YouSaid · the spoken record

Allison

lines on the record: 28
first: 2024-09-24
most recent: 2024-09-24
sittings or episodes: 1
sources: podcast

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“And I also think, Allison, there's a question of how do we think the market is going to perform generally, and then where are the best opportunities? And we're seeing lots of opportunities right now. There are interesting assets that you can buy at good prices because of the dislocation that we've realized. They're amazing lending opportunities where you're filling gaps in capital structures that the regular way bank or securitization market or insurance market can't fill. And so from an investor perspective, this is actually a really interesting time right now. And I think that will persist as this unwind continues over the next couple of years.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Sector in 2014, and it emerged stronger. But we sort of like the exposure of retail to the strength of U.S. consumer and households in general. And we also like the fact that the supply picture is quite supportive. Supply is tight outside of a few areas here and there. But overall, the fundamentals are quite supportive and you've sort of been paid for it.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“On the market side, owning real estate has been rewarding here to date, whether you look at public equities or public debt, you were rewarded pretty generously actually to own real estate. But if you look at the valuation gap relative to 2019, i.e. prior to the COVID shock, that valuation gap is still significant. And I think the first order condition to close it, I couldn't agree more, is the durability of the cycle. And so we need to stay in the soft landing environment for probably another year or two. to get close to the point where that valuation gap is gone. We've been a lot more focused on relative value opportunities within the CRE space once you mentioned industrial properties, but one segment that we like is actually retail. That gives you good exposure to the strength of U.S. consumers. It's lagging a little bit. And by the way, retail is also an interesting study case in many ways because that was the story 10 years ago, sort of the office.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“And if we look big picture and say there's an oversupply of office and an undersupply of housing somewhere in there in a partnership with cities and states and perhaps the federal, there has to be an answer to rebuild cities in a way that better suit the future economy, the modern economy, and”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“That we anticipate continuing, there's a really bright outlook, we believe still, for the logistics space. However, there are policy issues that we watch there as well. I think trade policy is going to have a big impact on the medium to long term in the logistics space. And so that's something that we spend a lot of time thinking about. And then look, I think office is going to continue to evolve. And I think the demands of tenants will continue to evolve. They want newer. They want more sustainable. They want better laid out buildings in the places where people want to work so follow the demographic trends. What are the cities that continue to be recipients of population and which are the ones that are losing population? I think those are going to be critically important to follow. And then when we take all of”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“I'll go first, which is health of the economy number one. I think if we can continue, if the Fed is able to land this plane of having tackled inflation and bringing rates down to a more we'll call modern day normalized level, then I think that's a great answer and a great outcome. And I think it will stimulate investment, which is what we want to see. We all want to see investment in our markets. I think on the housing front, the supply demand is going to solve itself as we've talked about. I think this policy issue is a real issue that we have to watch. I think on the logistics sector, which was such a hot sector and continues to see enormous demand side positive signals, that should continue for all the reasons we've talked about in the past. There's more manufacturing that we're bringing back to U.S. markets. There's more stockpiling of inventory to deal with supply chain disruption. I think the globalization to regionalization trend is something.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“The US. So I think this is going to be a conversation we're going to be talking about a lot in addition to supply demand, in addition to rates and inflation. I think this question of affordability and how it's addressed is going to be a really important topic in the coming months and years.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think for new development, how much of new development should be affordable? What percentage of a new building should be affordable? If you're going to impose rent restrictions in a given market, what do those rent restrictions look like and do they disincentivize a landlord from actually investing capital in the building because that landlord says, if I put X dollars in, but I can't really raise the rent more than a certain level, then I'm not incentivized to put those dollars in and then building inventory starts to fall behind where it should be. And that's what we saw in the office space, not because of restrictions, but just because landlords are commercially motivated. They invest where there's going to be a return on that capital, and we need to keep that in mind because we want capital investment in the built environment. But at the same time, we do need to solve for this affordability issue because it's a real concern and it's a problem for many Americans. And frankly, it's a global problem. This isn't unique to...”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Continued inflation in that category. And I think those decisions are really important and really consequential. If executed properly, I think it's important to the health of cities that we have a wide stock of affordable housing that people in the service economy and otherwise can live proximate to their places of work. That's a good thing. That creates a vibrant downtown, which many of our cities in this country need right now. But if we get it wrong and it becomes just about solving for the affordability at the expense of what's commercially viable for investment, then it has the opposite effect. And then we start to see structural problems that it's really hard to unwind. So there are great minds at work on this right now. I hope they land on the right place. Again, we're bullish on the long term of the U.S. economy for all the reasons that we talk about all the time. But we got to get this policy piece right.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Remembered the housing market is a bell whether it's a reflection of what we're seeing broadly in the economy. So if the economy continues to be strong and we continue to see positive wage growth, that's a good thing for the housing markets. If we happen to slide into a recession and we see greater unemployment, then you're going to feel that in the effects the supply demand notwithstanding. And I would also add, look, the good news is that there's plenty of liquidity for housing inventory in the rental space, be it multifamily, single family, the financing liquidity has remained because of agency participation, which has been a huge help to that sector over the last couple of years. I think the real question, Alison, to the point on new supply, is what's the policy outlook? There's a lot of conversations about this right now, and what are the requirements to build new in terms of affordability? What could you do to existing assets in order to protect from”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“If you look at the average effective 30 year mortgage rate in the US, it's at 3.9%. That is order of magnitude lower than the 6% that a new home buyer will have to pay. And so it's that lock-in effect that is putting a big drag basically on existent inventory, and that's unlikely to change unless we're all wrong on where the terminal value of FET funds rates is going and mortgage rates basically fully revert to where they were pre-COVID period.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“But if you look at existent supply, which is what accounts for 80% of home sales, That remains that raw depressed levels, basically, relative to the history of the last 30 years. The question is, why is that happening? Like, why is it that the velocity of the housing market has declined so much? A lot of it has to do with a lock-in effect. Three-quarters of U.S. households have a mortgage rate that is lower than 5%. So your incentive actually to move out of your house is really, really low.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“This is good news from an affordability standpoint. I mean, the housing market went through probably the largest affordability shock in many decades. And so lower mortgage rates are good news. I mean, it just means that affordability will get a little bit better, but only a little bit better. Similar to the argument I made about CRE, there's a lot that's already in the price. Mortgage rates are around 6.1%. If you believe that the long-term equilibrium level of 10-year yields is around 4%, then I think you're there already. You know, mortgage rates may fall by another 25 basis points, but not a lot. And so I think you'll see a little bit of an improvement in affordability, but in absolute terms, affordability will remain challenging. And so supply is what holds the key, basically, for prices. And there, the picture is tight. I mean, we've seen normalization in new supply.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Really contract pretty significantly, which should give pricing power to landlords Has that vacancy absorbs to start pushing rents again? It's actually a problem in the other direction, which is affordability as such a hot topic especially going into the election season later this year, that's what we're watching is how is the market going to deal with the affordability issue? And so if I think about medium to long term outlook for housing,”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“I also think the big difference if we use housing as an example and notwithstanding some of the flattening that's occurred very recently, there was so much top line growth that we saw for so many years that it was actually a big contributor to the CPI prints that everybody was looking at, right? And so if you think about the values at which people bought assets, forget about in 2021, but looking back to 17, 18, 19, there was so much top line appreciation and top line growth that those properties were to some extent able to absorb some of the rate increase that we've seen generally in the market. And yes, there's going to be a near-term flattening because there was some overbuilding in certain markets, but the effect in this period actually slowed down new development quite considerably. So for all the new deliveries that we're seeing right now that are going to have to get absorbed, if you look out 12, 18, 24 months, you see that supply pipeline.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“In multiple family No, and I think, again, the market has done a very good job separating sectors that are facing cyclical challenges from those that are facing structural or secular decline challenges. But I think the multifamily example is a great one. We overbuilt in some parts of the country absorbing that excess supply will take time for demand to adjust. But the challenges are not comparable to those that you encounter in office properties where you got a big chunk of the inventory that is obsolete and old and where there's basically no demand. And so the market, I think, has done a very good job kind of separating the two, in my view.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“There has been one change, however. If you listen carefully to managements, the appetite for lending has declined, and I think what will happen over time is that the structure of the market will change. There will be reduced participation from the banks, and other investors will have to pick up that slack. And so, again, that's sort of a multi-year process, but as far as the exposure goes, I don't think the market has ever embraced this idea that that regional banking crisis was going to morph into a big systemic shock in the market a la 2008, for example.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Some of that confidence comes from the reasons that actually Jeff just went through, which is at the end of the day, this is not a broad-based issue in the entire CRE space. This is just basically an issue for office properties, and that's 20% of the market, basically. But look, if you look at CRE exposure over the past 12 years, it's been largely manageable from a loss standpoint. And then one of the big takeaways of the second or quarter earnings season is that actually the banks have increased their allowance against future losses to levels that we think will be enough essentially to put them in a good position from a capital and liquidity standpoint. Investors, by the way, seem to agree with that. If you look at the performance of banks in credit, it's the best performing sector year to date. And granted, there's a big skew there towards large money center banks as opposed to the regional banks, but still sentiment vis- ⁇-vis the sector, whether you talk to equity investors or credit investors, has been remarkably strong in my opinion.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Difficult. That's right. And if you have a brand new office building in a great location and a tenant is interested in that space, we're actually seeing momentum in that space. And we are seeing rents continue to escalate, but that's a segment of the office population. And there's a big segment that's really struggling and is caught in that dynamic where the equity is out of the money. The debt doesn't really want to own the building. The building needs a ton of capital. And that remains a problem in the market, but it's not an overwhelming part of the market. And the rest of the market in housing, in logistics, in some of the niche categories that we cover are all actually doing quite well right now. And so with the pressure off of those segments, notwithstanding some value correction that's taking place, it's really, I think, given people a moment to breathe a sigh of relief and say, we'll deal with this stuff over here, but it's not going to be systemic. This is not going to be the thing that creates the next.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Secondary, tertiary locations, sometimes in major MSAs, but there be buildings, they've been perpetually underinvested in, in some cases for decades, and they need so much capital to modernize them, to convert them to an alternative use, or frankly, to just raise them, value them as land, and build something new at a higher and better use, that to work through all of that inventory is still going to take some time.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it is. And to amplify the point on the secular change, this is not just a cyclical moment, the way that we typically see values fall and then ultimately they recover as markets and economies become healthier, right? The economy is healthy today. And tenants have made a choice to reduce the amount of space that they need for a variety of reasons that we've been talking about since the pandemic. And also there's a gravitation to newer, better buildings. So the answer of nobody's going back to work again is a false premise, right? We see all of the announcements. It's not just Goldman Sachs and J.P. Morgan. It's now Amazon. You know, come back to work five days a week. So that's a big sea change. And I think the demand is coming back into the sector, but the requirements of those tenants are very high in terms of the kind of space they want to and need to occupy. And there is this huge supply overhang of old office buildings in”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Issues are not going away because the Fed has starting the easing cycle, just to be clear. Those issues are secular in nature. The second one is property valuation, and I agree with Jeff that we're probably not far from some kind of a bottom. The third, and this is where it is a little complicated for office properties, is really the outlook for profitability, rent growth, occupancy rates, vacancy rates. That third ingredient is going to look challenging for many, many years to come. But as it's always the case with CRE, dispersion is a key theme. There's no one size fits all. I mean, you see it across property types this year, hotels have outperformed, office properties have lagged as you would expect. But even within the office property sector, there's a fair amount of dispersion. And so I would say that creates a very unique opportunity for active managers, you know, to pick the winners and losers even within what remains a secularly challenged sector, which is the case of office properties.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Structures, we really didn't see that this time. We saw everybody pause. I think the banking system was in much better shape. Lenders were willing to and encouraged to give borrowers more time to figure things out. Not every answer is going to be a great answer, but I think the passage of time has helped a lot, and so I think there's a lesson in that, both in terms of a better capitalized system, but also allowing certain borrowers to live through to a better day when market conditions could become more benign as we're seeing them right now. And now people are dealing with their problems. Now you're starting to see transaction volume pick up again. You're seeing sort of a baseline in terms of where valuation are in the healthier categories. There's a whole separate conversation we'll get into about the troubled categories, but I think even those troubled categories, we've realized are not systemic risk. And so there will be equity loss in certain of those places, but it's not going to be industry-wide the way it was coming out of the financial crisis.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“But with rates coming down, that's a huge help. With the banking system having come through much of the last year, year and a half in a pretty healthy condition, we're seeing capital starting to flow again. We have seen values adjust to the new rate environment. And in regard to that really scary debt maturity wall that you're referencing, it's still there, but there's always a lot of debt to refinance in our markets. And with rates coming down, which will hopefully be a stabilizing force to values, and with capital starting to flow again, we should be able to manage through much of that wall, not all of it. And so what happened over the last year or so, as distinct from the financial crisis, in the financial crisis because there were so many major financial institution failures, paper just hit the market so quickly, and people started going at it in fighting through capital.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Sure. Well, taking a step back and going back to the last conversation that we had and echoing some of Latvia's sentiment, things definitely feel much better today than they did at the time. And at the time, there was a lot of anticipation about are we going to have a banking crisis that's going to resemble what we saw during the financial crisis in the prior period that was going to create chaos in the system and a real liquidity squeeze with the effect of rates going up 500 basis points so quickly what does that mean to spot valuations and what does that mean to your point allison to replacing existing capital structures with much much much more expensive debt against much lower valuations that was a really scary prospect if things had played out for the worst coupled with what may have been a hard landing so fast forward to today where are we i think there's not an all clear sign because the market from a technical perspective still has a lot of things going on that we're watching very closely”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“30% if you look at CMBS portfolios. That part of the market will benefit from the cuts for sure. There's a mechanical impact there. But for the bulk of the CRE space, I think the easing has already been delivered to a very large extent.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Going to be some relief, but I would say less than generally believed, and the reasons are exactly what you just articulated, which is a lot is already priced in. And so if you look at intermediate long-dated yields in the treasury market, they're pricing in a forward path for monetary policy with a terminal value Fed funds rates around two and three quarters, 3%. We think it'll be a little higher than that, around 3.4%. But even if you take that two and three quarters at face value, that is basically telling you that you're there already and that the job of the Fed is essentially to validate what the market has already priced in. The bulk of CRE loans are actually fixed-rate structures. And so they are a lot more linked to the belly or the back end of the curve as opposed to the level of policy rates. And so the relief has been delivered already, strictly speaking now. There is a small portion of the CRE loan market that is floating in nature. It's about”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. Look, I think the commercial real estate sector is a growth sensitive and rate sensitive asset class. And on both counts, things are unambiguously better today than they were last time we sat down in March of 2023. On the growth front, the economy is on a solid path towards a soft landing, even though there's been some softening in the labor market and we had a big growth scare late July, early August. And then on the funding cost side, funding costs have come down quite dramatically. I mean, if you look at tenure yields, just to take that as an example, we peaked at 5% in October of 2023. We're at three and three quarters today, which is a pretty significant move. And so things are better today. You did reference the regional banking crisis of March of 2023, financing environment looks very healthy today. One key metric that I look at all the time is origination volumes in securitization markets. Those are more than double their levels in 2020.”
2024-09-24 · Goldman Sachs Exchanges · Falling rates: A salve for real estate? · IDENTIFIED FROM THE TRANSCRIPT