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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“Because their 2023 real GDP growth forecast is all of 0.1 because if that recession does happen and it's not quite a soft landing, we might get that right cut that a lot of institutions are hoping for. Where are you? That's not my job anymore to project these things, but Tom, maybe like where is that recession? What are we seeing? Is it not going to happen? What's Mark Zandy's feeling 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 maybe I asked the question. Sorry, Jack, Cecilia. And I know we've been hinting at it here too, but so much of where interest rates and policymakers are going is very much dependent on whether or not we encounter a bump in the road, in the economy, right? You've got a lot of folks walking back from their predictions of that recession that never happen. I'll tell you right now that there was an adjustment to Q2 GDP. It was marginal. Inventories went down. It's actually positive. It didn't change, for example, the near-term outlook of a forecasting outfit like Oxford Economics, which expects that real GDP growth in the US can't deny it. It's August almost September. It's going to be like 2%, right? But they're still expecting a bump in the road, maybe a 0.9% short, shallow recession early next year.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you've seen some large banks go ahead and put some large portfolios on the market and have had a little bit of success actually getting that transaction. You've seen that strategic default by some of the big players within office, even a few multifamily strategic defaults out there, just as they're adjusting, right? And I think that's what we're going to continue to see is this adjustment period.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“I think you're starting to feel a little bit of that. We have seen the delinquency rates rise. Kind of a word you've heard a lot in the last two or three quarters worth of earnings is normalized. We've gotten through all of the economic stimulus, what Mark Xandy and I have called the economic morphine, if you will, that was the $5 trillion that was dumped down on the consumer. Savings are working through, and those properties are starting to be identified as who the winners and losers are as the watch ratings are starting to appear on the annual reviews. That really comes back to my comment before on.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Is not financial crisis. We don't have a lot of bankruptcies out there yet. And as long as people stay reasonably employed, hey, listen, our peak unemployment rate is a shade over 4% through this cycle, right? I mean, that's pretty unprecedented. If you were to ask an economist years ago, hey, would you take at the trough of a cycle of 4.2, 4.3% unemployment rate? They'd say, yeah, that's basically full employment to begin with, right? So if you're going to maintain that employment base and you're going to maintain consumer spending a bit, Corporate pro More or less be okay We should continue to see Payments being made for retail, industrial. For multifamily from those households, again, office in certain locations, a little trickier.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“You're 100% correct, right? And we talked about this earlier cash flows remain reasonably strong, maybe a little bit below their long-term averages. And from a forecast perspective, We need to see some stress in the economy before we really going to see that type of Downward pressure on rents and occupancies, right? Obviously, yes, there's some structural change going on in office and there are properties, neighborhoods, cities that are going to struggle more than others.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“You mentioned loan to value, though, Tom, or Victor. That's one word, and Tom and I have talked about this a couple times as well. We don't even bother to use that number anymore. It's just, it... Don't even need to be in your mouth, it's very clearly just cash flow. Cash flow, cash flow, cash flow. What cash flow is coming in? We've been talking through this the entire time is are they still making a payment, the payment?”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“According to the mortgage bankers association, but a lot, if not most of Canadian loans are amortizing. You know that means that generally means lower unpaid balance and therefore lower LTVs holding V constant, less distressed debt, I think likely means less conversations around price declines and markdowns, right? It's a 50% LTV, for example, mathematically speaking, means you can take like a 50% price decline for your office property or your asset and still kind of be in okay, right? So as long as you can pay your interest and balances with relatively healthy DSE. So a really interesting geographic differences and we haven't even gotten to just office physical occupancies, which are worlds different in the US. Versus, say, Asia, 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
“Got US property values rising by over 20 from like early 2022 or mid 2020 when we thought the world was ending because we were shutting down. That was one somewhat counterintuitive finding, right? Commercial property prices, they were a slight dip for one quarter. And then while the world was shut down, property prices kept increasing Canadian property prices increased too, but only by around 10.2%. So that's much less of a height from which to climb down for Canada. And here's something for John. I think to think about lending structures do matter. There's data out there suggesting that I.O. loans became more interest only loans, became more prevalent in USCMBS lending from 2013 to 2021, went from around 51% of the total to 88% according to TRIP, for example. For bents and life goes, we do have more advertising loans. So it's not all IOs, more like 38.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“525 basis point delta between March of 2022 to last July rate increase. That's a pretty fast clip. Now Canada, the Bank of Canada began raising rates at the same time, March of 2022, but they went from 0.5% to 5% last July. So that's a 450 basis point clip and that 75 basis point delta does not seem like much. But in this world, I think that kind of matters. So that's one driver to go and say less interest rate pressure on the Canada side. The second, I think bigger driver is that we've hinted at this, but Canada property prices did not experience the same run-up from 2020 or so till early 2022 versus the US. Here's one amazing statistic from MSCI's quarterly property index, which they published for both US and Canada and somewhat comparable. The delta is more than 2x.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Hey, since you did mention San Francisco in a specific geography on topic, can I just interject somewhat of a more positive take on this? I'll give you some perspective from our neighbor up north because one, manual life is a Canadian company and two, I have global in my title. So I do have part of my remit is to take a look at places other than the US. Really interesting factoid. Do you guys know that there are generally lower markdowns for Canadian properties and even Canadian office properties, maybe I'd estimate a third or less versus the US? And so think about that. If we're looking at 16% in the US, it's a fairly marginal 5% markdown for Canadian office. What's driving all that? One, as Jack had mentioned, number one, in the US, we've raised rates at a very quick rate.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Just gotta ask another question for you in our last conversation with your colleague Randy Woodward at Raymond James, the sound of how I understood you were describing the state of the loan trading market at that time for commercial real estate was not a whole lot was trading and you'd either trade a loan at $100 for a property, a loan against property that everyone knows is money good or it's, oh, we have a problem. This is going at 50 cents. How has the liquidity in”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“That's the part to me that I kind of continue to look at. There's no forced sellers presently. There's some opportunistic sellers. We have a lot of our customers talking right now about fourth quarter. Potentially taking a loss and getting rid of some of their problem assets, particularly office, being more strategic about it because they are starting to finally come around to the fact that we are in higher for longer. That you're starting to see and feel that margin compression, which is a feel-good story for them, for them and their investors where they can say we got rid of the margin compression, we got rid of the problem assets, we've now freed up that capital to go put it into hire new origination earning assets that can qualify at the kind of current debt yields and cap rates that are needed.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Near term, it's more margin compression, right? The cost of funds are rising, their interest payments aren't quite rising with them if the borrower can't afford. To pay that higher adjusted margin or prime plus X or sofer plus X and margin. So it's margin compression. And then the longer we wait, I think the further the conversation comes into, we truly get into a credit crisis. Does unemployment start to finally let out? We talked a little about the jobs number this week, which have moved markets and we've seen rates kind of fall here recently. Is we get closer and closer to a soft landing, a hard landing, a no landing, a slow session, Tom, to give Chris Treatis some love on the conversation.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Percent is slightly lower than it is now. Let's say, John, that interest rates stay high and the tenure stays at 4% or maybe even goes up to 5%, what happens with all of these property developers who entered maturity default, what happens if they bet that interest rates would go down and they can't handle the interest expense? At what point does this start to go from a maturity default to a default default? And how can different owners of lenders to real estate commercial real estate such as CMBS, but also banks and insurance companies, how can they handle that? What do you see going forward?”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Somewhat mention that in a lot of his speeches over the last few months where we have a bit of a labor market imbalance, even though the Jolts report recently showed that, hey, quits are down, job openings are down a little bit, but we're still in a situation with a tight labor market. Demographics aren't super favorable when it comes to that. And if you have this type of tight labor market and a resilient consumer, you might be in a situation where interest rates no longer have to be at historic lows to support the economy and to promote the target 2% inflation rate that the Fed wants to get to. So yeah, we're forecasting right now that our equilibrium or neutral rate of interest is around for the 10-year treasury. Is about 4%.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“I am not so optimistic of that decline, certainly not anytime soon, obviously. There'll be volatility through business cycles as there always is, but the neutral rate of interest seems to be a bit higher than it's been in the last couple of decades. And Powell has”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Where hopefully we'll have a bit better guidance on where rates is it, hashtag higher for longer. And maybe I'll put Tom on the spot here. Tom, where will we settle when it comes to the 10-year treasury over the long run because of this regime? I'll tell you where CBRE is. They're at around 3.5%. They're seeing it spike, but it'll come down. Is that a hopeful thing? Because CBRE economics is affiliated with a broker. And wants to see it coming.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“It'll converge, right? That kind of lines up with my two to three quarter lead lag public versus private, where you're like over the next six to 12 months, we're going to see some kind of reckoning here, fingers crossed”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Maybe we're looking at, as John mentioned, another two, three quarters or so when private returns and private numbers will continue to fall. I'll give you where they're at right now on the Nake Reef side. Again, I think I cited some of these numbers earlier. We've really only seen about four quarters worth of property price declines, only three for hotel and industrial, right? And that's, I think, the question we're all trying to answer in this conversation. Is it over? The journal article, I think that they stated that it's another 12 months. Is that right, John? Let's say a six to 12 is.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“I'll give you the lags. Usually, public rates and public valuations tend to lead quote-unquote private measures of valuation by anywhere from two to three quarters, right? So I'll give you that lag. And so when you're taking a look at things like read prices versus net asset value, which by the way is improving of late because equity markets in the US have actually been quote unquote recovering except maybe for the last week or so, right?”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“But there's opacity there. There really is opacity because much like that story and the resi side with a lot of homeowners that refinanced at really, really low rates in 2021, not really needing to sell at this point, right? Well, will home prices are home prices just stable? Is there a floor on home price declines because of that less of a need to actually revalue stuff from the transaction side is the same analogy appropriate for commercial real estate at that point because of that relative private ownership and opacity that's out there. So yeah, I'll leave it there because of course we can talk for an entire hour, but back to you Jack.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Sample. That's one measure of who's shelling out the capital, who's raising capital to buy these things from a private point of view. The ones that typically top that list, you will see names like Blackstone. You will see names like Brookfield. And they are depending on their corporate structure and domicile. Brookfield's a Canadian company, for example. They have different reporting requirements and pressures internally and externally as to when this is just not an asset that's necessarily marked the market as frequently as public equities. And I think that addresses part of what John's trying to point out here where, hey, if it's going to be higher for longer, where are values really going to go and what slice of the elephant are we viewing here, Green Street? That's a great job. They were cited all over the place. So this MSCI and RCA, when they're coming to take a look at which slice of the elephant is at.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“It really does vary by geography, right? And there's still a whole lot of commercial properties out there, particularly in the US, even more so in Asia from a relative proportion point of view, that are really owned by private owners. This would be private equity real estate, firms, smaller owners that don't necessarily list their shares and or are compelled by regulators to, for example, value their assets on a periodic basis. If you want to be honest about it, you do have institutional investor pressure. So I'm talking about private equity real estate just because we have a bit of a window on that. You're going to take a look at data points published by surprise, pair, PERE, private equity real estate. You've got institutional real estate investor IEREI. They trend that stuff out. And when you take a look at their annual rankings for how much funds are raised, for example,”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“We are in that hire for longer, and the more benign the economy is, I think the greater this problem becomes because more of those loans in that debt wall continue to have to refinance into a higher interest rate. Lenders have their cost of funds continuing to grow, their margins continue to get compressed, and that kind of exacerbates the challenge going forward. They really, really need rates to fall so that we can get back to kind of yesterday's payment stream and yesterday's cash flow levels. As opposed to be slowly kind of limp into this. As to your question specific, have we ever been into a window of time where we've had 80%, I don't have that particular number in my head that I could pull out, but I would think that Tom or Victor would probably say that's historically a pretty high figure. I would guess that's pretty true.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Think a lot of people want to draw parallels to 2008, which was more of a mortgage crisis But it's a similar story. Mortgages, though, I mean, they're fully amortizing, right? And either you can make the payment or you can. I think the differential here being a balloon payment in commercial, a lender has an option. I mean, they're not getting their full principal back in that. The idea is to refinance and extend it. Issue here though, Jack, is that we haven't hit the wall, we haven't really had a credit event. I mean, the most forecasted recession in the history of ever really came to be at the end of the day. Or maybe it's 12 months from now.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah. Right, right, right, right. So that doesn't necessarily mean default, but it does mean that we have not gotten to that point where there was a refinance, there wasn't the refinance prior that allowed that balloon payment to be paid and to move forward. So obviously we're in this transition period and that John said, what, extend and pretend? Well, yeah.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Yes, so we have about a 16% payoff rate. So for those Loans maturing in August, about 16% paid off. So went through a refinance, actually moved forward. About 509 million that didn't.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Statistic again coming from the CMBS universe. We have an extremely low payoff. Had the August remittance data come in about 16. So we're looking at 509.5 million that didn't pay off. What's interesting about this, though, and John mentioned earlier, is nearly every one of those properties, those loans were still performing. There were still payments being made on them. And this is within office, right? Specifically. So again, there was some cash flow still coming in, right? There was enough to continue to make a payment and, you know, maybe remain good on this loan and go into the special servicing, go into those workouts. and see where we could go with that so that's an interesting data point again i think they're you know definitely more stress to come uh but it is intriguing to see Performing nature of many of these maturing loans”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Different property types even alts these days data center self storage great factoid a lot of the funds that were raised from so-called dry powder Private equ The self storage more than half of it, right? And so But we're talking about the stress, and there the poster child. Unfortunately, is the office actor. So that's my quick focusing point of view because we can hop around and multifamily dynamics are pretty different versus the office sector. But right now it's office. It's been in the crosshairs for a while. There's a green shoot to this, it's probably retail breathing a sigh of relief going, we've been in the crosshairs for 20 years.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“I do think that there is a focus point here. Unfortunately, we're going to have to pick on one particular property type, right? Jack, John, you've spoken about it. It's not exactly the elephant in the room. It's the office sector. It's the uncertainty around the future of the use of this asset class. And Tom's been tracking this pretty intensely, but it's really, really hard to forecast where even the income drivers from that property type is going to come from over the next few years. I'll give you a sense of my world prior to my joining manual life as head of research and strategy. We created all of these models, right? And you're like, if you're trying to forecast income drivers, how do you do that when you've got a bunch of very, very large employers who are still not sure about their space needs over the medium to long term? And so I just want to like take a step back and go and say, yes, Jack, we're going to hop all over the place.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Kind of what I said a moment ago extended pretend do we allow the customer to modify the loan to kind of limp forward in this higher interest rate but maybe they forgive a payment or maybe they allow them to go interest only for a moment or modify whatever that cash might be if you can in a perfect world get them to put more equity in get them to kind of revalue the asset but in the lack of trading data that is there and the lack of assets that are trading kind of as victor religious to that can sometimes be a problem for both the lender and the borrower Or Victor, anything that you might jump in beyond that?”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“We want new terms and it's prime plus 350 or sofer plus 450, whatever that number is. Okay, well, my payment has changed now. Well, I can't make that payment. My tenants are not there. I wasn't able to raise rents enough, whatever that cap rate might be that I'm associated with it. And so I'm still willing to pay. I'm still willing to pay yesterday's payment, but I may not be able to pay tomorrow's. And the lender has a real question to kind of ask themselves, do they want to foreclose? Do they want to kind of go down the credit avenue? Can they find some other lender that might be willing to refinance that loan out and away from them? And if so, that's somebody else's problem.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Not able to put more equity into the property. Maybe they are. Maybe that's part of the modification that they may be considering and talking through. But we're really strongly encouraging customers to have those conversations early to prepare for this particular chart so that they know what's coming due soon. And then putting a plan together on how they might respond to that, Jack.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Adjust, and then it usually balloons in the 10th year, and it's typically on a 25 year am, not always. In those regards, if that loan is maturing here in the next 18 months or adjusting in the next 18 months, you need to have a real honest conversation with the borrower, with the guarantor to kind of understand what that payment shock is going to be. And so a lot of the things we're starting to have conversations around are what we would call maturity defaults, where, okay, that period of time has come and can or can they not have the higher payment, they're still making a payment”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Victor and Tom kind of alluded to this. We just came off of a commercial real estate conference two weeks ago in Louisville. We were talking about this and encouraging our bank and credit union customers to really look out next 12 to 18 months, particularly those loans that are going to adjust or come to maturity because a lot of the commercial real estate loans we see are usually five fives. There's an index associated that's usually associated with prime. So sometimes it's associated with sofer.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“A lot of them are coming alone, coming due in 2023. I mean, time to pay it back. As well as 2024, 2025, 2027. N226. How big is this maturity wall coming to the commercial real estate developers who have to pay the money back? And how prepared are they to pay it back? And how prepared are the lenders in case they don't get their money back?”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“The income side. Properties are still generating some decent income. So if interest rates were still at zero or the borrowing rates were still at 2%, the 10 year at 2%. Maybe we wouldn't be talking about this at all. They're not. The 10 year is above 4% and borrowing rates are. Spread above that Federal Reserve raised 525 basis points in over a year. And so interest expense is up dramatically for property developers. And so how does that impact the ability of developers to hold that debt? And to what degree are they hedge? John, I want to bring you back in here because Your firm, you trade whole loans all day, some of which are involved in commercial real estate. So here we're putting up a chart of the maturation of U.S. commercial property loans, and you see that.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Downturns. This is not a financial crisis, at least not of yet, and maybe we can get to that a little bit later. But all of these office-using firms, for the most part, have held up well when it comes to their revenues, their profits. They've been able to continue to pay rent. They've been able to kick the can a little bit on their decisions or not to decrease space. Again, I don't want to get ahead of us. I'm sure we're going to talk all about these things, but I think that's an important bit of context to see why Office hasn't come down in the way that some may have thought 18 months ago. Retail, industrial, Retail's bit of a moment, but the base is pretty weak there. Retail hasn't really grown from a rent perspective in many years, starting to see a”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“I don't know if I'm ready to pop the champagne on the cash flow side of things. But it is not nearly as bad from the space market perspective compared to the capital market. You know, when we're looking at multifamily, we had a huge run up in rents. We're finally seeing a bit of, let's say, relief for some of those renters that were being squeezed a little bit. We've been flat through the first six months of this year. Looks like there's maybe some increases for the second half as recession probabilities decline a little bit. If we move on to office, it's a bit of a surprise. But if you look at the aggregate numbers, not much movement there downward. Yes, we're definitely hearing. Signs of concessions Extra free rent Not nearly the expected Maybe 25% declines that We've seen in other”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“But Last year. Okay, so let's say a modest double digit decline in values is how much the properties are worth. And there, those properties have been worth less as interest rates rise. So comparatively based on a discount rate, maybe the building should be worth less. And then interest expense for property developers who frequently use debt to buy and build commercial buildings, their interest expense goes up. So on the value side, it's not great news. And that's what we're reading all these articles about. But Victor, you hinted that on the cash flow side, it actually is not as, you know, it's actually somewhat good, maybe. Thomas, tell us about that, as well as your general outlook.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“Intuitively led by the office sector about an 18.4% decline. Since the middle of 2022, the least decline, which is surprising for some, but not me, is retail at 5.72%, hasn't been much of a run-up. Any way from the great financial crisis and has arguably been Whole structural change from e-commerce for at least two decades. Multi family down about 8.8% Industrial Hotel down roughly a bit less, but about the same 7.3% to 7.4%.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“I will just proffer it up. That on the income side, on the income side, which you haven't brought up, Jack, it's been Remarkably stable because of a relatively strong economy. Session that didn't quite happen right, but on the value side, as you mentioned, it's Some numbers Nay reef, which tends to track institutional Proper Constitutional investors like the manual life of this world tend to Uses No surprise from a timings point of view. Value declines began at around the middle of 2022 for institutional grade properties. The timing of that is Coincidence given the fact that the Fed started raising rates from 0.25 In March 2022, right? So I was just going to compare some of the numbers that you cited earlier. It's directionally similar about the 10.23% total decline peaked the current middle of 2022 to the middle of 2023.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT
“It's a tough question to answer. I think it's extend and pretend at the moment. I think that's kind of the theme. I don't think true financial stress has hit it, thankfully, to a pretty strong economy. But there are certainly signs of trouble. We're certainly seeing a lot of our customers see maybe maturity defaults as this kind of higher for longer train persists and institutions struggle with what that refinance market looks like as commercial real estate loans kind of move through a higher interest rate window. So I still think Jack, we're in early innings, but there are definitely some signs of cracks.”
2023-09-05 · Forward Guidance · "Credit Shock" In Commercial Real Estate | John Toohig, Victor Calanog, and Thomas LaSalvia · IDENTIFIED FROM THE TRANSCRIPT