YouSaid · the spoken record

Nick Halaris

lines on the record: 98
first: 2023-03-30
most recent: 2023-03-30
sittings or episodes: 1
sources: podcast

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“Yeah, thank you. You can get in touch. We have a website just called Nicolais.com and you can subscribe for free there. You can also find links to that, like if you just go to my Twitter, which is at Nicolais. There's a link to the website and people can subscribe. And we'd love to welcome you as part of the community of readers and listeners.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, exactly. Like, we haven't seen the numbers around delinquencies. We didn't talk about that one, so I'm glad you brought it up. We haven't seen a massive uptick in people being laid on their mortgage payments across the whole space. Even in the office and stuff like that, it's not even close to where it got to in the great financial crisis.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Very a lot of duration risk, they had mortgages, they had loans, which are really pretty similar things, but their loans instead of securities. So, yeah, I think you're absolutely right. But again, a lot of it's on the interest rate side, not the creditor side.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“And it's not necessarily on the credit side. It's not, oh, people aren't paying back their loans or the property has fallen below the loan to value. So we're going to get screwed. It's just money out at 3% and now interest rates are at almost 5% or are at 5%. And yeah, just because if you hold mortgage securities, it has a price. There's an index. You get all these sorts of things. So you know, oh, it's a Jinny May at 100. Now it's at 82. Now it's at 78. But a mortgage, yeah. totally different and obviously there are there are standards and yeah i think a lot of loans are held to maturity but it really is the same asset mortgage back securities are just bundled loans that are secured you know agencies are secured uh by the government and for example first republic bank they did not have a lot of securities on their balance sheet some um municipal debt but not a lot of the stuff that silicon valley of agency mortgage securities that's negative quexy”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“That's right. And I'm not a super savvy bank balance sheet But I have to believe that there are issues at all these banks related to their real estate portfolios. And I don't know whether these loans that they hold. A lot of times the banks will sell these loans to investors and so they get them off their balance sheet. But let's talk about the real estate loans that are currently held by the banks that are sitting on their balance sheet. Are they in the hell to maturity category? What are the mark-to-market provisions for those? I don't know, but I have to believe there is a lot of damage hidden in those numbers.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, like yourself, I'm looking forward to having you on. You're one of the first people I reached out to when I started thinking about recording guests. Just leave a preview because I hope all of the audience at forward guidance comes over and listens to the episode. But I feel like you've been at this for quite some time now and you sit at this super unique place where you are regularly interacting with some of the smartest minds in finance and economics in the whole world and learning their theories, learning their points of view, learning how they break down complicated events like the Silicon Valley Bank crisis or COVID or whatever. And so I know that all of that exposure has produced some super interesting opinions and thoughts in your mind and I can't wait to unpack those.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“how to think differently or better about just the challenges of living in this modern world. And those articles consistently get the most sort of positive feedback from my readership. People trade those articles around. They trade some of the finance ones too. I have been writing about both all those topics and we're launching a podcast soon to accompany the newsletter. It's going to be called the Nicolera Show. And we started recording episodes just recently and it's been super fun. And it's going to be a continued exploration of the art of investing and economic analysis coupled with this personal growth stuff. And I'm super excited to put it out there and see what people think about it.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's about more than real estate. Yeah, it started off as a newsletter that was about the art of investing in macroeconomics and finance topics and also real estate, just because I happen to have a lot of on-the-ground intel and experience in real estate. But it's always been in its intention much bigger. And something really interesting happened over the past like two or three years. I started writing these other articles, which”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think like, I don't know the inner workings of these firms, but I have to imagine that. If you are on the other side of that and you had to decide which portfolios to sell to meet the redemption, single family rentals in America would be like the last on the list. You might as well just get rid of some of this other stuff if you can. That because it has such good upside to it.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“I think so because Again, unless you had a really bad capital structure, like none of these firms are selling these portfolios en masse or just holding So as long as they aren't a force seller, they'll just hold the rentills and they'll hold them for probably a long time, maybe decades if they're smart. That's what I would do.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“There are good arguments to think that we should think about that from a public policy standpoint, but from an investor standpoint, I feel like there's going to be a wall of money coming at that space because it's. Is so well positioned from a supply demand standpoint.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Last 10 years, that industry kind of came up, and now is a pretty robust industry. You know, there's publicly traded companies that do this, and there's a bunch of private companies that put these portfolios together. And there's like this growing symbiotic relationship between the publicly traded home builders and these groups. They get themselves into PR trouble because they do these transactions where they'll sell, you know, let's say it's an 800 house subdivision. They'll sell like half of them to one of these rental places. The politicians, local politicians get mad because it's like, hey, isn't this supposed to be for homeowners? Isn't this?”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Single family house rent, not multifamily, multi family is basic apartment buildings. The single family So, single family households become more of an institutional, right? Institutions didn't really do that at all. They did multifamily for a long time, but that's really been adopted, right? It's investing in single fam”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Institutional pension type funds in Asia. And he said their number one target is American houses for rent. They want to put all their almost all their allocation. They want in America and they want almost all of it in single family house for rent.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, not nearly. Yeah, I think there are some markets. And it's pretty clear. Like if you look at that segmentation of that Killer number and you see the GoGo COVID markets, those are already coming down and they're coming down in some cases in the double digit percentage. And that's because the COVID era is over and this work from anywhere stuff is over too. It's not completely over, but it's not going to be like it was during those two, three years. And so those markets, it didn't have the jobs to begin with. And now people are realizing like, well, maybe I can't really relocate to five hours away from my place of employment. Like I need to be closer. And so that's why we're seeing that. But I think on a whole, that's housing is well positioned. And one of the best assets classes in the whole world, like I was meeting recently with a friend of mine who does private real estate private equity on behalf of large”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Wow. So that somewhat grim outlook you have where you said, Do you think prices go down more? And you said, yes, probably. You were talking about commercial real estate office, retail, industrial, and multifamily where you work a lot in. But in terms of individual homeowners housing as an asset class, you're not nearly as bearish.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“If you look at the trajectory, like there's less housing than there would have been, if you look back at the end of 2021, for example, a bunch of people pulled back on the project. So it's only going to get worse. So like housing. Come roaring back, and we might see a time of double digit increases in that case Schiller index before too long.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“There is price sensitivity still for sure because the American income statement for the American households is not that good and neither is their balance sheet. But every time there's a drop in the mortgage rate, like February, I think there was a good print. There was like a 50 basis point drop in mortgage rates and it was up 15% or something like transaction volume went up. So like that signaling to me is COVID era demand is still here and people are willing to pay. And if we do see a moderation in interest rates, which is one of the potential scenarios you and I have been talking about, like that will come back and that will kind of be my hypothesis is that housing will probably be kind of the leading edge of whatever we come out of this on because there's just so much pent-up demand. There's supply challenges that existed for at least a decade and those are those haven't really gotten any better. They've gotten worse.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think there was a moment of shock when interest rates went up that high, and you see this play out in the national data with like housing transactions went down precipitously, right? And then after the shock set in, I think people, again, it's a psychological thing. People want housing so much that they are getting over the fact that it's going to cost them more money. Like when we go to restaurants and stuff, we realize that the glass of wine or whatever we want to order is $20 more than we want to pay, but we do it anyways. People are making that decision. And actually, the data that shows this”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“And my hypothesis, just based on what I'm seeing here locally in LA, is that that COVID demand for housing has actually not gone away. It is still there and it is maybe even as strong, maybe even stronger. And because what we're seeing is like reasonably priced houses in LA, they're still getting bidding more, not bidding wars, but like it's not like one person bidding. It's like 15 to 20 people bidding.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so one thing we didn't talk about, but which we should, is the housing market. Because I think the housing market is one of these One of the most interesting and important sort of sectors for the entire US economy and maybe even the global economy because it's such a big deal. And we saw something really interesting during the COVID years. So we saw this sort of massive psychological resurgence in the desire for homeownership. It manifested in. All kinds of crazy stuff like prices going up 40 or 20% year on year in places that didn't haven't experienced anything like that ever, like Boise, Idaho, for example, or other of these sort of hot COVID markets.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Retail has been interesting because in the pre-COVID era, retail investors were real negative about retail for many reasons. And if you think about what happened during COVID with this explosion of online sales, I forget the number, but our economy went significantly more online in terms of the economic transactions volume. But retail properties, especially decently located ones, have done really well in the post-COVID. If we can call what we're living in today post-COVID. I think it's post-COVID. Hopefully it is post-COVID. In the post COVID era, retail is having a little resurgence because there's this psychological shift in the minds of consumers where the desire for experiential consumption has gone back to where maybe it used to be. And so retail owners are finally not the most hated asset class anymore. Office has that for now.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“We haven't seen mass foreclosures. We're seeing that we're seeing early signs of some, but we haven't seen any real damage. And outside of office, like fundamentals have deteriorated a little bit. Like even in the high flyer sectors of COVID, like industrial, which we didn't talk about much, but like industrial was on this crazy bull. And they've gotten hurt a little bit, but they're still like, man, they're still humming along. And I don't think we're going to see a lot of damage in that sector. Almost no matter what happens. Obviously, if we get a great depression, then there'll be damage in that sector.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Think so. I think if you, unless you're one of the in a situation where you have a bad capital structure or if you have like capital partners who are demanding their money back or something, then you have to sell. Most people, investors and developers are trying to be patient. And so far, you know, It seems to be that's”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you could be right. And the moderation in interest rates would be good for real estate developers and also if bank lending slows to a point that inflation comes down, but it doesn't have a sort of a contractionary spiral that leads to a severe recession. Yeah, who knows? Nick, the real estate industry is well known for its ability to kick the can down the road. If you have a stock, see at 40 and it has problems, could go to 20, could go to 10, but these buildings, they very rarely transact. So you can just keep it on the balance sheet at par and just plow through the snow. Is that kind of the plan for a lot of real estate developers?”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Of these banks, but let's also not crush the market with high interest rates and let's not have a massive jobs recession. Like they might have just threaded this needle in this, the banking, this whole banking crisis was like a gift almost to the Fed because it allowed them to tighten or it allowed the market to tighten without having to do the inevitable mathematics that don't make sense for an economy as leverage as ours. Our economy is so leveraged. You can't have rates go where they win in the 80s when they try to crush inflation with super high rates. It just doesn't, the math just doesn't work. It's like pension funds get underwater, the federal government gets underwater. So maybe they walked this tightrope and everything will be okay. Like there's a little damage yet, like the equities, market's down 20%, but we'll get through this. And next year at this time, like we had this conversation year from now, we might be back in a bull market in all these assets. Maybe except for office, but like housing might be in a bull market, multi.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, there's another scenario here that is positive, which is like, okay, back to my tale of two reckonings. The one reckoning was like 7% Fed funds. That's terrible for real estate. I don't really see how real estate, unless the curve was so inverted that you could get decently priced debt because of just the raw fact of the yield curve inversion, unless that was something that stayed around for a period of time. Real estate was going to like really struggle through that. The crazy thing about what we're seeing today is there's a scenario where like the Fed like comes out of this and everything's good. Like there's no big recession and there's no big wipeout in values for commercial real estate because of this dynamic, which you just mentioned. Like they just might have walked a tightrope of like, let's not prevent a deflationary bust like we got in the depression or the GFC.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“COVID years because of the house price going, which you just mentioned. But real estate companies have been firing people left and right. Like if you look at the reports, like the headlines, the mortgage companies are firing people. The big banks are firing people who work in their mortgage departments. Like we're already seeing massive job losses in that sector as well. And I think it gets worse. So for multi, the question is how bad it gets is a function of how big of a recession we get in what the unemployment picture looks like.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“I do. I do. I think it ultimately the story for multi depends on how severe of a recession we get. So I'm firmly in the camp of like, man, so just a matter of time before the data starts to show that we're going to have a recession. And maybe it won't be a nasty one. Like everyone's, not everyone. There's a bunch of people who live through the last one who think like, oh, man, here we go again. Banks are failing. Like we're about to see a massive unemployment spike and get a huge recession. Maybe that happens. I don't know what the probability of that is. But I think for sure we're going to get one. It's the math behind all this is like inevitable. Interest rates or hides, choking the economy. The leading edge of the economy, which was crypto and tech, just got smoked, like literally like existentially smoked in some cases. Money just disappears, gone, and jobs are gone. And now real estate, which was a bright spot. Real estate was a bright spot for a decade, had a huge go during the...”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“And then obviously the numbers are different based upon what types of properties you're talking about. So class A, nice properties in desirable neighborhoods, they're probably down 10, 15, class B is down 20. Class C could be down maybe more than at 30, 40 percent in some cases. LA was interesting because despite all of the fundamentals like looking completely upside down, like we talked about, we haven't seen much price discounting yet here, probably like more along the lines of 10% citywide, almost regardless of the type of property class A, B, or C. There was probably around 10% here in LA. And I think that's a function of liquidity. Ultimately, LA is a much more liquid market because there's all kinds of players and where the Southeast is just not as many players, not as much transactions. And so they had a Sharper decline.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“I think it depends on the market, but Atlanta, going into the banking crisis, I felt like Atlanta was probably down 20% from the peak. So peak being like the first half of 2022. So it was already a pretty big kind of, I guess it matched the equity market, right? Like the equity market was probably down 20% in that same time period.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“So today we got the case Schiller data home prices, and for seven months in a row, nationally home prices have fallen. But that's, I think, on single residential units. What has the market been looking like for? Your world, how much prices have gone down if they have at all?”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Somebody else getting out of it saying, you know what? I'm like, I don't want to build it or I can't build it or I can't get financing to build it. And what's ultimately going to happen is all that stuff's just going to get put on hold. It's really hard to get a loan. It's really hard to make these deals pencil. And so the housing supply, long story short, in a place like LA or New York or San Francisco, fast forward to 2025, it's going to look worse because none of these buildings that we're supposed to get built got built. So that means again probably more inflation potential for the rents and the value of the land will probably go up because there's less supply. It's bad for affordability, but maybe good for the owners of the real estate like myself. And that's gonna happen across the whole country. It's not just a coastal thing.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“The potential for liquidity to go out of the system, what that means for housing supply is pretty negative. It means new apartment deals are not going to get done because there's no financing for them. And we're already seeing that in and around LA. LA had a decent pipeline of deals, like if you look at like permit applications, it looked like, oh, we got 100,000 units or something that are going to come online in the next few years. Every day I get another listing from a broker of developers who are trying to sell these land sites that are basically ready to build.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Totally. And that dynamics is going to get already started to get worse. Essentially, America has a massive supply problem for living space. And it's a function of the crash, which destroyed the single family market and a function of NIMBY anti-development policies that are not just the function of the coasts. This is happening all over the country. Up preventing development for various reasons. So, in the multi side, there's this structural tailwind, essentially, and that's only actually going to get worse from the perspective of the American household. Because what we just talked about was this banking crisis.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“And buying a house is now so expensive because the price of real estate exploded 2020, 2021, and it has only gone down like 5% or 6%. I think the K. Schiller came out today. I'm sure the real numbers are maybe a little worse, but housing is still expensive, and then mortgage rates have exploded higher. So even if, oh my God, rent is so expensive, it's still cheaper than to buy a house.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Even though I do think we're reaching sort of the natural limit of the amount of inflation we can pass through, it doesn't mean you can't pass through any.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yes. Yeah, like I joke, like I'm basically leveraged long real estate at like 99%. This is my whole portfolio. Like a lot of real estate investors, like once you start investing in real estate, you don't really invest in anything else. I've been attempting to diversify and I've done a decent job, but I'm still like way overexposed to real estate. And fortunately, I'm in a relatively conservative part of Whole space, and I own a bunch of buildings that. Fortunately, we have these fixed rate debt instruments on them. So I have a few that are not. Like we have some developments that have floating rate and some, so it's not like we're without risk. But I feel okay in general about our holdings and most of the multifamily space. I feel like there's dynamics in housing that are worth exploring that I think provide a big tailwind to multi.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I'm soon going to be interviewing an investor who invests in commercial mortgage-backed securities. And they're quite short, some sort of. Lower graded tranches. And some of the double B tranches I'm here are trading at like 50 cents on the dollar. Which correlate in office, but multifamily Nick. And people should know that you are not someone who has a newsletter called RealestateCrash.com. You are an investor who benefits from being long and benefits from all this stuff going up. So people should pay extra attention to you that you have a somewhat bleak outlook. Yeah, I mean, what do you think happens”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“So, going into the banking crisis, office in LA was already down as much as it was down in 900. Now it's looking like it's going to get worse, not better because the employment picture, everything is going wrong for office at the exact same time. We've got this refinances, you've got the banks sort of out of the game, and you have fundamentals that are deteriorating. So it's pretty bad picture for them.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“It just creates this negative death spiral going in the wrong direction for banks, which are levered as we everyone's reacquainting themselves with the fact that banks are levered in a fractional way. And so you don't want your assets, the banks' assets, these loans on real estate to just go to zero. It only makes that equation worse. So I hope they figure out some way. Incentivize the banks to keep lending or provide some kind of additional liquidity program that would prevent this from happening. But if it doesn't, yeah, it's going to be bad. Real estate's going to get crushed. It's already happening. I mean, there was LA, for example. This is pre-Silicon Valley Bank. LA office market transaction volume was down 75% year over year and the pricing was down 40%. To give some context, I think commercial real estate in the GFC was down 40”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“You were to think about the property types and imagine that my hypothesis is correct. Imagine that it goes to zero. What's going to happen to every of this, whatever, $250 billion, I think is the number it's coming due in the next 12 months. Man, if they don't do something different, it's going to look like 2008-9, right? Unless the private, unless there's some resurgence of private capital, private lending, which exists, it's better than it has been. That's one of the consequences of the post-GFC era is that there is this other market. It's like funds essentially, debt funds out there that do offer loans. Yeah, it's going to be bad news. You're going to see a bunch of foreclosures. Now, I hope that the banking regulators have learned their lesson, which is to like, it's a bad idea to allow a bunch of mass foreclosures.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“They're still funding our draws. Still claim they're at the table for loans even. So maybe I'm too pessimistic, but I have a feeling that when all is said and done, the result of this little crisis is that real estate lending is going to get seriously hurt. Like it might go transactionally go to like near zero for a period of time as the banks figure this out. And that's bad for real estate because you don't do unless you have a whole bunch of cash on the sideline even if you're one of the Blackstones of the world like you use leverage in real estate because you need to. It's the only way to make the returns interesting enough for your investors.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“And so, what that means is if the smaller banks are in an existential crisis, the leading edge of new real estate transactions just got smashed. And it's not coming back. Like I don't see a scenario where like all these banks all of a sudden want to put their deposits at risk in Ill Liquid real estate deals that take for years to pay off. So it's created a situation where liquidity now is going to come out of the market for a different reason. It was coming out of the market slowly as a result of this refinance wave because of rates. And now it just came out like all at once. Boom. Like I don't, we talk like we bank with First Republic and they've been great. And honestly, they're the best bank that we've ever dealt with, but maybe that's a subject for another. Not the first time for this.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“And the reason I'm writing about it is. If you look The data a huge percentage of the commercial real estate loan originations were happening at these sort of smaller banks. Not that $250 billion is a small bank, but smaller than the systemically important big banks. If you look at the lines of commercial real estate loan growth separated out by big bank versus small banks, like the small bank line goes like that and the big bank is basically flat. The big banks are still in the game, but they're just, they weren't responsible for the growth. And the number that I saw is like 80% in the last few years was being originated by these banks.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I think a lot. Short answer is a lot. This is a huge moment in time. You know, Think essentially, real estate in 2023 was headed toward a reckoning. In my mind now, it's a tale of two reckonings, right? Like reckoning number one was this capitalization reckoning that's related to the 7% Fed fund scenario. Let's say none of these banking stuff happens. Almost certainly Fed funds is huge. And there's a bunch of deals that have to be refinanced over the next few years. That's kind of bad news for real estate. So that was what was about to happen, right? And we were seeing stuff already. We're seeing foreclosures. Now the game has changed a little bit because it looks like the Fed tightening cycle is coming to like a rapid end, right? And even like I think Goldman Sachs put out something today or yesterday, something like that saying like, oh yeah, this banking thing is the equivalent of like 100 basis points of hiking. And they're probably right about that.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“So, how does the recent banking turmoil affect this? So, the Silicon Valley Bank headquartered in Silicon Valley fell, signature bank fell. A lot of other banks have had withdrawals from their uninsured accounts. How do you think that impacts the multi-family real estate business, the real estate business?”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Even in the depths of the GFC, people were trading those and weren't taking big losses on. Such premium real estate, yeah.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and it goes back to this example where we were talking about the Beegetown Lato Cap. You have these buyers who are not financially motivated like a normal investor. Because they're looking at and saying, okay, well, I got a tax problem. So, I'm going to buy this building even though it has no return, maybe even has a negative return. It doesn't matter. It's worth it for me because of this tax treatment. And then secondly, the reason why in LA, it's become a thing is because LA is actually relatively liquid. So like that Santa Monica apartment building that's at a two-cap, you can basically get out of it whenever you want to.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT
“No, this is the ubiquitous practice. I don't want to pick on Trump. He is not the only one. Every single person who owns real estate in America is doing the exact same thing.”
2023-03-30 · Forward Guidance · Commercial Real Estate Is In Serious Trouble | Nick Halaris · IDENTIFIED FROM THE TRANSCRIPT