Willy Walker, Chairman and CEO, Walker & Dunlop

Walker & Dunlop brings you insights for life, unique perspectives from impactful

leaders. This is the Walker webcast with Willie Walker.

I love going and speaking at universities across the country and it's a real honor for me when

I go to universities that I could have never gotten into and in some instances that's a

debatable point but at MIT that's a very clear point that I could have never gotten into

MIT so it's a real honor for me to be here today and talking to all of you. The other

thing that I would say, my friend Charmiel Modi just walked in and Charmiel went to Harvard

College up the road but was he was his class day speaker at Harvard and if any of you get

a moment you ought to go take a look at Charmiel's class day speech because it's a great one.

With all that said it's really fun to be at MIT today and having gone to business school just

up the river. It's always fun to come back to Cambridge and see the Charles River with all the

activity going on and the cruise shells and I ran the marathon a number of times when I was

here and that was just last week and I had three of my business school classmates who ran with me

way back in the dark ages who all went and actually ran last Monday which was really great for the

three of them. So let me dive into the presentation. I want to get to signal versus noise.

I typically like questions during presentations but I guess from an AV standpoint it's better for

us to wait until the end when we have the mic that's going to go around so just if you got something

that comes up in the middle of it just hold the question and we can back up to the slide if you

need to but it's just easier from an AV production standpoint for us to do all the questions at the

end when we've got the mic going around the room. So title signal versus noise what are we?

It seems like there's a lot of noise in the markets today not just in the commercial real estate

markets but just sort of broadly and so the idea was to just kind of dive into a little bit of

the data that might be able to pull out signal versus noise and what we're seeing in the markets.

So let me dive in here. So what was expected in Trump 2? What was expected in Trump 2 is lower

energy prices, immigration reform, lower taxes, increased M&A and deregulation. Those are the

things that sort of everyone said this is what the second Trump administration is going to bring

to the world that we live in and on pretty much all of those the Trump administration has been

very effective at actually putting in policies that have sort of delivered on all of that.

You can see here M&A back and being bolder than almost ever hasn't quite hit the peak of 2021

that you can see in the middle there but you know number two over the past decade as it relates

to actual M&A activity. The other thing on that black line is that's the number of transactions.

So as you can see the transaction is actually getting bigger right as that goes down and the

aggregate amount goes up. It's just bigger companies, more M&A activity which was something that

we'd expected to see and 2026 from both an M&A standpoint as well as from an IPO standpoint

is looking like it's going to be a wildly active year in the capital markets. One of the big

questions that I have is as companies like SpaceX and some of the AI companies go public,

sort of where does that capital come from? If SpaceX goes public for a trillion five valuation or

a two trillion dollar valuation that's capital that has to come from somewhere. Are people selling

other holdings and migrating into it? Are they getting out of a private credit position to go

buy into those IPOs? Where's that capital come from and what does that mean for the broader markets

as you get trillions of dollars of IPOs coming out in 2026? Tax cuts. The big beautiful bill

gave tax cuts across the board to every level, every quintile of taxpayers has more in their pockets.

I think one of the big things that people were projecting for right now, if you rewind the clock,

when the big beautiful bill got passed last summer, many people were saying there's going to be a

tax refund that goes to a great number of Americans and they're going to get an average check of

$2,200 in May of 2026 and that's going to stimulate a lot of economic activity and then the

around conflict happened and sort of everything's kind of gone to the side. But in a normal course of

business you would have been getting these refund checks off of the big beautiful bill that would have

put a $2,200 on average into people's pockets, which is sort of like the stimulus bill that went

through during the pandemic, which would have driven a lot of retail spending. We'll see whether

all that plays out given the backdrop of the macro situation today. Border encounters, you can see here

the Trump administration clearly has been extremely, if you will, effective in implementing the

border security that they had campaigned on and said that they were going to get to.

I will show later on something that shows the implications of this as it relates to the demand

side of the equation on rental housing, not an insignificant issue. And then crude prices.

One of the interesting things on this is you can see back here when Trump came into office,

crude prices were at 80 bucks a barrel. They got down over here on the far right in January

down into $56, $57 a barrel. The back of the envelope number on what that means to inflation

is that for every $10 change in the price of a barrel of oil, you pick up about 20 basis points

in the CPI. So as you went from 80 bucks a barrel down to 60 bucks a barrel, you're picking up

$20 or you're picking up almost 40 to 50 basis points in the CPI because oil flows through everything.

And so in that, you could have seen from going up here down to there that

the probably new Fed Chair, Kevin Warsh, would come into his new role with a backdrop of inflation

sort of being under control. And then all of a sudden around hits and we see where oil prices have

gone. And so now you go to the other end of that. So from 60 to 100, do the math, you're adding

almost a percentage point to the CPI print if oil prices stay up at that level.

And on consumer sentiment, this is the one side do it all. You kind of look at the,

where the stock market has gone. I got a chart in the second on that. But this is the one that I

think probably confounds people in the Council of Economic Advisors as well as the president himself,

which is that they look at the stock market doing great. They look at all the innovation that's

happening in our country. They look at our country versus other countries and they say, man,

we are doing a great job. And then they look at this chart and they say, uh-oh,

but the consumer isn't sort of behind us. The consumer isn't feeling good. The consumer isn't

right now feeling any better off than they were when Trump came into office back here. You can see

it's actually fallen kind of off a cliff. And so clearly, forget about the politics of all that in

the midterm elections. This is one of those data points that I'm sure as they look at all the other

charts of what they set out to do and have delivered on. They look at this and they say, what are we

missing here? As I said, where are we on the equity markets? This slide's a pretty interesting one.

If you look at, you know, inauguration day where you had the 10 year is the black line and the

blue line is the S&P 500. And those two were inverted in the first year of the administration. They

drove the cost of debt down and they drove the equity markets up. And most people would look at

that and say, hey, we're doing a great job. Then all of a sudden, obviously, they converge

together at the beginning of the Ron conflict. And then, um, you can see the recovery that's happened.

The question I would have right now is if you will, how real is that recovery? Like,

do these two charts continue to move away from each other? And S&P continues to go up

and the cost of debt continues to go down? Or do they turn around and get back to the two

convergence points you see on this in July of last year and then in March of this year?

K-shaped economy. You hear a lot about this. This slide back to January of 23 really shows you

what has happened as it relates to consumer spending on the upper portion of the economy and the

lower portion of the economy. So since 23 and the great tightening or the cost of debt went up,

credit card payments go up, um, the cost of flying on an airplane goes up, everything else.

You can see here that the top third of the economy earning over $250,000 annually,

that's actually a smaller than a third, are the ones driving the spending. And then the rest,

which is earning less than 75K annually, has sort of fallen off precipitously.

A lot of people have talked about the sort of the fatigue or that the the U.S.

consumer is going to kind of give up. So far that hasn't played out. You look at consumer credit

card default rates. While they have gone up significantly since the post-pandemic era,

where they got to historic lows, they're no different than they have been on a historic average

as it relates to both de-cused linkancies as well as default rates. And so the consumers actually

held in better than many people had thought, but the K economy here really does show you that the

majority of consumer spending is happening in the top part of the economy, not in the lower parts of it.

How has the K economy played into multi-family? This is kind of an interesting slide for two

reasons. One, you can clearly see here on the 76 basis point difference between class A and class C

multi-family, that there is a huge difference of the newer product, more amenitized, has a big

pricing advantage. But then look at vintage for a moment because I think vintage is really interesting.

You sort of ask yourself, how is it that assets that are newer or from 2020 until today

are trading at a higher cap rate, or as you all know, a lower value than a 2010 or 2000's vintage?

And the issue on that one is the fact that Core Capital has basically pulled out of the commercial

real estate market over the past couple of years. And it's been that value ad capital that has actually

been active in the market for the past couple of years. Hence, those investors of value ad capital

are driving down cap rates. And the pullback in Core Capital is what has made class A newly

delivered actually traded a higher cap rate for a lower value. But as you can see here,

I spoke to Avalon Bay's development group last week, and Avalon Bay is going right at that

higher end product. And what they're building and what they own is directly targeted at the

upper part of the K economy. And as a result of that, they're seeing rent growth and they're in

the right markets with the right clients. This is an interesting, this is on multi-family

investment sales volumes. So a couple of things jump out to me on this slide. First of all,

look how consistent the market was from 2015 to 2020. You sit there and you're like, oh,

there'll be one year that's good and one year that's bad and whatever you mean. It's literally

right on top of each other for an entire five year period up to the pandemic. And then obviously,

we have a big dip down and then we have this big spike back up. The thing to keep in mind here is

we're talking about kind of a recovery of the markets right now and you'll hear myself and other

CEOs of services firms talk about the markets are recovering. The market's pretty much recovered.

If you look at the average volume for the last year, it's back to pre-pandemic levels.

The thing about it is that a lot of us look at this and say, you know, investors and walker

and delop look back and they say, well, why aren't you back at these volumes? Who knows whether we

ever get back to those types of volumes? But from a normalized market standpoint, you can see the

hiking period, the trough and now we're in that recovery period. But as it relates to overall volumes,

we're pretty much as far as multi-family investment sales, we're sort of back to pre-pandemic levels.

This is a interesting slide which doesn't take all of you with your MIT soon to be degrees to understand.

This hindsight is obviously always 2020 vision. But go back and look at the spread.

So this is cap rates versus the 10-year. Light blue is the cap rates. The dark line is the 10-year

treasury. And then the bottom one is W&E track institutional sales. So this is multi-family

institutional sales and the volume of multi-family institutional sales. Obviously, you've got the

pandemic that comes in right here in this moment. And so you have no activity during the pandemic.

Everyone's gone home. Nothing's happening. But look at the spread between cap rates and

interest rates. It does not take an MIT degree to realize that this is a really good time to be

buying commercial real estate and buying multi-family. The spread between what you're paying

in interest rates and where you are from a cap rates standpoint. And then of course,

everyone sees this and they go, great, now it's time to buy. And look at what happens to volume.

Everyone gets the memo here and they get to a point here. The problem with that is you really

didn't want to be a buyer right here. And by saying what I just said, I'm insulting every single

walker and no-op client. Okay? So I know this is going out on our webcast and to everyone who's

going to be watching you know this. I'm not trying to be. I'm not trying to. But the hindsight's

2020 vision. And almost not all the deals that happened here are quote unquote in trouble.

But this is sort of a vintage of deals here where cap rates and interest rates are compressed.

Where that's not a great vintage. If you bought there, you're probably not getting into your promote.

And I just put this out here because as you go into your careers and you see a chart like this,

you just sort of say let's make sure we're looking at the data when we can see a spread like that

and say let's take advantage of it. And then you see this collapsing of the two and you sort of

say maybe now is not the time for me to be buying. What's amazing to me is the amount of institutional

capital that sees all of this and they say we need it on the party. Like got to go, let's go buy.

And they made a buy here or here that they now look back on and say maybe we shouldn't have jumped

into the party at that point. So this slide is on debt volumes. The thing I love to look at is that

we pull this from the Mortgage Bankers Association. So this isn't our data. But I will also tell you

I've been in this industry for almost a quarter century and I have yet to be presented with by either

my team or the Mortgage Bankers Association a slide that goes down here. It's always up into the

right. Somehow or another the future always looks nice. And it obviously doesn't always go that

way because back in right here where they were projecting it to continue to go to the right we fell

off quite dramatically. The one thing to keep in mind on this chart is that this is all based off

of maturity volume of maturity schedules. So it says there and says okay you did a huge amount of

debt in 2020 and 2021 right. A billion five between those two years. A trillion five excuse me

not a billion five a trillion five. And you sit there and you say okay most of it was 10 year paper

project out 10 years and you go 2029 and 2030 you got to redo all that paper. A lot will be

redone in between but you know from a maturity standpoint these two years are going to be

significant years given the amount of volume that went on in these two years. The thing to keep

in mind that is very different is the following. In 2020 just on our agency volume at Walker and

Dunlop we did $20 billion of lending with Fannie Mae and Freddie Mac and in 2020 at W&D we did not

do a single five year loan. Not one zero. Out of $20 billion in 2020 we did not do a single five

year loan. It was all 10 year paper some seven year paper and some longer than that but the great

majority of it was 10 year. So all that $20 billion that we did in 2020 is set to re-fi in 2030.

Now go to 2025. Last year of our $16.8 billion of lending with the agencies 63% was five year paper.

63% was five year paper. So what you're getting here is you've got all of these

maturities in 2020 and 2021 as well as all the maturities in 2024 and 2025 that are all going to

pile up right here because the market is shifted. Now why did the market shift? A lot of people look

at where cap rates are right now and I'll show you a slide in a second as it relates to buyer

sentiment, seller sentiment and builder sentiment but they look at cap rates right now and they say

I don't want to sell at this elevated cap rate and so because they don't want to sell at this

elevated cap rate they say let's just kind of re-fi the asset but I don't want to put 10 year

financing on it because if I decide to sell it in year three I've got a lot of yield maintenance

that's left in the mortgage that I have on the property so I want to go shorter. Let's go five

and so first of all it's prepayment flexibility why they've gone five and the other thing is just

the steepness of the yoke curve five year borrowing has been significantly cheaper than 10 year

borrowing and a lot of the deals that need to get redone in 25 and 26 were bought you know back maybe

they were bought in 21 or 22 with a three or five year instrument on them and that cost of

financing has made it that the performance of the asset is such that they need every dollar they

can possibly get and so as a result that they're going shorter at a cheaper cost of capital than

going longer to a higher cost of capital and so that is made a very interesting dynamic in the

market a that everyone's borrowing short and b you're going to get this big pile up in 2030 and

potentially 2031 depending on what volumes are in 26 of five year and 10 year paper that all

needs to get redone at the same time one of things we're talking to a lot of our customers about is

you may not want to have a re-fi coming up in this window and you might want to try and push out

if you possibly can and not have it come up for refinancing at these at the same time

so here's the buy build sentiment slide for one second take a look here remember where we were in

21 and 22 when i was talking about that volume spike okay this should remind you of one thing

markets are made by buyers and sellers but if nobody wants to sell you really don't have a market

okay everyone back here was a seller all the dark blue is the sales everyone was a seller it's like

I love that cap rate let's go let's sell it okay and you could see the buyer sentiment is the light

blue which was you know a lot of people you say are you a seller or a buyer it was like no I'm

more of a seller today than I'm a buyer but obviously there are plenty of buyers to buy and as you

can see the build sentiment moved from q3 21 and pretty much went straight down until right here

in what is that q3 of 24 so everyone was I'm a buyer or a seller but I'm not a builder and now

all of a sudden you can see the build sentiment coming back out okay the interesting thing look at

how much is in light blue so there are all these buyers out there they're like I want to buy I want

to buy I want to buy but there are no sellers at the end of q4 of last year only 4% of survey

respondents were actually sellers and I have also we've bought 18 companies at Walker and Dunlop

and I've always said that companies are sold they're not bought if we want to go buy a company and

wildly overpay for it we can go buy a company but if you want to actually go make a good deal

you're going to find a willing seller who wants to sell their company to Walker and Dunlop and

become part of Walker and Dunlop that's how good M&A is done and so similarly in the in the

property markets you can see here right now we are in a buyers it's not a buyers market because

there are too many buyers who want to buy it's actually a sellers market but sellers right now don't

want to sell one of the reasons why we are getting let me go back real quick here one of the reasons

you've got this amount of volume in the sales market is because of this slide so this is capital

flows so capital called capital distributed in five year rolling net distributions cumulative

and as you can see on the five years net distributions cumulative we are way way negative

so what's ended up happening is that you know LPs who have invested in commercial real estate

private equity funds have sat there and they've said look you called all this capital

back here the light blue is all capital calls and you haven't redistributed any of that capital

back to me so you want to go raise private equity fund six private equity fund seven you need to

return capital to me before I'm going to give you another dollar for your next fund and so that

is what's driving you look at this buyer seller sentiment nobody really wants to sell yet you go

back here and you say but the sales market is actually reasonably active that's because investors

want their money back and it's that sort of forced transaction volume that's going on in the

market today that is really driving volume it's not because they're saying I love that caprate and

want to sell into the market it's because they need to return capital of their LPs and until they

do that they're not going to get capital for their next fund you can see here this slide is pretty

as it relates to private credit versus commercial real estate so you can see the light blue is

non-traded REITs the dark blue is non-traded business development corporations most of that is

private credit funds and you can see here that you know it was all commercial real estate in 2020

in 2021 BDCs or private credit started to come out but it was still predominantly commercial

real estate and then boom from 22 it was all commercial real estate that falls off a cliff and then BDCs

are private credit start to grow the real question now is what happens with the redemption

queues in private credit and does that end up flowing back into commercial real estate private equity

that's that's right now I would say to you that commercial real estate private equity will benefit

from the rotation out of private credit funds and this just shows you here the redemption queues

that are there and what I was just talking about you can see that the redemption queues on the

non-traded REITs have come down significantly and you can see the redemption queues on the

non-traded BDCs going up quite significantly this slide you've all seen it heard it you know

an effective or a functioning market is when you've got average starts and your average

completions relatively close to each other you know that's one of the reasons quite honestly

why you're back here with very consistent you know sales volume is because you've got supplies

and deliveries construction starts and deliveries all kind of paired up but obviously the

pandemic kind of turned everything on its head you get back to that quarter where everyone's like

wow I got to get into this market I'm going to go make an investment and boom we get lots of

shovels going in the ground and start start to spike and you're still with a delivery number

that's normalized and then all of sudden deliveries all these construction starts turn into

deliveries and what everyone sees in this slide obviously is that because you had starts come down

significantly you're seeing deliveries come down with the starts so that is going to create what

should be an under supplied market but what we've seen is that you're looking at this slide and

this is your multifamily demand slide okay and when everyone was looking at was okay starts have

gone down deliveries will go down and if you were looking at that back in here you're like demand

which is this coin bar demands just going to keep on going up so demand keeps going up supplied

and starts go down and it's a great market we can start to push rents except as you can see on

this for the last three quarters demand is falling off and demand is falling off significantly and

one of the big questions there is why has demand fallen off when the price of multifamily housing

is so much cheaper than single family housing so that's not the market losing in the competitive

battle with single family let me let me just show you really quickly on single family versus multi

family so and I'll come back to that other slide so this this darker line is what the cost of

home ownership is on principal and interest on a mortgage payment the the bar charts are the

the median price of a single family home in America okay and the blue is the average cost of

renting in America okay so you go back to 2019 2020 and you were much better off much better off

buying a single family house right here for an average price back then of $280,000 much better off

buying your $280,000 home putting a mortgage on it and your principal and interest were down here

at less than $1,200 a month and to the average rent in the United States back then was $1,400 a month

you were $200 in the in the black on a monthly basis for having your single family home and paying

your P&I on your mortgage then you were renting and then all of a sudden as you can see because of

the pandemic the cost of single family homes started to skyrocket and that's the this bar chart

going all the way up where you move from the average median price being at 270 all the way up to

what was that 430 over that period of time well to buy that 430,000 home and pay principal and interest

on your mortgage as you can see on this line it skyrocketed and you went upside down on your cost

of home ownership versus the cost of renting and look the cost of renting went up significantly from

21 to 23 but then it's basically plateaued since then but the important thing about this is to

think about it from a structural standpoint that right now it is significantly cheaper to rent

than it is to own a home and until mortgage rates come down and this bar chart continues to fall

down and no one's wishing that we lose value in single family homes in America but until the values

continue to come down and the cost of borrowing continues to come down it's still going to remain

much much cheaper to rent than to own a home so if that's the case multi family is holding up really

well against single family people aren't like saying oh it's cheaper for me to own a single family

home than to rent so then what is it that's making that chart as it relates to demand come down

and the only thing that you can come back to really is immigration and the fact that the border has

been closed that there isn't a huge amount of illegals coming in and that legal immigration numbers

have not gone up and so I think this slide is a very important one to keep in mind as it relates to

household formation demand drivers for multi family as well as single family and until the government

does something as it relates to increasing the amount of legal immigration in the United States

that demand side of the equation is going to be questionable let's dive into a couple specific

markets and then I'm going to open it up for Q&A in a sec so before we started I was asked about

sort of what markets are hot and what markets are not and the oversupplied markets so if you

look at this slide and you look at these MSAs of you know this is the top 10 markets right now

and you sort of said I see here all of you know the Sun Belt job growth companies relocating from

California to Texas you would sit there and say okay that would mean that San Francisco isn't a

place that I want to be happens to be at the very very top of the list San Jose is a place I don't

want to be happens to be number two on the list look at the cities here that are doing really

really well right now and oh by the way look at the trailing five year population growth

negative 4.5 negative 1.2 negative 0.9 look what who's the winner on this list we've got a whopping

2.8 percent growth in Cincinnati Ohio over the last five years not exactly boom from a population

growth standpoint okay but none of these markets had any real new supply into them over that five

year period so they don't really need the new population to come in to get the type of rent

growth that they've been able to get so these are right now are the darling markets that while

2 percent rent growth doesn't sound that great in comparison to this list it looks really good

so now look at all these these these markets these are all your oversupplied markets these are

all the markets that all those shovels back in that previous one of starts into deliveries

this is where they all went okay and as you can see here I mean look at the population growth

in all these so at this one our winner here was 2.8 percent look at these population growth numbers

almost all of them in double digits it's where the jobs are it's where the people are moving

except for the fact that they've all been wildly oversupplied and so you know you might sit

there and say well I like the long-term growth of Austin Texas no doubt I think you've got to like

the long-term growth opportunities for Austin Texas except for the fact that in real estate when you

have oversupplied to the degree that Austin Texas has had you're going to have negative 7.7 percent

trailing 12 rent it's not rent growth it's negative rent over the last year denver Colorado

number two negative 7.4 percent to really really hard markets to be an owner in today do they both

have Austin more than Denver do they both have really really good fundamentals to them without a doubt

has Austin turned into a really affordable market almost overnight 100 percent single-family

and multi-family Austin if you were if I was starting walker and all up today and I had to pick

a city to move to Austin has so many things going for it including it's super affordable today

super affordable so if you say start today and go forward Austin's a great market except for

the fact that you're probably going to have to feed that asset if you went and bought one for a

period of time because we're still trying to absorb all the oversupply that was in that market

so you know one of the big things that Peter Lenneman who comes on the webcast on a quarterly

basis and I constantly debate is Peter is very much you know prone towards Cleveland Ohio and

Cincinnati Ohio sort of kind of boring midwestern markets and to anyone who I just defended by calling

Cincinnati and and Cleveland a boring market excuse me but you know it's kind of steady atty

you're never going to get this big surge in supply and as a result of it if you buy well put low

leverage on it it's going to turn into a really good investment for you these markets are the

ones that you know there's a lot of what I call brass and glass there people like man I can go

into Austin and I can buy it and I'm going to sell it at like a three two cap rate at some point

and by the way I got a lot of clients who were investors in Austin either built or bought back in

2013 and sold in 2018 or 19 at a three two cap rate and made just enormous returns on multiples

on their money so a lot of these markets you can make a lot of money but right now is it relates to

do you want to be an owner in them I was just in Phoenix two weeks ago Phoenix is still way over

supplied the one other thing about Phoenix the building of the new Taiwan semiconductor plant there

fascinating to see the amount of work and the kind of ecosystem that's going on in Phoenix right

now around that investment and it's obviously not just that they're going to build a chip

manufacturer there it's all the ancillary services that need to be built out there I met with a

gentleman who is working with Taiwan semiconductor is it relates to all the other kind of services

that they need the plants and how the plants feed products into the actual chip manufacturer but

then the multifamily and the retail and the office and everything that needs to be around that

huge investment of tens of billions of dollars it's really quite something and will be a great

growth driver for the Phoenix market over the next couple years so in summary before we go to Q&A

a couple things on noise you hear a lot about two hundred dollar barrel we're not going to two

hundred dollar oil on a barrel trump won't let it happen period the president will stop the conflict

before we even get close to that so there's a lot of scare might fear mongering about that that

ain't going to happen run away inflation one of the big things to keep in mind is that one of the

main reasons the inflation print has stayed as high as it is is because of owners equivalent rent

and because of multifamily rent growth that for whatever reason the CPI continues to get a false

read off of but owner equivalent rent is 25% of the CPI and nobody's ever paid owner equivalent rent

ever you don't I own three homes and I don't I don't pay rent to anyone I pay a mortgage

but that owner equivalent rent of what would you rent your house to someone else for today

no one's ever paid it it's a completely made up number so if you call me today and say what

would you rent your house in Denver Colorado for I'll come up with some number and I'm going to

kind of triangulate off of some number I heard down the street they'll tell me last month you said

it was X this month is it uppers it down and I'll give you my gut reaction of I should charge more

I should charge less that's the way they go about determining owners equivalent rent and it's

25 23% of the CPI makes no sense so in the CPI number that is stayed elevated is an elevated

owner equivalent rent number that shouldn't be there I'd be interested to see whether Kevin

Worsh when he comes into the Fed thinks about doing something to adjust it it's one of the reasons

why so many economists don't focus on the CPI but focus on the PCE because the PCE has a lower

weighting on housing than the CPI but the bottom line on all this stuff is I told you about oil and

the impact of oil oil stays high for a very long period of time it will have an impact on the CPI

but I don't think we're going to have runaway inflation as many people are fearmongering

higher interest rates I don't predict interest rates okay but what I would say is the following

you have a new Fed chair who's coming in and there's no doubt that he has heard the president

clearly that he wants to get the cost of borrowing down the second thing on all that stuff is

you are either going to have Kevin Worsh being successful at lowering rates or you'll have a

sell-off in the equity markets that should have people move to safety in treasuries the interesting

thing since Iran is that you actually didn't see that happen typically when there's an international

conflict like Iran people flee into they jump into safety and you would have seen yields on the 10

year go down that didn't happen this time which is a little concerning and at the same time if

you do get a significant sell-off in the equity markets there's no doubt that you're going to get

the 10 year going down death of the blue states and blue cities I just showed you numbers on

why they're not dead and probably aren't going away there's lots of talk about all this great

migration to the you know lower tax high-growth states but you know from a real estate standpoint

those states are still struggling and then transaction volumes remain muted I showed you there

might be a narrative out there that says transaction volumes are muted but at least in multi-family

on the sales side it's sort of back to the normal on the signal CRE capital flows will drive

transaction volumes up and cap rates down okay I showed you that rotation of capital from LPs

that is going to continue that doesn't stop the capital hasn't gone back to them they'll continue

to ask for their capital and fund managers who want to raise their next fund are going to have to

recycle that capital that recycling of capital means that they're putting it into assets as they

sell them and refinance them more capital flows mean cap rates come down you then go from a I

don't want a sell market to I'm ready to sell market and transaction volumes come that's the way

it will happen multi-family significantly more affordable than single-family that's there that's

structural right now that doesn't change quickly prices of single-family have to come down

materially and the cost of borrowing has to come down materially for that to change so for quite

some time multi continues to win over single some belt will continue to attract jobs and families

no doubt about that you saw the job growth numbers that I put up there they are the long-term

winners right now unless blue states can figure out how they can get their tax policies in place

to retain and attract new investment population growth problem without increased legal immigration

that that saw that is a really important one and by the way the administration can can work on

that they can say we only brought in 700,000 legal immigrants last year let's bring that up to a

million let's bring that up to a million two and start processing more legal immigrants to the

United States and then the final rates will come down due to cuts or the sell off in the equities

pretty you know again I don't try and predict where rates are going to go I get asked about it all

the time I'm smart enough to leave that to economists and not myself but you just think from a

signal standpoint there'll be plenty of noise in there but from a long-term outlook standpoint

we should be in pretty good shape where rates should come down either from the sell off in equities

or that Kevin Worsh is effective as the Fed Chair and bringing down the short end of the curve

and the long end should follow at some point that is it from my prepared remarks I am up for

any and all questions so let's dive in

Hey Willie Michael came us on my TMS red thanks again for coming out today

you're native Washingtonian you've long been a proponent of the city

and it's great a real estate market you recently had Mayor Bowser on the webcast and

she's communicated her and her team are all in on dc to bring business and investment back to dc

but there's obviously been some hesitance hesitancy from investors in re-entering the dc real estate

market and I'm curious if you're still bullish on dc and what do you think needs to happen to make

those investors more comfortable to re-enter so a couple things on that the big story of 2025

that has not been covered widely but that Peter Lenneman has underscored not only in our last

conversation but in the Lenneman letter is that the federal government shed almost 250,000 jobs

last year almost 10% of the federal workforce was shed in 2025 and Peter's comment is that like

the Trump administration hasn't jumped up and down and said look we actually did what we said

we were going to do as far as things out Elon Musk came into town to do his doge stuff and left

town and everyone sort of said that was an effort that we're not going to follow up on but that

shedding of federal workers is a very very significant economic driver for the greater dc area

though if you think about it theoretically those people will then go find jobs in the private sector

which if you're a libertarian as my friend Peter Lenneman is you're like that's great they're

going to go into productive jobs rather than just redistribution jobs those are Peter's words

not mine but that does put pressure on the dc employment market the other thing that when doge

came in one of the big concerns I had was all of the consulting firms that sort of if you will

feed off of the federal government apparatus from a defense contracting standpoint from a process

engineering standpoint the likes of booze Hamilton booze Allen and other big consulting firms

they were very much sort of under target for redo or elimination of their contracts from

what I have seen that sort of came and went pretty quickly with doge so that they are still doing

as much business and the other piece to it is you got to remember we're going to print a what two

trillion dollar deficit in two thousand twenty six two trillion dollars so the bottom line is the

federal government still spending money hand over fist so it's sort of a tale of two cities if you

will in the sense that you actually had two hundred fifty thousand job cuts out of the federal

workforce which is big downward pressure yet you have a federal budget that's running a two trillion

dollar deficit and is spending money on everything over and over and over so the question there is

what does that all that mean for the DC area DC is struggling and they have a new mayoral race coming

up and Muriel is stepping down from her role and we'll see who the mayor is northern Virginia is

doing extremely well and suburban Maryland is also struggling in a very big way and governor west

more of Maryland has a as a big challenge in front of him as it relates to getting that state in

a position where it can attract jobs and attract companies will you thank you that was an amazing

presentation I am thinking about the recent regulation on private equity ownership of single

family homes and I'm curious what your thoughts on on how that affects the rent versus own math so

the the legislation that went from the senate to the house has in it a provision on build for rent that

requires anyone who creates builds a build for rent community to sell the community in seven years

that's really bad legislation in a in a bill that is designed to try and increase the amount of

supply of housing in america they put in there a paragraph that does exactly the opposite and the

bill for rent market has been frozen since that since the senate passed that legislation and by the

way they passed it ninety one eight one person didn't vote ninety one eight they haven't passed

anything in the senate ninety one eight in a long time when when you have you know senator Tim

Scott from South Carolina and senator Elizabeth Warren from Massachusetts both fighting for the same

legislation you know something sort of gone wrong to be honest with you I mean honestly they should

be on different sides of most issues and this one they both jumped in on and unfortunately that

paragraph on bfr is going to set the bill for rent industry back a lot senator Warren is very

specific in saying it only applies to those who own over three hundred and fifty homes

okay and that is only seventy basis points of homeowners in the united states okay so she's

pretty careful with her numbers here she's like it's only impacting seventy basis points of

single-family homeowners except those seventy basis points are the only people who have the capital

to build new homes everyone else just a single-family homeowner it's those companies that actually

build bill for rent that create the bill for rent supply that then feeds into the single-family

rental market so this seven-year provision is a real problem I got something last night that there's

actually some real progress going on and a number of congressmen and women have signed on to basically

say this provision needs to be changed and I actually also heard that the speaker of the house

understands the problem is asked the chairman of the house financial services committee french hill

to focus in on this and and and potentially change it in the house legislation so

we will get that law passed as it relates to the other provisions in it

and the president and his executive orders to try and create more supply and bring down the cost

of housing in america but that one provision on bfr have to sell after seven years hopefully gets

pulled out in the actual legislation but for right now there is not a big institutional investor

that will put a dollar into a bfr community right now given the potential regulatory risk around it

hi chip wine truck thank you for coming here and so I just wanted to ask about rates and inflation

a couple things you didn't really spend a lot of time talking about was the national debt

the demographic trends and trade all of which in my view are highly inflationary and changed

dramatically over the last five years wondering if you could sort of and that's a very large question

but if you could sort of comment on those within the context of your what you'd said before thank you

so sure and I'll give a big disclaimer before I say anything on it I am not an economist I'm not

a trained economist but I will tell you from having done now almost six years of quarterly

walker webcast with Peter lineman who is one of the truly great economists of our time I do feel

like I've gotten a PhD in reading the lineman letter on a quarterly basis and being able to go to

Peter with lots of questions and so I will say everything I'm about to say is a hundred percent

from Peter lineman okay so this is not my thinking this is all out of lineman lineman is spoken

extensively about the fact that he doesn't think that the national debt is a big issue and I don't

want to dive into Peter's reason although one thing that I would say is just he goes to our overall

national net worth what this country is worth how much GDP we are developing and growing and he

basically says if you're adding three to five trillion dollars a year of net wealth to the United

States you can easily afford to be printing two trillion dollars of deficits on an annual basis

so as long as you keep that GDP growth going and we're creating three to five trillion dollars of

additional net wealth the United States every year you can run two trillion dollar deficits and

it's not going to catch up with you the one thing that you know very well on that one is that's

as long as we remain the reserve currency and if we lose that position we're in real trouble the

issue with it is is go back and think about this China is now squawking about that they want to

you know create the reserve currency and their obviously was some you know some thought that Bitcoin

and other crypto currencies were going to be a better store of value than the US dollar as the

reserve currency the euro had every opportunity to become a real competitor of the US dollar

except for the fact that they never got the UK into it and they never got Switzerland into it

two of the larger economies from the financial services standpoint and because of that it's never

really had the chance to be a real competitor to the dollar as it relates to a reserve currency

and then think about how long the euro's been out there and how long they've been trying to make a

run of making the euro be any kind of competitor to the dollar we're talking about things that take

decades quarter centuries half centuries to get developed and so yeah right now there's a lot of

talk about you know the debts too high lots of our allies or you know there was the big narrative

last year that actually is another one on noise versus signal there was a lot of talk last year

about all of our allies dumping their treasury holdings because they wanted to kind of give the

finger to the United States didn't happen you look at treasury holdings of foreign countries

they're going to go work for yield and safety they can sit there and listen to politicians say we

don't like this we don't like that they're going out they have a fiduciary responsibility to get

for their investors what they need to they weren't dumping treasuries so I would just say as long as

we remain the reserve currency of the world unfortunately we continue to we can continue to

be profligate spenders and not treating tax dollars the way that they ought to be the one other

thing that I would throw out there is this kind of blue state red state and tax policies

has a huge impact on sort of you know decades worth of growth and where companies are going

I happen to live in the state of Colorado Colorado is 4.4% income tax which is actually quite low

relative to other states that have income taxes there's a ballot initiative in Colorado right

now to try and overturn the taxpayers bill of rights that holds that at 4.4 and I've been talking

extensively with legislatures about how damaging that would be to Colorado and if they were to

take it from 4.4 they've been talking about 8 to 9% if they were able to overturn it and one of

the things I've been advocating is why don't you all think about going to zero and every time I say

that they're like what do you mean like well we can't go to zero we've got a billion dollar deficit

this year and I said well the bottom line here is think about the type of growth you would get of

companies moving from California to Colorado if you dropped it from 4.4 to zero and what that would

do to your overall fiscal position the thing that Colorado has that may other states like New

Orca California don't have is that because California in New York get about 50% if not more of

their income from income taxes they can't do away with it they can't go to zero Colorado only gets

20% of its income from its income tax so there are lots of ways to make up for that nine billion

dollars of income tax that they bring in property taxes fees other things that you could put there

the bottom line that I'm trying to put out there is that until state governments and local

governments understand that they are constantly competing for residents zoom in the pandemic changed

everything you used to not like I moved from Washington DC we're walking all up is based to Denver

Colorado in 2019 pre pandemic okay it was a huge decision I was like we got 250 people in

headquarters I'm going to be leaving going out to Denver Colorado I'm going to be back here every

two weeks and that was my plan to constantly commute back to the DC area because that's where my

team was my senior executive team was our headquarters were and even though we have 45

offices across the country I was like I got to get back to headquarters boom pandemic happens

my senior management team goes all over the country we learn how to do zoom calls and it literally

today does not matter where I am and where my executive team is every company in the country has

that dynamic today everyone so you don't have to be somewhere Jamie Diamond talks about the fact

from when he joined JP Morgan Chase to today they've gone from 45,000 jobs in New York to 35,000

jobs and in the process they've gone from 5,000 jobs in Texas to 30,000 jobs in Texas

it's like Marimom Donny can tap on the camera and be like haha we're going after you can

Griffin and just watch all that money move away and so one of the things that I'm trying to get

in Colorado than to focus on is don't go raise the income tax raise property taxes because the

property in Vale and the property in Aspen isn't going anywhere you can't move it that billionaire

who owns their 50 million dollar home in Aspen they may not like the fact that their property taxes

go up a little bit but they're not going to Jackson Hole so I think governments need to shift

on what they're taxing and how they're taxing it to try and keep the revenues in the state

because if they're just going at we're going to chase some billionaire out of California

they're going to move to Florida or Texas tomorrow and it's at almost no switching cost

so that's a big issue I think from overall growth in the coming you know decades and what

quite honestly booth states and blue cities need to do to retain and attract jobs and people

hey thanks Willie for a really informative discussion there I'm Tanner Mix I'm an incoming

student class of 27 my question a little bit more of a niche market but the senior housing that

I brought up before we started today demographic shifting wise we're seeing probably a doubling of

that market over the next 10 15 20 years and the market itself is already undersupplied estimates

somewhere in the neighborhood of 500,000 units my question to you is from your vantage point

how should sophisticated capital be positioning itself today in order to meet that demand

and what type of challenges are there still to be overcome when it comes to meeting the scale

that we need to meet maybe capital structure and then also like operationally how can we improve

our efficiency to make it affordable and beneficial to investors so I'll ask you a question what

what do you think the percentage and keep the microphone for a second because I can ask you this

question what's your handy cap us having another pandemic within the next 10 years

very unlikely and another pandemic in the next 20 years

still unlikely I would say and when you say unlikely 5% chance 50% chance 49 less than 50

as far as pandemic scale if you take a 200 year vantage or vintage on it it's happened twice

ish so maybe 1% okay the reason I ask that is that if I ask you the same question about the great

financial crisis right after the great financial crisis I think you would handicap the chance of a

great financial crisis similarly to what you just did on the pandemic okay so great financial crisis

is over generally speaking in 2010 okay and I was certain that the CNBS market commercial

mortgage backed securities market would go back to sort of the silly math that created the great

financial crisis that liquidity to come back a lot of the bankers had moved from one bank to

the next bank and they would get back to the same lending habits that they had and until today

16 years later CNBS hasn't gotten back to the same practices that caused the great financial crisis

those memories last for a long period of time okay even though the chance that we were going to have

another you know great financial crisis due to over leverage on CNBS and you can either go CNBS

or the mortgage single family mortgage market as the drivers of the great financial crisis

I would say to you that the reason I'm trying to bring this up is because the pandemic I think

materially changed people's views of senior's housing the amount of death that happened inside

of senior's housing communities was something that scared people my age who had parents who might be

in senior's housing to their bones okay and so there's been a big move for people to say

sort of anything but and yet at the same time the demographics behind it are unbelievable

you just sit there and look at the numbers you're like this asset class is going to be full and

it's going to crank for years and years so I would say to you you look at the math and you say yeah

you should go build there and it's going to be a great asset class to own in and it's going to be

full but I go back to the GFC and CNBS and the long memories that stayed in place after that

and I sit there and say it might take longer than you think to get people to go back into that

type of living and there are some great companies that are making a lot of money right now

and my friend Deb Kaffaro runs one of the largest publicly traded seniors housing reeds out there

and they've got a great they've got a great business but that that asset class had huge losses

in 2021 and 2022 huge and those memories are still there from a lending standpoint

Fannie Mae and Freddie Mac the only real losses they had in 21 and 22 were in their seniors

housing portfolios and so people underwrite more conservatively and they look at that risk with

a little bit you know am I going long there or am I staying short and I think that will

impact seniors housing for the next couple of years thank you yeah I think we have time for

one or two more yeah thanks Willie my name is Ryan Othman I'm MIT MS red you spoke about private credit

I understand the SaaS spook you know because of the AI and vibe coding age

why do you think investors are spooked by real estate private credit and why also on you know

one thing you mentioned in the presentation you said that fleeing from private credit might go

into private equity what you know commercial real estate private equity so yielding private so one

of the big issues there is yield okay so one of the reasons why the private credit market has

attracted so much out of the retail distribution network is because there are a lot of retirees

who want that coupon that comes off of their investment in private credit as they get concerned

about private credit they're like maybe I'm going to pull that back and reallocate it somewhere else

they can't go to just a normal private equity vehicle because private equity vehicles don't have

a current return whereas commercial real estate private vehicles particularly credit vehicles

have a current return and so it's something that a RIA can sit there and say okay we're going to

pull you out of that private credit fund we're going to put you into that real estate fund so

that's the reason I believe that it competes quite well in any reallocation of dollars

because people need yield and the one other piece to it is there's seven trillion dollars

of capital right now seven trillion sitting in money market funds okay if wash comes in it starts

to cut the short end of the curve people will rotate out of money market funds by the way they

will not go from seven trillion to zero back when the Fed funds rate was at zero in 2012 and 2013

there was still three trillion dollars of money that sat in money market funds so don't think it

goes to zero there's a certain amount of capital that will always sit in those money market funds

but you could see seven trillion go to five trillion and where's two trillion dollars of capital

go by the way we used to talk about billions being real money now it's trillions okay so where's

two trillion go that's real money okay and so if you take two trillion out of money market funds

because the short end of the curve gets lower and you get any kind of rotation out of the private

credit funds I think net net that's probably beneficial for commercial real estate because it's a

yielding hard asset the final piece I'd say on that is look who knows where AI goes who knows whether

these SaaS companies get just obliterated by AI or whether they actually live for another day

that's way above my pay grade but in commercial real estate you have yielding assets

their hard assets and so in a world that has a lot of shifting and moving parts to it people

have got to live somewhere so multifamily hangs in there pretty tough okay people don't actually

need a place to work people bricks and mortar retail okay what percentage of US retail sales

today goes online versus through bricks and mortar I'm going to ask you directly what percentage

is online versus through bricks and mortar yeah but let's swag it what percentage is online what

percentage is through bricks and mortar you're going to say 40% online and 60% through bricks and

mortar other way around 60% online and 40% bricks and mortar 16% online 84% bricks and mortar

84% bricks and mortar 16% it got to a high of 20 during the pandemic and has come back down to

16 so your impression is 100% where most people are everything is Amazon and everything's UPS and

FedEx that's what you think so retail is actually still a very important part to the retail channel

is bricks and mortar so retail is a good place hospitality if AI puts all of us on the beach

we can all make huge amounts of money on our investment in open AI and we can just put our

feet up on the table and go go go do something else high end hospitality does really well in that

scenario okay the hotel I'm staying in here in Boston for work probably doesn't do that well okay

but high end hospitality if me go into the beach that's going to do really really well okay

and then you know data centers the one thing on data centers I asked Liniman this a year and four

months ago in our conversation in Philadelphia I said so if you had to pick one asset class

that you would invest in and obviously locations important all that stuff but just one asset

class that you'd invest in right now what would it be and Peter looks at me he goes well if I wanted

to stay rich it would be multi-family so I said to him okay well then if multi-family is the

one that you would stay rich in what would you get rich in and he goes office I was like interesting

he goes yeah there's some really great office deals if you if you'd heard that from Peter and you

invested in San Francisco office you've made a huge amount of money huge amount of money okay and so

I said okay you said stay rich and get rich how about get poor and he goes data centers okay now

Jeff Blau is just on CNBC yesterday morning and he was talking about this 36 billion dollar data

center that related his building for Oracle who's gonna lease it out to open AI there are a couple

things to keep in mind there first of all the JP Morgan headquarters that they built in Manhattan

that they talk about it costing three billion it's more like it costs them five billion

but that's like the most expensive office building ever built in the United States of America okay

three to five billion dollars Jeff Blau is talking about a 34 billion dollar investment in a data

center this is orders of magnitude bigger than anything we've ever seen okay one of the other

interesting things that he said yesterday was that they went through the 144A market to raise

capital for it rather than going to the bank market super interesting basically this market has

gotten so damn big that banks don't have the ability to even syndicate out the loans on there

they've had to go to the securities markets in 144A registration to go raise the capital on it

then the final thing that I have thought for quite some time is if data centers are fundamental

to the future of companies like Amazon and Microsoft why are they doing it all off balance sheet

just a question if it's fundamental to their business in 10 years and 20 years why are they

putting it off balance sheet rather than actually owning it and so there's no doubt we're going to

have oversupply in data centers there's just no doubt look at that slide that I had is it relates

to everyone's like let's go buy multi-family well we got to put it a shovel in the ground and go

build it we're going to get oversupply the question is what's the what are the repercussions of the

oversupply and how does that then filter out into the valuations of the hyperscalers the valuations

of the oracles of this world and the valuations of companies like related that are actually building

the data centers and it does seem a little bit like everyone's getting really careful on how they're

structuring these things because there's kind of a sense that at some point everyone grabs and you

want to have the proper structure that makes it so when everyone grabs you're not left out in the

cold all right hey Willie thank you again for being here manual shumya MIT real estate student you

touch a little bit on immigration I had a question about how that relates to the construction

labor supply market immigrant workers are like a third of it and it goes up to anywhere to like

two-thirds for certain trades like drywallers and more so you'd also towards single-family

home construction so I guess to what degree is that our new starts impacted by current

immigration policy and constraints supply of workers that can do new construction I'm going to

surprise you zero zero it's unbelievable I have asked that question at almost every single

meeting I've had with either a merchant builder on the multi-family side or a single-family

home builder and I know lots of the CEOs the big single-family builders it is it is not only not

impacted it as it relates to the supply of labor but the cost of the labor has actually come down

so you're seeing deflationary forces from a labor input on construction which is

complete counter narrative to what you would think it would be and so it has not impacted access

to or the cost of construction labor one Iota and that's an anecdotal comment in the sense that

I haven't looked at some actual study that says we've gone and studied everyone in the industry

that's from me meeting with the very big merchant builders the very big

single-family development companies and just saying how's it going and to a person they all

said hasn't impacted us for one a bit so it's a very interesting back to noise and signal the

noise is that you're not going to get people showing up on the job site you're not going to be able

to get labor cost of labor is going to go up hasn't impacted it one Iota so thank you all for

taking the time it's been a real pleasure thank you