https://www.youtube.com/watch?v=3_ESQHyqCRg

As we reported yesterday, Grant Cardone offered his tenants a deal: If they paid 12 months rent in advance, he would credit them for 15 months of rent. In this video, Tom Nash offers the opinion that Grant Cardone’s rent concession constitute an effective $300 million devaluation of his real estate portfolio. At the jump we post another video from Jeff and Paul where the downside of Cardone’s high-debt investment strategy is critiqued.

In our opinion, Cardone is making his 12-for-15-rent-prepay offer in an attempt to accomplish three things:

1. To buy time and bring in as much cash as possible right now. This is Cardone’s number one goal as we see it. Cardone Capital needs to put off, for as long as possible, the cash flow problems caused by a financially untenable threshold of Cardone’s tenants not paying rent due to the COVID-19 pandemic. Cardone’s rent concession suggests that Cardone Capital simply does not have the cash reserves to absorb this downturn. Cardone has said that he plans for 85% occupancy, which is 15% vacancy. In a good economy this seems a valid assumption of premium apartment units. In a catastrophe, however, all assumptions are annihilated by the brutal reality of the actual situation.

Grant Cardone has said many times that his goal is to dominate all spaces he enters. This is very much a Scientology perspective in which Scientologists believe they possess an inherent superiority and can therefore impose their will upon all people, things, and situations including the physical universe itself. This elitist Scientology perspective traces its DNA to L. Ron Hubbard’s mentor Aliester Crowley whose Thelemic teaching states, “Do as thou will shall be the whole of the law.” Now, however, Reality itself dominates and has crushed all of Grant Cardone’s spaces, Scientology OT postulates, financial assumptions, and the belief that the great economy will never end.

Grant Cardone sailed himself into a perfect storm. No one saw the pandemic coming; on the other hand Cardone took on more than one billion dollars in debt and created a highly-leveraged situation for himself and his investors. This is capitalism, and, capitalism is based upon both predictable and unpredictable risks. A $50 million G550 private jet is a reward of capitalism; an unforeseen pandemic is an inherent risk. Both the lavish rewards and hellish nightmares go together in capitalism.

2. A hope that the COVID-19 pandemic will be gone by the summer. Many people have this hope. Nevertheless, even if a summer recovery occurs, this does not mean that the economy instantly rebounds and Cardone’s tenants pay their rents and monies owed on back rents. Moreover, some percentage of Cardone’s tenants will have moved to cheaper apartments or moved in with family by the time the pandemic ends. Additionally, landlords will be competing for the best tenants whose credit was not destroyed by unemployment and nonpayment of rents and bills. Landlords will also lower rents just to fill their units with tenants who have returned to work and have a job and paychecks.

Unlike Cardone, who stated in his recent video — and in a threatening manner —  that nonpayment of rent will follow tenants around for years and years, the best landlords will understand that everyone was harmed by the pandemic. We believe the best landlords will evaluate pre-pandemic credit ratings as a measure of a prospective tenant. We found Cardone’s “warning” to be heavy-handed and unnecessary.

No tenant owes Grant Cardone an obligation to help maintain Cardone Capital’s creditworthiness or solvency. If Cardone is going to punish tenants affected by the pandemic in the future by by giving other landlords negative references, then this speaks to Cardone’s character as a spiteful little bitch. The pandemic is showing us Cardone’s true colors. Cardone can’t collect rents due to the pandemic and so has stated that he will pass the consequences of his high-debt, high-risk strategy onto his unfortunate tenants who lost their jobs in the pandemic. As a Scientologist, Grant Cardone must acknowledge that he pulled in his current situation by making a series of choices which are now inescapable.

3. To buy time so that Cardone Capital can arrange a major refinancing after the pandemic is over. Ideally, with interest rates down and the Fed pumping money into the economy, a refinance could be much lower than Cardone’s present interest rates. The lower interest rates could, in turn, offset all, or part, of the three months of no cash flow arising from the present 12-for-15-rent-prepay offering. We think Cardone is implementing this strategy because he has no other good short term solutions, e.g. a hard money bridge loan at 6-10% for even one year would has an enormous risk as no one knows when the pandemic ends or where the economy is when it ends.

We have already offered our opinion that Cardone’s “cash is trash” mantra was flawed. The pandemic has destroyed Cardone’s mantra by showing that any firm should have cash reserves and manageable debt. Cardone’s brag for years was that he spent his money as soon as it came in. In doing so, this forced him to find new ways to make more money. His 10X events were one of his more recent money-making strategies. In the 10X events, people paid Cardone $20,000 for a booth where they can sell their goods. Cardone took 50% of their sales. With the ban on mass gatherings, that cash stream is gone. The sales of Cardone’s sales training programs in the pandemic with soaring unemployment seems untenable.

In this next video Jeff and Paul offer a brief critique of Grant Cardone at 17:00 forward. This is a fascinating podcast with some good analysis. The beginning three minutes contains a very funny bit of satire.