Elon Musk recently led Twitter in response to Kobeissi letter, a reputable authority on market commentary. He original post made note of the fact that in the next five years, more than $2.5 trillion in commercial real estate debt will mature, “…much more than any 5-year period in history.”
Musk went on to comment that rising defaults between commercial and residential loans could “hammer” banks. This observation comes immediately after the collapse of Silicon Valley Bank on March 10, the second largest bank failure in American history and the ripple effect that followed. The Amathundoubtedly a by-product of these institutions betting on the interest rates without protecting against the risks associated with them.
While an influx of defaults could certainly hurt banking institutions, this is the scaremongering I advise my team and clients to avoid. Read headlines or, in this case, tweet threadsrooted in “disappearance of the market”, they tend to create false pretenses that influence investment decisions, often when they should not.
When this coming and going was unfolding, mortgage demand increased 2.9% compared to the prior week and the average contract interest rate for 30-year fixed-rate mortgages with loan balances of $726,200 or less decreased from 6.48% to 6.45%. While the applications to refinance saw a rebound, still 61% lower year-over-year, and home mortgage applications up 2%.
I operate with a realistic mindset, but I also leave room for the qualitative and its ability to sometimes influence even the seemingly predictable. market trends Let’s take a look at the retail industry, for example. In the 1980s, more than half of our retail transactions took place inside shopping centers. While e-commerce first emerged in 1979, it exploded with the introduction of Book Stacks Unlimited, an online bookstore created by Charles Stack in 1992. That store was eventually acquired by Barnes and Noble, but would ultimately serve as a catalyst for online experience to know today.
Now, many would have you believe that leases are in trouble, space is going to go empty and malls are a thing of the past, but the model simply needs to change. Glossy and Modern Retail research coined the term “Great Mall Overhaul” and called for a pivot, the evolution from transactional to experiential. Those that survive will have made the leap from a merchandise hub to a lifestyle hub, offering both shopping and entertainment experiences. how does this sound to you? An opportunity for commercial real estate investors and developers? I also believe it.
Let’s take a look at the office space. The pandemic shed light on the high overall costs and the
effectiveness of teleworking models. As of today, it is estimated that approximately 51% of employers have adapted to a hybrid work model. The need for square footage may have decreased, but there is still a need for space in that equation. Again, while the headlines may make you think this sector is in trouble, too, these factors may suggest otherwise:
- Many employers are urging their employees to return to the office, at least for part of the work week.
- Workforce demands seem to focus on better office services, flex space, etc. Did someone say “lifestyle center”?
- Vacancy rates are expected to decline in the coming year or at least level off.
- While rate hikes may suggest some volatility, certain sectors, such as multi-family housing, industrial and office, have seen substantial growth compared to last year.
Again, I am a realist and understand that there are multiple sides to every story, but I encourage you to look at the factors through a holistic lens. We cannot continue to refer to 2019-2022 as a reference point: we were experiencing unprecedented times. Let’s evaluate and control the here and now. Sure, there is evidence to suggest a possible recessionbut there is so much information that supports the opposite.
We are seeing better conditions related to cost of capital, space availability, vacancy levels, leasing and transaction activities, and even rates. If we succumb to panic, we will only contribute to the manifestation of a scenario that I am sure none of us wants to revisit. Let’s keep the 2008 market where it belongs: in the past.
My advice? Position yourself as THE subject matter expert when it comes to navigating the nuances that can affect a deal. Operate as an advocate for your customers and encourage them to operate with the mindset that every opportunity is unique, because it is. Don’t let them guess: Every time they fire up a laptop or turn on their TV, they’re inundated with headlines, biases, and predictions that could change with a falling rate. It’s up to you to serve as a guide: some of these potential buyers are navigating these waters for the first time. Don’t let them translate the noise you are likely to encounter on your journey.
David Brooke was a realtor appraiser for 11 years before becoming an agent, starting with Engel & Völkers in 2011, then joining Berkshire Hathaway in 2013, then keller williams in 2015 before becoming part of eXp in 2020. Today, his team produces more than $200 million in sales, the result of eXp’s commitment to empowering agents and David’s leadership, a methodology that is based on education and amplification of personal brands.
This column does not necessarily reflect the opinion of the HousingWire editorial department and its owners.
To contact the author of this story:
David Brooke in [email protected].
To contact the editor responsible for this story: Tracey Velt at [email protected]
