud is also a particular standard under New York. Pleadings have a liberal standard. When you’re doing a summons, a complaint, or a complaint against somebody, they have a liberal standard.

Here, when you’re committing fraud, it has a particular standard. You have to give the time, the place what was said, how it was said, to whom it was said, and who heard it to understand for the judge to say this case should not be dismissed. We have a case now. It is routinely dismissed when someone says, “The investment’s good. It’s going to be great. Amazing.” That’s called future performance. You cannot guarantee future performance. Let me ask the both of you. Do you guys have a crystal ball to say whether your investments are going to work out?

We wish we did.

Wishing is what we are all doing with the advent of our analysts, our genie, our lawyers, and our intuition, but you can’t guarantee future performance. I’m sure you say that in your documents. We took care of fraud and negligence. Let’s talk about business judgment. You take the funds and you go buy fifteen multifamilies at your annualized projection. COVID hits, rent loss change, and interest rates go up. You have the LPs knocking on your door, and they’re like, “You messed up my stuff. You should have known better. You should have been smarter. I paid you. I trusted you.” What they’re saying is, “I invested into your judgment of your business, and I’m going to sue you to measure whether you’ve committed gross negligence.” What is gross negligence?

Gross negligence is called outside the parameters of a business judgment rule. That means that you can have arbitrary decisions or unfair decisions. It’s within the business judgment. It’s extremely wide. I’m speaking about New York. Other laws or states could be different. I am giving you a disclaimer. That is going to be tested by a court of law unless you come to some type of agreement. If you’re getting phone calls from LPs saying, “Can I get an accountant? Can I understand what you did with the properties or the investments?” that can be done, but just because you lost the money doesn’t mean you’ve strayed away from your business judgment, committed negligence, or committed fraud. That’s all I’m going to say. I could talk forever. Whatever follow-up questions you have, that’s the big bubbles.

We appreciate it. Let’s get into the main milestones of a case. Talk about foreclosure. We were watching one of the shows you were speaking on, and you talked about a lot of clients that you represent who are debtors. They owe to a lender. We want to understand the step-by-step milestone. If it’s a syndication group or a private investor, they bought a piece of property, and their business plan didn’t go as planned. Their rents didn’t grow the way they were hoping that rents were in negative territory. They had some issues with renovations, and now they’re having a hard time. Interest rates went up, and let’s say their rate cap expired or something happened. Now their debt service is so high that they can’t pay their mortgage payment. Talk to us step by step, and let’s say this investor is very astute.

Do you want the vantage point of a lender, the debtor, the LP, the GP, or do you want to talk about everybody? We’ve talked about everybody.

We want to talk about yourself. Let’s say this investor is very astute and they brought you in early on. They give you a call, “Leo, we’re in a bad situation here. We’re looking at what we have in reserves, we see how much money we have. We see what our burn rate is and we’re not going to make it.” They call you right there. Talk to us step-by-step about what happens and where you come in.

You’re a master at bankruptcy. A lot of people think about bankruptcy and they think about personal bankruptcy or what have you, but there are different ways of bankruptcy for an entity like an LLC. Talk to us step-by-step, when you get that call, what happens and what takes place and what’s the best-case scenario that happens? Maybe touch on LPs as well because you’re trying to save the sponsors, but what happens with LP equity? Is there any way to save some of that too?

We’re going to create another hypothetical. The hypothetical is going to be Barney’s GP investment fund which has five big birds in it. The big birds are going to be the LPs, and Barney is going to be the GP to make it easier for everybody to understand. It’s crazy enough of an example that nobody’s going to forget a purple dinosaur.

Barney is the sponsor. He has these LPs, which are all the big birds or big yellow birds, and they’re going to go and purchase fifteen Barney Homes. They’re big purple homes and each of them has $10 million because they want to build the Walt Disney of Barney. COVID happens, rent loss changes, interest rates go up, and the reserves dwindle. Now, Barney’s sitting there and he’s like, “What do I do? I got to call somebody.” He calls Leo Jacobs, and he is like, “Leo, the LPs are knocking on my door. I can’t pay the returns anymore. Rent loss changes and interest rates are up, what do I do?”

The first thing that you need to do is you need to take a deep breath because you’re about to get into what I like to call the tease period. It’s a tease out of the relationship between the aggressor, which will be the lender, and the prey, which in this case would be Barney. Barney wants to be as far away as possible from the lender’s actions to recapture its collateral. That does not mean that he can’t have a dialogue with the aggressor, which is the lender. The first thing that Barney did correctly is he stopped talking to the lender and he stopped talking to the lender’s lawyer.

He hired Leo Jacobs, who sometimes could be a hostage negotiator. You have the asset. You have the gun to the person, or you could be more astute like 007 and have a card game and a poker game, “What card do you get?” “I got this thing, I got a nice kicker. What are you going to do?” I’m making this as fun as possible, not as boring as possible, because law is very boring. You have the strategic 007 on one hand, you have the FBI hostage negotiator, and Somalian pirates on the other.

That depends on the lender’s personality. The lender’s and aggressor. It could be an aggressive foe, which would mean hostage negotiation or it could be 007 and he’s more teeter-trotted a little bit, but timid. He might do one of two things. The lender might say, “Barney, I understand what you’re going through. I’m going to give you another six months. Do me a big favor. Sign this pre-negotiations letter.” In that pre-negotiations letter, Barney’s giving up his property. He’s deferring his interest. If he defaults one more time, the property is recaptured without a judicial process, frankly, without any notice, without any process.

Barney looks at this paper and he is like, “I can’t sign this thing,” but then he has the default interest on the other hand, and he is like, “If I don’t sign this, I can’t negotiate and they’ll charge default interest.” What the culprit and the lender have to realize is the lender is not the aggressor and Barney is not the prey. They’re both the prey to the aggressor, which is the market. The interest rates are the aggressor.

At the beginning of the session, you said that the interest rates are the weight of the bodybuilder. What you forgot to mention is that the bodybuilder has high blood pressure, is overweight, is eating cheeseburgers, and has been gluttonous of the free money that’s been entering his mouth. When he’s picking it up, he can’t even pick up this because he spent all that money. You no longer have a bodybuilder. You have an overweight, over-aged middle man with a bald head, the quintessential over-aged middle man, who wants to get back into shape. That’s the economy. They can’t pick it up.

The real aggressor here is the economy, and it’s crushing down on both the lender and the borrower. If they’re crushing on the lender and the borrower, even though the lender’s charging 24% interest on his $10 million loan or $100 million on Barney, Barney has the ultimate leverage. What is his ultimate leverage? He can say, “Mr. Lender, either you and I are going to take the race to the bottom and we’re both going to be left with nothing because the market is teeter-tottering down, and in 24 months, it’s going to go back up. I will likely have to be forced to keep you in court to exercise my rights to the best of their ability in good faith, or you can let go of the guarantee that I have on this property. You can give me a little sliver of a carve-out of $200,000, $300,000, $400,000, or $500,000 for me to live another day and pay back my little big birds that are knocking. I got to take care of them.”

REID Leo Jacobs | Commercial Real Estate Recession

Commercial Real Estate Recession: The real aggressor is the economy. It is crushing down on both lender and borrower.


There’s another lawsuit brewing there that we’re going to talk about. The lender is going to have the personality of, “No, I will not do that. I will skin you like a cat and fry you on a pan, and I’m going to be extremely aggressive and I will be forever haunting you in your dreams,” or the lender could be astute and say, “I understand, I get it.” What’s going to make that lender say I get it, is the lender’s lender. The lender’s lender tells the lender, “I have LPs too. I gave you money, I trusted you. You went to these private equity guys and invested in Brooklyn, Manhattan, Queens, Atlanta, and everybody. You used your business judgment rule not in the right way, and you did not forecast that.”

The lender’s attitude is dependent on how much he is holding on. This should be extremely relevant to you because we looked at this from the residential point of view in 2008. In 2008, they gave out so many mortgages and they needed to keep making more money than they now went below market at B, C, and D. They kept getting more gluttonous until it popped. Same thing here, we’re dealing with the commercial real estate market. Ergo, the concept of the LP becomes the debtor, the borrower Barney, the landlord, the sponsor, the lender, and the lender’s lender becomes the debtor. Everybody becomes a collection agency. Now everybody wants their money back. There’s no more money in the market. What do you do?

You’ve asked me a question. Leo, take me step by step. There are two tracks. The first track is aggressive, next track is non-aggressive. Non-aggressive typically ends with a modification of either interest rate, amount to be paid, when it’s to be paid in a balloon payment. Aggressive ends up in my domain. In my litigation department, not my modification department, where I’m litigating everything. If it doesn’t end at litigation, and there is a judgment, after three years of fighting and the market downturn is all the while, and out of $10 million, there’s $100 million owed. I’m being facetious and there’s no way that the market is going to bear the asset being sold at that point, you go bankrupt. You asked me about bankruptcy and how bankruptcy is different from a court of law.

Before you get into that quickly. Let’s use your hypothetical example. The borrower knows that they’re going to be in a bad situation, the experienced lawyer like yourself. You come in there and your goal is to buy the most important commodity in the world, which is time. You’re trying to buy them time, you’re trying to do it in a very soft or aggressive way, whatever makes sense for the situation. If history proves itself, we know that interest rates are going to be reduced because the Fed is paying a huge amount of its debt right now. That’s going to be reduced.


REID Leo Jacobs | Commercial Real Estate Recession


We know the market is going to come back. Over 120 million Americans live in apartments. This multifamily guy will be in a better situation as soon as the interest rates come back down. He’s a good operator. Isn’t the goal then for you, rather than negotiating with the lender to just get him to that year-and-a-half, two-year milestone where the prices will come back up?

I love that question. Here’s the way I’m going to answer it. What is the current default rate on a piece of real estate that the lender gave? The highest could be 24%. That’s the law. If you get an attorney, do you know what the interest rate on attorney’s fees is if you calculate them? 4000%, 5000%, 6000% a month. When you’re giving an attorney money to go to war, you need to give them a lot of money. You don’t need to give them $5,000, $10,000, $15,000, or $20,000. If you’ve set on or embarked on the fact that the market will go down and will go up relative to, or more than the number of legal fees you will pay to defend yourself and get you to that year and a half, then you, my friend have a lot of courage.

I can say other things but I say courage. Courage is standing up and facing your challenges in the face of adversity. If you as a developer decide to face your challenges in the face of adversity, you better put your mouth where your money is, because paying interest fees at 24% has nothing on paying legal fees every single month, month after month, because rockets cost money. People cost money, legal fees cost money. If you have one person at $400 an hour, it feels the same as having one person at $1,000 an hour, because that is money that is called bad money, technically. After all, you don’t know whether you’re going to win. You don’t know whether you’re going to get there. It’s an analysis.

Courage is about standing up and facing your challenges in the face of adversity. Click To Tweet

Oftentimes, our clients hire an additional person. It’s called a Reconstructionist specialist. It’s like a Winston Churchill. Who was Winston Churchill? Winston Churchill was a wartime general. He was the wartime president. In this wartime, you can’t hire the same type of general that you have when everything is quiet, because non-wartime, peacetime generals are creating infrastructure, creating budgets to create more jobs, to create tax policy.

Wartime generals are divide and conquer with the assets that you have. Conserve resources and implement strategic goals. We already see peacetime generals and wartime generals and that’s what we are, attorneys are generals. You as the client, LP, and GP are the president. Sometimes the president was a peacetime president or peacetime warrior, if you will. That person wasn’t a wartime president or an individual who understood how to be on this loving playing field when everything was essentially blowing up.

You need two pieces of two people if you have that big of a problem. That would be a Reconstructionist or an attorney who is a wartime attorney and a wartime Reconstructionist. Of course, if you have a million-dollar problem versus a multimillion-dollar problem versus a billion-dollar problem. Right now our firm is negotiating, at least $500 million to $1 billion in debt and equity, we’ve seen it all. We understand the process. I hopefully answered your question about waiting a year and a half. The short answer is, can you wait a year and a half?

The litigation costs and other costs might not be worth it because it is just better to negotiate and get a deal made. You were getting into bankruptcy which bankruptcy is a strategy to buy time, I believe, and differentiating from personal bankruptcy.

I was looking forward to learning more about this.

Bankruptcy is a court of equity, first and foremost. That’s a very fancy way of saying, “Leo, under my contract, I have zero defenses. I’m cut from the head. I have zero defenses. To whom can I go? Which wicked witch can I visit? What yellow brick road do I go on to find that person who understands me, who understands that the value that I hold, irrespective of the defenses that I have, can protect me?” That’s a bankruptcy court. A bankruptcy court says, “Mr. Borrower, you’ve lost all of your money and you have $2 to your name. These lenders and creditors over here, exhibit A through 15, have want to cut your head off and kill you and sell you to the dogs, or put you in debtor’s jail,” which no longer exists in the United States. It used to exist. Still exists in China that’s why people always pay their bills as I’ve heard. Here, they don’t always pay their bills.

When you go to the bankruptcy court, you have what’s called an organizational process. If it is a single asset real estate company, they will give you 90 days to file an exclusive plan of reorganization and then an extension of another 90 days to file an exclusive reorganization. If you have a very aggressive lender, the lender’s going to want to get into bankruptcy and say, “There is no reorganizational purpose. They’ve tried for many months to obtain financing, but they cannot maintain the financing. It should go into our control and we should sell it.”

There are two reasons you don’t want to sell outside of a bankruptcy court. 1) It’s not a controlled process. 2) You are not controlling the process. If you are subject to a foreclosure sale or a UCC sale, which is a sale of volatile shares, although they’re attached to real estate. They may sell for very less because they were not marketed properly, and because they failed to be marketed properly, the value of your deficiency is much greater. You want to go into bankruptcy court to at least be in control of the sales process to get the best and the brightest price for your piece of real estate. Why? At least you can close the gap on your deficiency. Also, there are equitable principles that you can take advantage of. Not in all cases, but in some cases, that could wipe out the default interest.

There are two reasons why you don’t want to sell outside of a bankruptcy court: it is not a controlled process and you are not controlling the process. Click To Tweet

For example, for two years, it would be a default interest. You can ask the judge to only charge the non-default interest or wipe away the default itself. That happens in rare circumstances, but can sometimes occur. I’m giving you huge brush strokes about why there are benefits to bankruptcy when you file for bankruptcy. Here is a question that nobody has ever asked me. I’m going to ask myself, and I’m going to answer myself. You’ve asked me a very specific question, which is, “Leo, does bankruptcy hurt if you file from an LLC? Does it hurt the person personally?” Your nod was that it does not. Factually you were correct, it does not.

Trump has filed for bankruptcy.

I’ll explain it to you. When you file for bankruptcy, any further applications for credit as a corporate person will be seen as B minus C plus bond. The interest rates will be higher or as a borrower who went corporately bankrupt, bankruptcy on a corporate, not personal level, now has to disclose that. The interest rates may be higher, and that person may no longer be funded. That is what your audience is probably afraid of. Their intuition is telling them, “Personal bankruptcy, I’m not going to be personally bankrupt. I understand it’s not going to personally affect me, but it is going to affect me when I’m filling out another application.” It’s going to say, has your corporation ever gone bankrupt, or has any of your affiliates gone bankrupt? The answer is yes and that changes the terrain.

You’re going to say, “Leo, so you should never file for bankruptcy?” No. There are many reasons to consider whether to file for bankruptcy. Amongst those most important reasons is, do I want to live another day as a corporation and invest through others for a bit of time, or do I want to strategically place bankruptcy in a way that changes the money I owe somebody, which might be debt, and turn it into equity? You can sometimes do that in bankruptcy, where if you take a loan from somebody, you can recharacterize that loan into equity. What is the value of that? Debt sits at the top, equity sits at the bottom.

If you want to maintain your leverage against somebody that you don’t like, that you hate, that has a gun to your head, you want to say, “Back up, or I’m going to force you to change what you owe me in debt, and drop you down into equity. I’m going to change the complexion of the relationship between you and me, irrespective of the contract that we have.” Bankruptcy is a court of equity. Equity is a court of fairness. Fairness doesn’t always look at contract law.



Leo, let me ask you something. In a situation where a syndicator, a sponsor, a developer is trying to just buy some time, they have an equity partner coming in, or a certain milestone is coming along the way, and they need to buy themselves six months, let’s say, could a bankruptcy like a process be used to keep the lender at bay, but not follow through with, and not go through it, just use it as a ploy?

The answer is maybe. When a client comes through the door, they often do not know what to do. What they’re doing is they’re going to an attorney that is not a counselor. They’re going to an attorney that is an advocate. An advocate’s like, “Don’t worry, we’re going to fight.” No. When a person comes to our office, we check his pulse, and figure out his blood pressure. Is he breathing? Is he walking? Is he understanding what he’s doing? If they are not, we say, what is your objective? Oftentimes the objective is, “I just want to save myself. I want to save this property. I just need a little bit of time.” They don’t understand that they’re objective.

What they are looking for is they’re looking to ground themselves. They’re looking to sit on footing that they can step on. When you’re asking me the question, “Leo, can someone as an investor use bankruptcy to gain time?” The answer is maybe. Oftentimes that’s not the objective. The objective could be done differently, not through bankruptcy. It could be done through a position letter that describes and annotates that bankruptcy can come, and that these are the consequences for both of us. You’re asking, we can’t threaten. As attorneys, we would never want to do that. We would never want to go bankrupt just to obtain time.

The value of going bankrupt is to have a reorganizational purpose. It’s to tell the judge, “Your honor, I need this much time to reinvigorate my business plan.” The judge says, “He or she is sincere. He or she has a plan. He or she has a timeline. He or she has professionals.” When somebody comes into my office, of course, the objective is to get time and to do those things, but it’s to do those things in good faith. One thing that attorneys do not like and hate most of all is when they’re wearing the face of their client’s objectives and communicating it to the judge ineffectually, disingenuously, and not meaning what they say. To those individuals who want to get more time, it’s a very complicated answer. The answer is, of course, but it has to be done in good faith.

You talk about borrowers. You talk about putting up your house, your car, coming after, and your assets. In our space, we’re dealing with tens of millions of dollars in assets. In some cases, even hundreds of millions of dollars of assets. At times especially newer groups or boutique groups, it’s difficult for them to debt service to types of loans. They bring on a loan guarantor, in our space, we call it a key principle. Somebody who’s going to come and sign off on the loan, and they get a piece of the GP stake or what have you.

Talk to us about a situation where somebody’s putting a deal together. Let’s hypothetically say it’s a real estate deal, and they bring on someone else to sign off on the loan. You have a loan guarantor involved. What happens in a case of default when there’s a loan guarantor involved? Do the general partners go under the microscope as well and get into issues as well or not? Talk to us about that situation.

There’s a loan guarantor that is guaranteeing the loan. The guarantor’s rights are separate and apart from the debtor’s rights. The guarantor has limited rights but guarantees all of those rights and obligations of the debtor, which is problematic. The guarantor is the queen, and the debtor is the king. You killed the king, you probably already killed the queen. If you have the queen at play, which is the most valuable player, which is the guarantor. If the queen loses its value, assets around the queen that the queen owns are not enough to pay the liabilities of the king, guess what happens? The lender comes up to the queen and says, “Give me a little bit of what you have, and I’ll let you off of the guarantee.” Oftentimes what the queen is doing is hiding from the lenders. The queen should be a front in the lender’s saying, “My assets are not enough to pay my debts.”

What if it is a non-recourse loan that their debts from day one were not supposed to be on the table?

There weren’t but when you are signing a loan guarantee, what they will do after summary judgment of the debtor, because the debtor usually fails to pay, they move for a summary judgment, which is a summary proceeding without a jury. It’s a judicial proceeding on paper that says, “We will win.” The lender wins. Once the lender wins, they freeze all the assets of the guarantor, which in our scenario is the queen. Once they do that, the queen can’t move her assets. If the queen can prove through accountants, consultants, and attorneys that the value of her assets is not enough to pay the debtor’s liabilities, you can’t get blood out of a stone now, can you? The maneuver is not to hide and show a shadow. The maneuver is to show yourself as you are. There’s beauty in being ugly.

REID Leo Jacobs | Commercial Real Estate Recession

Commercial Real Estate Recession: What you don’t want to do is not shell out money to your attorneys, consultants, and advisors. You need a board of directors when making decision on behalf of others.


Ava, as far as non-recourse and recourse.

Not recourse versus nonrecourse, but one thing I’m learning here, and if you could break this down for me, is nonrecourse is still recourse in some ways. It could be turned back into recourse.

Non-recourse is an asset and is the only place you’re looking to take from. The recourse is I’m looking to take from the asset and the queen. Non-recourse is just the king. Recourse is the king and the queen. There are what’s called springing guarantees. Partial guarantees, contingent guarantees, there are all types of guarantees. Before the guarantor, who is an utmost need, wants to prove himself to himself, to his mother, to his fathers, to his investors, is going to want to sign that document and say, “Look at the beautiful Williamsburg Hotel that I have or the Atlanta football field I got.” They’ve placed themselves to the hilt and they’re popping champagne. COVID happens, interest rates go up, rent loss changes, and you’re in a very painful place in your life.

Understanding the rights, obligations, and responsibilities of the guarantor are excruciatingly important as they relate to the debtor. I can understand somebody’s motivations for tuning into this to say, “Leo’s crazy to think that I’m not going to sign that personal guarantee.” No, sign that personal guarantee. Just tune into this show, if you will, and understand the consequences of it. It’s being educated and appraising yourself of the consequences that don’t feel so painful when you know about them. It’s like getting a shot in the doctor’s office. You pull it away and you close your eyes and say, “No, don’t worry. It’s not going to hurt.” They’re like, “When are you going to do it?” “I already did it.” That’s the expectation.

Building expectations for a guarantor or the debtor is exceptionally important. What you don’t want to do is not shell out money to your attorneys, consultants, and advisors. You need to have a board of directors when making decisions on behalf of others. If you’re using OPM, Other People’s Money, you have to have other people tell you what to do about other people’s money. It’s all about delegating responsibility and delegating liability. Those are the quintessential facets of being an excellent CEO, CFO, COO. Education is not like others would say, to prove that you can get a Lamborghini, get a big house, and get all these things. Education is something that builds confidence inside you, that when the pain comes, you can keep it there and you don’t crush it. That’s the best way I can describe it.


REID Leo Jacobs | Commercial Real Estate Recession


Beautifully said. Let’s go over this. I want to quickly quote somebody his name’s Leo Jacobs. He says, “For every $1 spent on litigation, you get back $0.10. For every $1 spent on mediation, you get back $5.” Leo, can you explain this?

Litigation is the annihilation of someone’s resources to obtain leverage against that person. The return might be that you’ve destroyed somebody’s resources, but they’ve destroyed your resources five times and it’s agony because you have to rebuild. Mediation is when you stop fighting and stop destroying each other’s resources. You build consensus by perceptively, organizing on the other’s side. What can happen if you continue to fight? The investment of litigation, although you may have a very powerful position, hands down, 100%, remember, there are collateral consequences to winning a fight. Somebody might burn your house down or someone might sue you. There could be other things that occur.

Don’t think that in the land of the invincible, that you are invincible. The only one that becomes invincible is the one that has the last standing, and the one that has the last standing has to recreate everybody. He or she can’t do everything. That is very important. You’re not going to burn the forest down to cut down one tree or burn one tree. That is what that when you litigate, although we love litigating, by the way, that’s a lot of money for our lawyers. It’s a lot of money and we love that. Mediation is maybe half of that. Still expensive, but it’s in preparation to build consensus. What do businessmen want to do? They want to never, ever give $1 to an attorney that they do not have to. To an accountant, they don’t have to. To an advisor that they don’t have to. We are a call center. We are the most expensive friends you will ever have.

Lawyers can do mediation as well. If you disagree with someone else, is it better to start litigation and then mediate or start mediating right away?

An excellent question. To all the transactional attorneys out there, please put into your operating agreements to have, as a matter of contract, the right to call a mediation on substantive and nonsubstantive matters. What does substantive matter? Let’s use the building, structural integrity of the building, changing plans, changing COO that has to be mediated, contracted forth. If there’s no mediation, privately arbitrated, if there’s no arbitration goes horribly, then you go litigate. Never do you want to have a public figure, have a public fight about something so menial. Only reserve to go to court if you need to have interim relief. Someone embezzling money, somebody’s stealing something, there’s fraud going on, the government needs to burn down your building because there’s a rat infestation. You need internal relief if they don’t burn it down, so you lose your investment.

All of this requires attorneys time to think. Now, who the hell wants to pay $1,000 an hour on a blended rate to pay an attorney like myself or my members to get those things done? Here’s what I’m going to say to all those individuals that want to save money. Borrow it. If you borrow $10,000 to pay your lawyer to draft a nice operating agreement, or $15,000, $20,000, or $50,000, it will save you hundreds of thousands of dollars that you don’t want to lose. Better pay 10% interest on that money you borrow from your cousin to get a good operating agreement, then not do it at all. There’s going to be 100% of people that hear this, and 99% of them say, I don’t care enough to do that.

We have to educate the folks out there. It’s only an opinion of mine. There’s a gazillion opinions. There’s a tremendous amount of motivation for lawyers to bill. We love billing that’s how we make our money. We want to do it in a positive and impactful way that does not translate to cheap and fast. That translates to expensive and good. Not everybody wants Chanel or Prada, they sometimes want Payless or Nike. It’s up to them.

You get what you pay for. Before going into the next segment of our show, the last question that we have here for you, and we talk about opinion. This is more opinion-driven. We were watching a show that you had, a podcast you had with Jacob Friedman. Jacob was using this analogy of where we are in the real estate market. He was using an analogy of a clock, with 12:00 being the top of the market and 6:00 being the bottom of the market. You guys had this great discussion about each one of you believing where we are at within that clock, are we at 3:00, 1:00, or 5:00? I’m going to pose a question to you and ask you, where do you believe we’re at? Give some context to it.

August, where I was thinking about like 6:00 or 7:00 that would be the bottom of the market. That’s where the opportunities will show for well-heeled investors to begin to buy distressed. I now think we’re even further into that market, even without any liquidity in the market. I believe we’re in a recession, it just hasn’t been announced yet. They’re waiting for January to come in after everybody comes from the holidays to January 20 to 24th to say, “Sorry, we’re in a recession. We might even pick up interest rates more.” Everybody’s going to go bankrupt one by one because they have no more money. They’re not extending the SBA 7(a) program, they’re not extending the EIDL modifications, they’re going to raise everything to $10,000 a month.

REID Leo Jacobs | Commercial Real Estate Recession

Commercial Real Estate Recession: The United States could be in recession, and it just hasn’t been announced yet. We might even pick up interest rates more, and then everybody will go bankroll one by one.


Again, for all those people that took out $2 million, and thousands and thousands of people took out $2 million and they can’t operate anymore. We’re between 6:30, to 7:00, we’re really at the bottom. Now the distress is showing. That means the opportunities now for, well-heeled investors are growing and the bankruptcies will be growing.

We can be past 6:00 if you believe there’s more distress and there’s more pain coming because 6:00 was the bottom of the market with the price, not sentiment.

I agree. I’ll change my clock. It’s 5:30 right now and 7:00 is probably going to be the first quarter beginning or the first quarter ending we’re going to be at 7:00.

I’m going to do a LinkedIn poll, and I’m going to tag you on there, so just watch for that coming, but we’ll see what others think.

I’d like to mention WeWork. WeWork is going bankrupt. That means a world of things. One of the most important things that it means is that the B and the C buildings that have housed WeWork to refinance their buildings no longer have an asset that was at least 40% of their capital stack. That means a tremendous amount of D and C and maybe even a buildings are either going to go bankrupt, have to re-amortize, look at equity to take in, or take on more debt. That is not going to be surprising in this market in January, February, and March.

If you are a WeWork building or someone who is housing WeWork, and WeWork is going bankrupt, you need to exercise your defensive rights. When they decline, they either affirm or disaffirm in bankruptcy court your lease, because if they affirm your lease, they can pay as they are. If they disaffirm their lease, meaning they reject the lease, they have to pay that landlord 15% of the remaining amount left on the lease or 1 years’ worth of the value of the 1 year of the lease, whichever is greater. You need someone, an aggressive counsel because you are now the debtor and the creditor almost. You’re owed money, you want to get money and you need an attorney that is sophisticated enough and malleable enough to discuss with WeWork what they want to do.

Ultimately, they want to get into agreements with people and they want to do it through the consensual process of bankruptcy because they will come out leaner and meaner. WeWork is the metaphor of the New York fat person who’s overweight and needs to get skinnier. That’s what WeWork needs to do. WeWork needs to get onto Ozempic.

Do you think it’s going to survive after its bankruptcy?

It’ll be leaner and meaner, and it will survive. It’ll be WeWork Lite. WeWork has proven its concept. They just got fat with free money. They need to get on a treadmill get a little bit skinnier and have some fruits and vegetables.

Maybe we should do another show just on WeWork alone. That’s interesting. Let’s get to the next segment of our show. Get these questions out here. Thank you so much for all the wisdom and knowledge that you shared with us.

The next segment of our show is the Ten Championship Rounds to Financial Freedom. Here’s the first question. Who’s been the most influential person in your life?

My father and Winston Churchill. Winston Churchill is the definition, in my mind, of courage, staying ahead and facing your challenges in the face of adversity. My father because he has instilled confidence and the plight of humankind and human decency in my heart, and my mother for compassion. She is not second. She is one in same with my father.

Beautiful. Next question, Leo. What is the number one book you’d recommend?

Principles by Ray Dalio, an exceptional book. If you’re a manager in a big company, Paid To Think. It’s an organizational book and an excellent book. I read it multiple times over, and I have been able to grow from one person to a full administrative and collegial staff in a very short amount of time.

REID Leo Jacobs | Commercial Real Estate Recession


That’s incredible. Thank you for that. Next question. If you had the opportunity to travel back in time, what advice would you give your younger self?

I’ve often confused impatience for not knowing something. I would tell myself that my impatience is my calling because I’ve oftentimes confused that for a little bit of anxiety. Those who are struggling with anxiety and impatience about what’s going to happen in the future, think of it as your calling instead of, “I don’t know what’s going to happen to me.” That was extremely impactful in my ability to get ahead and to say, “Wherever is that I’m going, could be cold, hot, miserable, or scary, that is my calling, and I have to carry it through.” That’s what I would say.

Next question. What’s the best investment you’ve ever made?

That will be in my children, my wife, myself, and in the belief that there is a higher power. Some people call it God, some people call it energy, and some people call it giraffes with marshmallows on them. Whatever’s that you call it, that investment is greatest. It’s in your children. It’s in your loved one if you have a loved one in your place, it’s in yourself, it’s in the higher power, and it’s in the people that you love.

What’s the worst investment you’ve ever made and what lessons did you learn from it?

The worst investment I have made is in people who can’t keep their promises. That is exceptionally true when you’re picking your team. Oftentimes people overpromise and underperform. Your investment into people is an investment in yourself, and make sure that people can stay true to their promises. The worst investment I have made is in those people who have overpromised and under-delivered. Expectations are not aligned with them and I am exceptionally critical about how far someone can throw the ball. I ask the right questions to do that to never make those mistakes again.

The worst investment you can make is trusting people who overpromise and under-deliver. Click To Tweet

Hire slow, fire fast.

Next question, Leo. How much would you need in the bank to retire now? What’s your number?

That number is related to an investment that I am going to make into my ultimate goal. I tie that to my ultimate goal. My ultimate goal is to build schools for children and educational, secular, or non-secular for children. I believe that children are our future. I will retire from making money when I have something inside of me that says, “Leo, you’ve fulfilled your purpose in life.” My purpose in life is not to build the biggest, brightest, and baddest bankruptcy and commercial litigation firm, which I will and I am. My true goal is to build schools for children in education and afterschool programs for mothers and fathers, and those people that can’t take care of their children.

Can we quickly put a number on that? How many children are going to be educated from your schools?

We have 50 states, 1 in each state, and we have 7 continents. A school in each continent.

There’s your goal, brother. We just came up with it together.


REID Leo Jacobs | Commercial Real Estate Recession


Next question. If you could have dinner with someone dead or alive, who would it be?

Winston Churchill because he was a wartime general, and I consider myself a president of my cabinet and my people. For a person that is alive, it’ll probably be Schwartz of Blackstone. I want to meet him and I want to talk to him because he has the pillars that mount a successful firm. In a very short amount of time, he’s become a great man. They respect his political and religious ideologies. He’s an exceptional man and I look up to him in that regard.

Next question. If you weren’t doing what you’re doing now, what would you be doing?

Somewhere in a nonprofit for children’s education. That’s what I would be at if I had all the money in the world.

My favorite question is, book smarts or street smarts?

Both. Street smarts gets you to the client, and book smarts keep the client. Nobody has ever said that. I say that all the time.

Love that.

The hustle gets the client. Hell or high water, you got to get the client. That’s hustle, that’s street smart. “What’s up Joe? How you doing? Give me Nancy, give me Lou. Get me to the bar. I’ll be outside 12:00, it’s raining. It’s snowing.” The book smarts keeps the client. You do good service and do good work. That’s what keeps the client. Street smart and book smart.

Last question, Leo. If you had $1 million in cash and you had to make one investment now, what would it be?

It’ll probably be in, again, a children’s school that I would give it to, probably into my son’s school. I won’t say anything else. It’ll be in my son’s school and my daughter’s future where she’s at.

Amazing. We appreciate it. Thanks for taking the time to be with us.

The last thing is to let the audience know what’s the best way that they can reach you, Leo.

The best way is you can email me at That is the best way to reach me. I don’t necessarily give out my number because I’m always inundated with phone calls. That number that email goes directly to three of my administrators. You will get an email or a phone call back right away to schedule a meeting with me. We unfortunately do charge for consultations, but in the business that we’re in, we have to.

The information here should serve as a benchmark of what type of acumen you can see from a Jacobs P.C. member. I am the CEO. I wish everybody the best of luck in this tyranny of what is about to happen in my view. Hopefully, everyone can come out on the better side of it. I wanted to thank both of you for having a tremendous ballot of questions to ask me, so I can give you some good answers. Hopefully, I’ve impressed upon enough that there’s something to think about and something to look forward to.

Thanks so much again, Leo.

Thank you so much.