YouSaid · the spoken record

John Toohig

lines on the record: 94
first: 2023-09-05
most recent: 2023-09-05
sittings or episodes: 1
sources: podcast

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“I would echo a little bit of what Victor would say in that I think a courageous, opportunistic buyer is going to do well, but he's going to have to be met with the seller that's willing to let go of the asset. And we're going to need to see that bid and ask spread kind of come together absent any kind of a credit shock. But those that are willing to kind of push in on assets very specifically that they know and have good mastery of that particular sector will probably outperform those institutions that take maybe a broad base look at that particular opportunity. I think higher for longer persists. I'm more in the camp of a cut that happens mid to late next year. I think Goldman Sachs came out and said June, July of 24, which feels about right, maybe even a little early, and a slowly weakening economy, much like we saw on the jobs number.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Prices go down more spread, right? It's when sellers finally come to the table to go and say, I agree, and therefore we're going to sell it X. I don't think a lot of buyers are in there right now thinking, oh, well, okay, well, if prices are going to drop another 10, 15%, we're not going to execute now, but we're going to see what's going to happen over the next six to 12 months.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“So, Victor, just to be clear, you're not saying right now prices are so low, it's a great opportunity. You're saying if privately marked prices go down to match those publicly marked prices, then there could be some real bargains on the table prices go down more.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“If what Tom was forecasting makes sense and if the bid ask spread comes down, I think we may be talking about, as some folks have said here, Pretty great opportunity when it comes to investing in real estate. You do have to be very careful and you still have to take a look and kick the tires quite a bit. But all the signs are pointing to significant price declines and the opportunity, therefore, maybe off-market deals to just get in there and go and say, now we're going to go take a bet on what others perceive as a risky asset. Because that's exactly that point of the business cycle where we should be making bets on the future as opposed to being conservative.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“We've got another 8 to 12 percent decline across most asset types in terms of valuation. We've got Cash flows remaining relatively strong, as we've mentioned earlier. Economy slows a bit on employment increases a little, but we're not going to see interest rates come down dramatically.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Years, right? For more, yeah, maybe some challenges in the FHA space, but I think generally speaking, mortgage is probably going to be the hero this time and not the villain. We've seen strong growth in HELOX. We've seen strong growth in autos, things that are shorter on the curve. Not a lot of interest at all in 30-year fixed rate or anything with extension and duration, I think institutions have enough of that already. And so they're working through that. But yes, the normalization of credit, yes, the bubbling up of delinquency is the bubbling up of charge-offs kind of getting back to a 2018 kind of vintage, 2019 kind of vintage of losses is where they are, and then just institutions wrestling with that net interest margin compression loan volumes are slowing. And they're working through deposit and liability issues.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“But coupled in a handful of unique institutions. So, I mean, I'm surprised that Hire For Longer is going to Kenya. I think it's going to be higher for even longer might be the way to kind of look at it. And again, the thing that I'm focusing on is really credit and defaults. Where we've seen some stress has been the lower end of credit, the younger end of credit in cards and subprime autos. We've talked enough about, I think, commercial real estate here. Mortgage, I think, has been a winner.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Higher for longer is still there. So, you know, loans remain pretty deeply underwater just like bonds remain pretty deeply underwater and the kind of continued rate up has not helped. Institutions are still struggling for liquidity. They're still grappling with a higher cost of funds and working through that. I'm really kind of back to my comment before on trying to manage margins. It seems as if the SVB crisis is behind us, the many banking crisis, as they call it, which happened to be bigger than 2008, but that's neither here nor there.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Very, very, I don't have the numbers right in front of me, but it's small. And in fact, I think it's receding just because of with unpredictable regulatory regimes, like a lower chance of like, would you invest if you had some doubt about liquidity and whether or not you can take your capital out? There are those quote unquote institutional regulatory uncertainty. You think policy is uncertain in the US. Oh, gosh, like it's a whole other conversation in other countries. So I'll leave it.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“So it's run a little bit differently than the United States. And I'd be super just careful about broad brush assumptions about where their real estate is going. I'm not saying you have to be very careful when it comes to just different geographies. I do speak the language, for example. My wife is Chinese. And so that's one thing that I had to do, climb the Great Wall, but it's a humbling experience just now sitting where I am, talking with our folks out of the Hong Kong area. I was just there five weeks ago and just realizing how different these markets tend to be.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Town adapted after a very, very quaint British town, for example, down to the pubs. Maybe they also serve fish and chips, but it's largely empty because guess what? supply didn't follow demand didn't follow supply. They built it, but they didn't come, right? And so there are those idiosyncratic examples in China, but it's a very large, complex economy. Do you know China has just one time zone, Jack? Go from east to west, right? And we're struggling with time zones here in the US. Imagine China, and even wider country than us, where you say good morning at 2 30 in the afternoon.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Right, what are the headlines that you see out there? China is headed for a hard landing. They have printed too much yuan. This is not going to work. Their growth rates are slowing down. Newsflash. If you go from a fairly closed economy in 1978 to the second largest economy in the world, you are going to grow a little bit more slowly over the next 40 years versus the last 40 years, right? So it's a size problem. And number two, there is this great clip that I saw aggregating just news items from the West about China's business model. They were predicting a crash since 1990, right? So I'm a little skeptical about what because economies are complex. Economies are very complex. So you're right. Are there a ton of white elephants in China when it comes to overvalued real estate investments? Entire towns that were built because it was centrally planned. There is an entire...”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Jack, gosh, in Asia, we are back 80, 90, 100 10% of 2019 averages. So offices, in fact, are doing just fine in pockets in Europe and Asia if you link it to physical occupancy and where that asset class is going. So talk about just diametrically different approaches to the same asset class because of different geographies. As for China, I'm going to take a step back because every so often cyclically speaking, everyone likes questioning their business model.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Putting in too much supply of self stored kind of outstripped demand that really was not falling as much. So alts, right? Number one, more to real estate. Number two, a little bit more to alts in this search for yield in a higher cost of funds world, right? Let's see whether or not that works. And then when you take a look at just geographical differences, Jack, because you brought it out, what's the latest castle number that you guys have seen? They publish it every week or so. We're still under 50% physical occupancy. Office space, right? Despite three times, I think this is the third fall season where employers are going to try to make a pitch to get people to come back to the office, right? It's still under 50%. In Canada, it's around 52 to 53%.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Then it becomes a question of conviction or whether or not they'll still continue to invest in the asset class. That's intent versus actual. It's sentiment versus where the dollars are actually going. That's an open question because 2023 isn't done yet. But again, let's say alts are becoming more of, we call alts anything outside of the top four or five core food groups. Department office, retail, hotel, right? Industrial. Outside of that, you'll see Blackstone making all sorts of news about why data centers make sense.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Few points that you had touched upon, and Toma touched upon as well. I'll step back too to go and say if you're looking at the institutional investors world where they're taking a look at other asset classes outside of real estate, right? So for every, these are large sovereign wealth funds. These are typical investment management funds. The big blackstones and so on and so forth of this world. They have been on basically uninterrupted clip of allocating more and more of that institutional investment capital to real estate. I'll quantify it for you. In 2022, I think the actual number was around 10.8% in real estate, right? The stuff we're talking about right now, the other stuff that they could invest in are real assets, infrastructure, timber, agriculture, so on and so forth. This year in 2023, they're expecting it to go up marginally to 11.1%.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Side of things, logistics industry is changing, so lots of opportunities still there. There was concern for overbuilding, but I honestly don't see it. I think actually some of the supply chain and labor issues last couple of years have helped not get into an overbuilding warehouse situation. So that's been actually a silver lining of some of those issues. So I think there's still tailwinds there. I'll leave it at that. Let the guys comment on any other sectors or comment on those sectors too.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Not shop online. I can make it really easy if the store's a five minute nice walk in its own community. And there's all kinds of interesting things going on there. Bed bath and beyond with its closures, LL beans moving into some of those. Burlington Cope factories. So this is no longer a retail story of an apocalypse. This is an evolution retail is always evolving. So I'm actually pretty bullish on retail and it's movement forward. Warehouse still tailwinds. It's interesting because I'm going to counter my own statement here because e-commerce still has some tailwinds here, right? But it's an omnichannel. It retails now omnichannel. E-commerce is going to be there. It's going to continue to grow, but that doesn't mean brick and mortar can also continue to grow with it. But with e-commerce growing, you get more strength within the warehouse.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Retail having a bit of a moment. We're not seeing much in terms of declines. Those happened within the last 20 years, and those happened for those specific assets, class BC malls. Obviously, there's a lot fewer of those now. There's still going to be even less of those going forward. But we're seeing some interesting models of redevelopment. I'm a big fan of lifestyle, live work, play, master plan communities. That's just a pet pet interest of mine. And I'm seeing a lot of positive momentum there. I love walkability. So that's just my own thing. But I see retail actually doing well in those areas because it's a critical mass problem with retail, right? If I'm going to convince somebody to”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Any difference between other parts of commercial real estate we haven't really talked about, hospitalities, hotels, retail malls, stuff like that, where they The fundamentals, but also they're differently impacted by. Rising interest rates. So I guess we, yeah, do kind of do a lightning round on the CRE asset classes we haven't talked about. Tom, let's start with you.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Not based on that comment, Tom, but I mean, we have certain lenders that are only retail, only hospitality, only multifamily, and only certain geographies just because they're a regional lender, but not someone specifically saying, I won't do Florida and the panhandle. They just get hit by hurricanes too often, the insurance. We haven't had those specific comments yet.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“And so, I don't think we've seen a lot from the portfolio perspective of anyone really shying away. I don't know, John, on your side, you know, have you seen anything like that where, oh, I'm staying out of this market or that market, but I think it's coming or at least it's part of the conversation more than ever.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Revenues, what type of cash flow has to be coming in to support that, right? And that, I think, is going to continue to evolve and continue to be an interesting conversation, even when it comes to the migration story, right? All of this outward self, sunbelt migration. Can that maintain to those cities that In the line of the storm, for lack of a better way to put it, what are the resilience? You know, there's so much into this conversation that I think we have to have over the next, we have to be having it now. We should have been having it five, ten years ago, but it's going to be heard more and more.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“We have insures pulling out right of these areas. And that's always been a problem in Florida. We know that for sure, California, a few insurers are making statements about what they're willing to do or how they're willing to grow or not grow within those markets. But yeah, I mean, we're tracking this incredibly closely on the Moody's side of things when it comes to the geography of some of these climate risk issues. I mean, the problems are there. It's no longer this. Politicize thing, it's the reality that insurance rates are going through the roof. So what does that mean for commercial real estate in these areas? And what type of”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Those that are electing to self insure, I mean, a couple of hurricanes, an earthquake, gosh, knows what, you know, you can have a real problem in that regard. And the cost of that insurance is doubling, tripling in some cases. It's an issue. Yeah, you're right.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Is somewhat off topic, but I think it's worth mentioning you alluded to the expense side of the equation. And we haven't talked about that enough. That expenses are rapidly rising. We've done a lot of research on the insurance end of things, and it's an exponential growth when it comes to insurance within multifamily. And that is problematic too to all of this. We're talking cash flow. We're talking rents and occupancy still holding. That expense side is worrying for multifamily too, and I think it is a valuable part of this conversation.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Expenses here that need to be managed, right? But if you're looking at a portfolio, then you might actually be doing fine except for one or two dogs, right? And I think that's where this slow moving train becomes more complicated to call because a lot of these large institutional investor types that are willing to disclose a lot of price data and income data to us have a portfolio of properties, right? It's not single assets, single borrowers. So that one loan that they took is not directly attributable to that one property that may now be subject to default and or foreclosure. Yeah, Victor, this is.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“It is, but remember, and you can be cynical about this or somewhat optimistic, right? If you're looking at a single asset owner, then that math works. If you're looking at a portfolio of properties, then there's a bit of depth here when it comes to pockets and making sure that the overall free cash flow is able to service the debt. You've got one property that might be underwater, but you've got trophies and trash. As John said, you've got more trophies than trash. You can actually make those net payments, right? And so we tend to look at commercial real estate because we do need to simplify from an atomistic perspective, right? Oh, one property has rented, has gone down, and the loan is attributable to that one property and interest and principal payments are much higher than what the income, not just rents, right? But you got to take a look at the income.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Victor, what are you seeing in the multifamily world? What's your take on apartment buildings where, okay, the cash flow is still really good. It's grown, but the interest expense, it's grown so much that I guess you have a lot of properties. I don't know if Tom indicated a percentage or a number, but where, yeah, you're paying more in interest expense than you're getting in rent. That's a problem.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Was in the journal this morning, but correct. Yeah, MSCI was the source for it. But this is the challenge in the commercial world. This is why you're not seeing the valuations. This is why you're not seeing the transactions. This is the issue that I'm seeing on the trading side of loans these days.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“So we're looking at a situation where Sellers still have that hope still have that Math in their own minds. Where rates come down a little bit Where cash flows are such that support Higher values in buyers They're not ready, right? They're certainly not ready or willing to go to that level with the expectations a little bit more of, hey, Financing rates are high That means The mathematical perspective That I can't buy at that asking price.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“So we're looking at a situation where the interest you're paying on debt. Is higher than your cap rate, right? It's higher than the return. So that's an issue, right? We're looking at a situation where Gonna be tough if you had to liquidate immediately. That type of situation.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“The majority of transactions we've seen with Net operating income and the financing rates, we've actually seen negative leverage for multifamily over the last year, two years or so. Expectation, realistic or not, Cash flow will be able to grow. Appreciation of those assets will grow over time and the numbers will work themselves out when they want to exit, right? Am I wrong, guys? Have you seen the same things different?”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Never invest in a somewhat risky, a lot more risky than Treasury property if you could just buy the 10-year and go to the beach. So what are the cap rates looking now? And cap rate, I think, is a net operating income divided by the price you paid for that property. So the price.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“So, Tom, if the property was bought with a 3% or 4% cap rate when interest rates were at zero, what is the cap rate today if you factor into the price, what would you get if you sold the property now? I would say maybe I'm wrong, but theoretically, a cap rate is impossible to be lower than a treasury rate, right? Because you'd never invest.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“So, yeah, maybe a little bit for certain markets, there's been overbuilding for Class A, super high-end amenity filled properties, right? Obviously, all housing's related. It's an ecosystem. You can't look at any of those in isolation. But yeah, it's still a story of a shortage. It's still a story that from a mid and longer term perspective, housing is needed and housing will be filled. Of course, real estate's local. And so migration matters.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“It's true, John. I completely agree with you, but we're still sitting at about a 95% occupancy rate, right? And yes, it's to me, it's a bit of an issue with the Class A properties. I could see some stress there because most of the new construction is going to be Class A. It has been for the last couple of decades. And so you're going to see during some of that lease up period to compete, maybe some more concessions to get butts in the seats for those newer apartments. Class BC though, I mean, we're talking occupancy rates of 97% essentially what amounts to fully occupied and frictional vacancies, frictional movements there as people move in and out. Affordable housing, light-tech properties, we're looking at 98% occupied and some markets 99.5%, right? Where there's a waiting list of two years.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“This is the tangled web, though, right, Tom, because shelter, of which rent is a pretty big part of, is one of the big inflationary numbers that PAL so focused on, right? So you've got that circle, you've got home builders that got absolutely destroyed in 2008. So single family, to your point, we don't have enough units out there. Multifamily seems to be one of the few places we do actually have a lot of units coming online with. So you have this kind of convergence of all those issues.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“We're going to have rend growth again. We're going to have record levels of occupancy, even with a pipeline of multifamily that's strongest on record, right? And I think that's what's important about this is you're hearing some stress on the space market side of things or you're hearing some concerns of stress on the space market side of things when it comes to multifamily because of this record new supply. We also have an issue with single family and the affordability crisis there. And so that's helping demand hold up for multifamily. And that's allowing rents to stay where they are, if not increase even more and occupancy levels to be very strong and even lease up of new properties to be very strong. So cash flow within multifamily. Really There's nothing there again at this point to say cash flows are going to significantly decline.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Markets that grew a lot because people decided to see what sunnier weather looked like instead of their depressing, cloudy traditional home. It's interesting to see Victor teed me up a little bit on the housing affordability side of things, right? For that first time ever, rent-to-income ratios, national level, crested 30%, which is the HUD's definition of rent burden. That's a problem, right? We have a housing shortage of two to five million, various estimates out there, but it's a shortage for sure. And so this is important because while rent growth has slowed a little bit, right? I said it was flat over the last six months. I think that's fair and other data providers have corroborated with that.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“The difference, I think, in the US, especially is that large presence of guess who? The GSEs, right? And so the financing and liquidity for multifamily just because of a pre-election in the United States for home ownership, that's a fact, right? A very large GSEs out there really basically establishing a bit of a flaw in how bad things can get for multifamily over the long run, that does complicate the analysis quite a bit. So Tom, maybe I'll yield the floor to you because you track the markets very specifically. Yeah, thank you, Victor. And it's been a little bit of a wild ride for multifamily, really for housing in general over the last few years. I mean, we're seeing, we've seen 20, 30, even greater percentage increases in rents since 2020 for a lot of markets. And this isn't just the sunbell. It isn't just those darlings.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Has confirmed that, at least in the short run. And so over the long run, the underlying demand for rental properties in the United States will likely remain fairly robust and certain in a way that, unfortunately, the compare and contrast office demand is so uncertain right now. So through the cycle, multifamily is going to do great. But here's the bit of the caveat. Cap rates, the yield in multifamily properties have also trended downwards in general much lower or lower than other property types because of this favored status, because the prospects look so good, right? And so any kind of revaluation from cap rates that may be hovered, depending on the measure, anywhere from three and a half to four percent to maybe a 5% cap rate will result in a larger drop in values, right? That's just the math.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“I will again let you know that from an income driver's point of view, multifamily is doing pretty well with near record low vacancy rates that have continued to climb, so much so that it's actually become a bit of an issue when it comes to housing affordability because rents continue to climb, that Tom did great work, basically flagging that for the first time in history, about 30% of all households are rent burdened. So I'm going to have him talk about that a bit. I will comment that a couple of things. Number one, through the cycle, if I wanted to start with a glass half full, right? Multifamily and perhaps industrial logistics likely have great tailwinds behind them. There's housing shortage in the United States, particularly in the affordable housing side. We need a lot more construction on that, and the financing of which is not coming through.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Refinancing everything we've been speaking about right now, the overall numbers for every type of lender, including nonbank lenders, is down about 38% for 2023, according to the latest forecast from last July, from Jamie Woodwell at the Mortgage Bankers Association. That's banks, life coast, CMBS, and everything, right? Down about 38%. To be fair, it was really only down about 8%. It's a moving target because they have to revise these things, but I do love their numbers because they actually collect it from lenders, right? That's why it also takes them time to come up with a final number. Because, hey, if a very, very large bank hasn't turned in their numbers, well, those numbers are going to ship, but their latest numbers suggest about a 38% decline in originations, total for both construction and refi. John, are you hearing?”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Now, I think just real quick to add to that, Jackie, do keep on saying developers, right? There's the developers and the quote uncoat asset managers who aren't bringing new product to market but are managing existing stock in the same vein when you take a look at lending and Tom, I did listen to your quarterly economic briefing a couple of weeks ago. I do think this originations chart also includes ReFi, right? So it's not just loans. In other words, if you want to make that nuanced difference and John knows this better than I do, construction lending, gosh, pretty much to a halt at this point.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“And this is going to be maybe a once in a lifetime opportunity for a variety of reasons within commercial real estate. Maybe it's on the equity side, the lending side. Maybe it's for certain investors that have dried powder, have capital ready to go to deploy once some of that distress does come in that John was talking about over the six, 12 months, there's going to be some good opportunities for sure.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Office investors Yeah, no, we've seen a good deal of pullback, and that's coming from guidance, obviously, when it comes to some of the larger banks. They're going to have to be more conservative. They're going to have to hold those reserves. So you're looking at very little activity. When I speak to a lot of my connections at the more regional and smaller banking institutions, its relationship lending, right? They're willing to go out there with those that have strong deposits within their institutions, strong relationships. They don't want to lose those relationships. They want to do good for those folks that have been sticking around and want to stick around for a while. Because again, there's going to be more opportunities coming out of this. So there's some lending going on there, but overall, it's pretty frozen. And then that leads to Victor's comment before as to opportunities for others.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Say, well, actually, it is an opportunity, isn't it? If others Of traditional capital aren't stepping up. And so I don't think there's a Systematic data source out there that suggests that captures that kind of hedging that you're asking about, unfortunately, Jack. Back to you.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“And I think there are a lot of, like, even life goes and investment management companies really thinking a look at the high yield debt market to go”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“There's actually very, very little. Systematic data because it's private, right? But I will share an interesting perspective that is related. It is being seen as an opportunity for high-yield lenders in the space, right? If a lot of banks are pulling back because of tighter underwriting standards and just it's really hard to lend the office these days, where will capital come from?”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT