YouSaid · the spoken record

Ben Miller

lines on the record: 117
first: 2024-04-22
most recent: 2024-04-22
sittings or episodes: 1
sources: podcast

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“I do think they're restrictive and that I don't think that's up for debate. It's just the consequences of that take longer to play out than people's patience.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Slow decline. It's a slow decline. Plus plus, I mean, office is pro cyclical to the extent that you aren't seeing a lot of businesses get started because you're not seeing, this is the thing of the hot market. You're not seeing people expanding office space, starting new companies other than AI. And so it's just a slow decline for office. They're trying to get back some of what they lost from work from home.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“I mean, you know, this stuff. There's no way of getting around that, right? This stuff happens. So the point is that the office owner, when does that go to zero in 2027 for them? So it's delay. The delay, the lag, that's what's confusing the market. The conclusion is if it hasn't happened yet, it's not going to happen.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, a multifamily turns over a third of the building turns over every year. So it's like you could say that's three year, average three-year maturity, even though in theory that turns over every year, not everybody leaves you every year. So office is much longer. Luck Funraise has a whole floor. We released it in 2019. It's 15,000 square feet. We pay a million dollars a year for it. And there's three people there a day.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Competing against something that's pretty darn nice, and the class A is a thousand dollars a square foot. And so you have a pretty darn nice building that's charging a third of the rent. But until that building is like, you know, charging a third of the rent, the Class A office building doesn't have that competition, right? So it's not till after you've seen hundreds or thousands of buildings bought, renovated, and charging a third of the rent, but still really nice that those class I office buildings start seeing the downward pull of the negative spiral at its office.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“I do. They hate when I say this. So I'm like, but like, yes. And it's because you have to play it out long enough. It's like the third order consequences. That's the, you know, like. Any great financial investor that you read about them, they always talk about you make the big money's made on the second and third order consequences. Everybody sees the first order consequences. So the first order consequences is that a lot of office buildings get foreclosed on. And so, okay, and it's mostly the Class B office buildings, not the good office buildings get foreclosed done. So you have this building from the 1980s or 1990s. And so it used to be $650 a square foot and somebody buys it for $100 square foot. $5 or $100 square foot. They put $200 a square foot into it. Now it's really nice. And now”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“What do you think about the AAA sector of the office market like a very expensive building in New York where it's the nice law firms, Goldman Sachs, those? I mean, do you think that is going to be bad too?”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Think it'll be a bifurcated market, right? Where if you And how you want to play that bifurcation is like in the art of it. But yeah, there will be a big wedge of the market with the most distressed being office, right? Like, you know, absolutely off the charts distressed. Like, I mean, this is, again, the macro, right? You could have underwritten a forecast Excel spreadsheet for office in 2019. The entire sector has been trashed by nothing micro, all macro. Same thing with malls. I literally in 2001, I was in the mall business. Got out of the mall business, and malls went to trash because of e-commerce. The macro is so much more consequential and the macro is very favorable as a buyer today.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you said two years or something, right? Not like a day. Yeah. It's coming. I mean, there's guarantee. It's just a question of the scale of it and how much it spreads to the rest of the economy.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“They're just, it's some weird psychological phenomenon that the institutional investor. And so, but if you look at a big picture, you say, this is a much better time to buy than. In the last 15 years, not since 2009, 10 has real estate been so on its back heel. And you buy on the back heel and you sell in the front heel, the front foot.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“So square that for me. So I believe that if you just look at it simply, it's clearly a good time to be like that there's a lot of stress, probably more distress, and that will play to the advantage of new buyers. And exactly how that ends up being a benefit, how rates come down or where you get it in growth, exactly how that plays out, anything that is in an Excel spreadsheet forecast, it's going to never write. I've done thousands of Excel spreadsheet forecasts. They're not predictive. They're not.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“A problem is an opportunity. Like, if, I mean, new dollars. To buy today is to buy a funny thing. I have this, I always anti-institutional. Institutional investors today are saying, well, we need really high cap rate, really high target return, blah, blah, blah, blah, blah. So you're not going to put the money out because your target returns are too high. But you did put the money out in 2021 when your target returns were too low.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Huge losses. Ton of distress. A bunch of regional banks go out of business. You're seeing headline after headline of like foreclosures and then private equity funds getting launched and buying it. So to sort of like this, you know, a positive version is a creative distraction. That's what needs to happen with office We need to put a trillion dollars of money into all that real estate to turn it over. Here's a huge number, right? Subprime mortgage crisis at the end of the day was a trillion dollars of just subprime mortgage. So it's comparable to the size of subprime mortgage in all days. So you would see a similar kind of distress and reinvestment cycle for definitely office and then some chunk of residential that is poorly run and over levered.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Zooming out, you don't think that the level of debt to GDP is unsustainable. You think that you look at it in terms of service, how much can that be serviced and how much are people paying on that debt and the drastic rise in interest rates? Not that five and a half percent is drastic, but going from zero to five and a half percent in a short time is pretty drastic, that has been concentrated not on the household, not on people owning their own homes and have a mortgage rate, but in the commercial real estate sector what do you what do you think is going to happen if interest rates stay at five and a half percent? And we have this conversation in two years. What was that world look like?”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“We say, great, we'll write that check, we'll fill the hole, and so now we're essentially where the lender would have been in terms of risk profile, our last dollars where their last dollar would have been, and we're getting mezzanine rates. And so we've been doing multifamily development deals, but there's not that many deals because the flow is so little. And we haven't done, I don't think we've done a single recap of an existing deal because every time we get under the hood of somebody who wants to recap an old deal, it's distressed, or it's just, it's too hairy, and we've blinked.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“We would be the direct lender, so developer, and this is the thing, this is the thing surprising, the last, let's say, 10 deals we did for mezzanine multifamily was to real estate developers who were building apartments, building. They basically had gotten over their skis, they had to build it, they couldn't stop. They had a lender. The lender was going to give them 70%. And now the lender carved it back to from 75% to 55%. And they have a hole in their capital stack of 20%.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“It fair say, I mean, I guess you are the private credit, but you obviously also own a lot of apartment buildings. But are you lending to private equity firms to do deals or are you like basically are you lending to sponsor versus non-sponsored deals?”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“That's the 14, 15, 16 generally these days. The private credit that you're talking about that is senior loan for an acquisition and then the private credit fund will lever that loan. Borrow against their position and lever it up.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Yes, so that's true. I mean, so if you go out to market, the private, a lot of private credit funds were raised and they can't put the money out because there's no transactions. Like nobody's buying. And so the spreads were 400 bips over Fed funds. And now maybe they're 250 or maybe 300. They're very, very tight compared to where they wanted to be because there's just too much money against supply of money chasing too few transactions. And yeah, if you go borrow from JP Morgan or we have a line from JP Morgan, you're not at eight. A good bank loan wants to be, God, now, I mean, 150 to 250 over. So that would be like, you know, six to seven or something. But we have a private credit box we've been doing pretty consistently for about a decade, which is we do mez, a multifamily. And that's.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Wow. One real estate developer I spoke to said that, interestingly, let's say in 2021, real estate private credit money was at 9% and JP Morgan, if you want to borrow from them, it was 4%. Now JP Morgan is at 8%, but real estate private credit has gone from like 8% to 9%. Is private credit real estate world still pretty, or lending conditions still loose, even though the banks don't want to lend?”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Because that's something we understood and we felt comfortable on. And that's, you know, we were buying at like maybe I think at 12, 13% yields for triple B rated, you know, residential mortgage-backed securities. And now that same mortgage, we just sold some of it. We sold something a week or two ago and effective debt yield where somebody bought it from us was the debt yield was 5.15. So, inside the equity, so the credit markets have gone very risk on, like spreads are way tight, and so we obviously stopped buying that and we do direct lending and direct lending. We've done, God, a lot, hundreds of millions of dollars of direct lending, maybe even a billion dollars of it in our history.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Yep, private credit. Oh my god, he said the words. Yes, we do almost entirely direct lending briefly. Last, it was summer 2022. We started buying ABS. The ABS market just blew up in 22 and we were actively buying an ABS.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“That's easy. The entire real estate industry is praying for a recession Cap rates are multiple, right? 20 times, income can grow three percent, right? But cap rates are 20 times that. So the multiples or your interest rates are far more consequential to returns. So the entire industry is just praying and hoping that rates come down. And it looks like they're only going to come down if there's a recession. And that's for we took our hit last year. We took a markdown. We accepted that this is the new normal, but very few participants had or could, you know, you can if you don't have enough equity and cash. We went into this very defensive. I was like freaked out. And it's defensive. Again, we had 750 million dollars in cash on $3 billion of total equity. So we were like 30% cash. And in retrospect, I wish I was 65% cash.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“The general assumption in commercial real estate is you want a good economy so people can pay more rent. But what do you think is better or worse for the commercial real estate industry right now? A recession where industries decline sharply 3%, maybe even lower, you tell me, or actually good economy, which you think would be good for real estate, but rates stay at 5% or higher.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Would see huge benefits to the rental, residential industry. Real estate is a derivative of economic growth. People don't see it that way, but that's why data centers is a derivative of AI growth today. It's really important real estate to get the macro right. That's why I started with macro and I'm obsessed with macro. And if you don't get that macro right, you can't make money real estate. You can get the micro right and still lose money in real estate. And you can get the micro wrong, but as long as you get the macro right, you still make money. Obviously, the best is you can do both. But macro is 80% of returns.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“No, I would say I'm a more moderate view. As I said, it's more boring. It's going to be a barn burner. I also think like, okay, that's okay. Like, you know, reasonable risk, reasonable return. Like there's nothing wrong with that, but I don't think I guess the ways that you would, again, surprise in the upside would be rates come down more than people expect in the midterm immigration, legal and illegal ends up being much more like sustained, that we sustain, like we had 3 million people last year, I think it was the most in history, if that continues for like a few years, right, that would be very bullish for residential residential. I'm not, again, I'm not forecasting it. I'm not a political view. I'm just saying that would be sort of like, so both those things, either one of those things happening or both.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“It's like an apartment building. We originally used to call it a horizontal multifamily. And then they invented the term Build for Rent, but it's like, you know, if you say, oh, hire for longer, people can't afford to buy homes, but they want to live in a home. They have kids. They want a backyard. Like, that's a better product. So I think we're the third biggest bill for rent, sort of dedicated bill for rent owner in the country. We have about 5,000 bill for rent homes. We're building. That's one of the things we're still building and buying. long-term demographic and sort of like consumer behavior trends around it are extraordinarily attractive to me. And so we've been doing that for the last about four, more than four years now. We started in 2019.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“So we for the last few years have been focused on trying to build homes for rent. So we would buy 50 acres in Nashville or Charlotte and then partner with a home builder who would build 150 homes. And then we would rent them and operate them. They operate like an apartment building. We'd have a leasing center and a pool and a fitness center. And we manage all the landscaping. And so it's like, it's a...”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“One building, yeah, yeah, huge, really huge. I mean, that's And so a large check is like when you have oversupply of money like you did in 2021, the downstream consequences of that are large funds that need to write large checks and they end up doing the same thing, right? They end up having a, you know, the structure dictates behavior. And so the structure of their fund dictated they write large checks into certain institutionally acceptable markets, which were Austin and Nashville. and maybe like Tampa or Orlando. And that sort of heard behavior is going to have then a high cost consequence.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, at the highest density. Like, because you could supply, you could build tall, you could really oversupply a local submarket. And so you have this concentrated oversupply. You might have three towers like across the street from each other, delivering within the same 18 months. And then they have this interest rates that are like 7, 8, 9 percent. Those properties are probably end up wiped out because they're just getting hidden on all sides. One of the reasons why those things get built. Is a hidden, say, I think a lot of economists miss that what drives the market is supply of money. And so the supply of money has a preference to large checks. And so a large check What facilitated all those new deals, they're big deals, really expensive. Those deals probably cost $100,000, $200 million to build.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“I mean, you take a city like Austin, it's a huge city, right? So you can be out in the suburbs and a green area that's four-story walk-up or you can be, you know, we do build for rent. You can have a 200 home community where people rent the homes, or you can be in this sort of black marble 30-story glass tower, right? Those are really different kinds of apartments. And some of the cities that overbuilt built these sort of these towers in the middle of like the gulch or middle of the city and those are really going to suffer.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so there's a lot. We do a lot of lending to multifamily construction. And so a lot of stuffs went on the ground in 2021 and 2022. Delivered last year and this year, but no new, no, the ability to green light a new project has fallen, in my anecdotal experience, like 90%. The amount of new supply that's going to come after this current wave is negligible. And so there's like a temporary spike in new supply, especially in a few markets that were just excessive, like Nashville, Austin. I mean, it's excessive overbuilding, especially.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Said no new construction right now. You mean no deals are being done that tomorrow the backhoe is going to go into the ground. There is a lot of deals that were done in 2020, 2021 that are still under construction that are going to come online.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“It's just all the fundamentals are healthy and normal. And that's basically means that you get normal, healthy returns. And they're not like, you know, they're not overpriced. Like you look at some parts of the stock market and some parts of it seem like pricey and you don't, you may not be so optimistic about About earnings growth or something, but. If you've reset prices, if you've gotten to sort of the other side of what's a bubble in real estate, you have like a really nice sort of straightaway kind of almost boring few years. I mean, then the upside pop is if rates do come down.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“There's going to be a supply constraint, and rents should be healthy, occupancy should be really tight. And so you can see a very positive forecast for apartments if you have low leverage and you have good assets. And there's a lot of operational work. Today, the shift has gone from capri compression to everybody work last decade, like falling multiples made prices go up. And so now operating excellence is how you drive returns. And so there's just a lot of low-hanging fruit. And so for If you have real estate at the current marks, you have to have a real estate at the mark of the present, which is not the crazy prices from 2021.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Normal for rent growth 3% used to be the institutional norm. And so if you are looking out, and this is again both my bull case and in a way my base case for multifamily is that there is no new construction happening in multifamily, but there is population growth, especially in the Sunbelt. I think Texas added like half a million people last year, not including migrants And so there is, if you go out and look at 2025, 2026, which is not that far away for real estate.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, okay. Well, so yeah, I have a tendency. My whole view is like a Seth Clerman, like view, if you take care of the downside, the upside will take care of itself. And so I've obsessed with downside. And, but the bull case on apartments and I think also industrial is what I'm seeing on the ground. So last year there was negative, there was negative rent growth in a lot of markets, but we're starting and we didn't we have a lot of 10 couple. Of thousands of apartments, so we across Sunbelt. So I have like, um, I'm talking across a large portfolio, so there's some that were different than others. But the inflation in rents is very close to inflation. A headline now, three and a half percent, you know, something like that, which is”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“I'm really glad that we have this. You're talking all about the negatives of commercial real estate. And you're in the space. So I'm glad you're not one of those people who's only talking about the positives. In the multifamily apartment building world, isn't it fair to say that the fundamentals are still maybe decent in terms of occupancy rates, you know, there's a lot of demand for housing, maybe not so much on the office side. Demand is an issue there, but the fundamental cash flow nature of the property is good. I'll say the knockoff effect for that. That's good for real estate developers, but bad for people is higher rent, which rent has been very, very growing very, very, very, very rapidly. Although I've heard that actually the official statistics from in the CPI are way, way, way behind.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Community and small and regional lending just go away. Like a decade from now, there just took a long time for the SNL crisis to play out. I'm going to just round it to a decade. So a decade from now, there are 15 banks left in America. I mean, like it's an extreme, but it's more like that than the present. This is what happened last time. The policy response will be to try to prevent that from happening. Government will say, well, we don't want to have 15 banks in America that are super concentrated in New York and all these things. And so they're going to start trying to stop that, which is exactly what happened. SNL crisis, which then made it 10 times worse. The facts are that if they've taken, they just dealt with the problem initially back in like 83, it would have been a $50 billion write-down. And instead, they waited until late 80s and ended up being 10 times, 20 times that.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, I've been in real estate for 20 plus years, so I was there in 08 was definitely worse, way worse. And so it was different, it was different because for a lot of these reasons. So it doesn't feel like 08. I mean, I'm kind of obsessed with history and I just think it's more like the SNL crisis. It's more like what happened with the savings and loan and the savings and loan crisis just to recapitulate that for a second is people don't even know what a savings loan is, but there are banks. There used to be banks and savings and loans. And banks did commercial lending and savings and loans did home lending. The savings and loans basically, they did so badly, they're basically gone, right? That's, I think, is what could see happen, that you see.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“But it's typically the economy is so deeply interconnected, it's hard to see a major part of the economy going to crisis and having not have knock-on effects. But yeah, for commercial real estate for sure. Then it'll be like the biggest problem and biggest opportunity depending on which side of the ledger you're on. But that's a fact.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“That's for sure. I'm a skeptic. I mean, again, there are some real positives AI, and I think Great Stagnation is over. So I think we can grow our way out of it.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“I'm sure they assumed a decent amount of low cost debt that was already in the portfolio. And so I haven't, our team is doing an underwrite of that deal, try to understand what was underneath of it. I don't want to speak out of turn here, but the point is it's a comp. My point, which I'm just trying to stay high level for a minute. And also Plaxton is one of the smartest real estate investors around. And so you never want to presume anything. But it does show that for people who can afford to wait out the high interest rates, there's clearly a reason to. And then, if you can't afford to wait, the question you keep asking is kind of when does the bell ring and where does it ring? You never can know other than you can know it always happens. And like the soft landing presumption is entirely predicated on falling interest rates.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Blackstone bought AAIR apartment income REIT and she said a 4.9% cap rate so that sounds yeah as you said kind of low so you know good high valuation so good for good for sellers what is Blackstone's roughly cost of debt I mean if is it higher than 4.9% and if so would that constitute negative leverage as in borrowing cost exceed income”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“High interest rates and the second order consequences of that. So, here, let's talk about AIR a couple days ago, right? You saw that transaction So it's a $10 billion purchase approximately. And they paid a 4.9% cap rate. So that's, what's that multiple 20 multiple? A five is a 20. 25. So, okay, that is not a stress price, right? Right. So, and that's a good comp for people who are saying like, well, I should just wait. And so it's almost a metaphor going back to the two Americas. If you have money and you're in good shape, you can afford to pay a great price and you can sell at a good price. And if you don't, it's like probably half. Just catastrophically different. So there's just, you're seeing it in the market where some things are zero and some things are priced like it was in 2020 one. I mean, it's like a...”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“And so you think that prices that you could buy real estate at have not gone down enough to represent the deterioration in the asset class, mainly caused by, and the deterioration in the deals and the profitability mainly caused by higher interest rates.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Rebuild that, right? Because there's no net margin income spread. Their assets, they're just, and they're competing against JP Morgan that has a 2% cost of cost capital. And then you have like a regional bank that's maybe 5% or 6% or something. And so they can't, this is exactly what happened in the SNL crisis. They can't grow their way out of it. And slowly but surely the credit like eats away their equity.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Crazy thing is we're still early stages. Like, this is, I mean, we're, I mean, for us, we're low leverage. We delevered like we went into 2020, I think 2023 with $750 million of cash. So we were like, so it's a gift for buyers. But what you'll see, and you'll see it on Twitter, you're seeing a slow number of defaults. You're seeing, I don't mean to pick on fifth, third, but just happen to see them. So they'll go from, oh, it's re zeroed and they'll start having more credit to credit right downs and losses and markdowns. And so that's probably a multi-year process. You know, if we're talking about rates to stay higher and there's a deterioration in regional sheets, and there's no way for them to.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Right. And so you're talking about the banks. So JPMorgan, they prefer new depositors or whatever. Yeah, they do pay five basis points. But I think if you're negotiating and you have a savings account and CDs, like I think their net cost of deposits is in the mid twos. And JP Morgan actually is one of the very few banks. Their net interest margins have gone up because interest rates rose so quickly. So like Bank of America, they had a bunch of long dated paper mortgage-backed securities, which is what you referenced. So that's mostly on the interest rate risks on both sides of the yield curve for banks. But I'm talking about let's just stay within the commercial real estate world. I mean, how bad is it? Is it now in terms of, I imagine like, if you have the cycle that you envision is interest expense is too much? So what then developers have to put in new equity or they have to sell properties? And then if everyone tries to sell at once, prices go down. It spirals on that. What stage of that are you in? Are we in right now?”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, commercial is confusing to a lot of people because it can include home builders and include all different kinds of people who touch the real estate industry as professionals. Rather than the resident, the consumer of the real estate versus the producer and investor in the real estate. So yeah, it wiped out the real estate industry and it rebirthed it. And that's what created the public read industry didn't exist. There was basically no public reads before 1990. Now it's a trillion dollars. There was no private equity, real estate private equity didn't exist. CMBS commercial securities didn't exist. All these industries that were basically birthed each became a trillion dollar industry. And as part of the rebirth and like that's the kind of risks we're talking about where you have industries go to zero. And that's an extreme policy error for that to happen.”
2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT