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The Walker Webcast
Dr. Peter Linneman, Leading Economist, Professor Emeritus, The Wharton School of Business with Part 25
00:56:20
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- [00:01]
A
Walker and Dunlop brings you insights for life, Unique perspectives from impactful leaders. This is the Walker webcast with Willie Walker.
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B
It is nice to be in Miami, Peter.
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A
It's nice. Especially after being in Philadelphia this winter.
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B
It was. It was cold up there.
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A
Cold and snowy.
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B
Yeah, it's Friday afternoon, so to any of the students here who I believe today is also the first day of spring break for all of you and so thank you for sticking around. You get a fortune effort as well as for diligence on sticking around at school on a Friday afternoon to hear the likes of Peter and me. Peter, as you and I were talking about where we were positioned in this conference between Nadeem and Steve Witkoff, what was your comment on that?
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A
Benny? I was too young, but there used to be this thing called Hamburger Helper which was just filler to make hamburger go farther. So I figured between Nadine and Nadine and Witkoff, we're just Hamburger Helper.
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B
We are Hamburger Helper. Hopefully we give you something that you can eat out of this. So, Peter, when you and I got together on the Walker webcast back in October, I asked you to give me a sense of your read on the commercial real estate market and sort of are you risk on or risk off? And your comment to me was, I'm out. I don't have enough data to make an informed decision at this point. And having known you for as long as I've known you, as one of the most optimistic people I know and also someone who doesn't let the short term get in the way of the long term investment, that scared me. We then had our January conversation and thankfully you actually had an opinion again. What changed between October and in January to get it to the point where you could actually read the data and say, I'm either actively investing or not.
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A
Just to remind people we stopped having a lot of data. And just before we stopped, the pattern of data, not one piece, but the pattern of data was consistent with a blip, temporary slowdown, and we're at the beginning of losing a million or two jobs. And I just didn't know. It was like you were waiting for the next chapter and they didn't release the next chapter. They then released the next chapter. And I don't mean just one piece of data, the collage, and you go, oh, it looks blippi. And which case, I became optimistic. There's always things happen, but I became optimistic because I got a little better pick of the pattern. So I'm optimistic now. I think people are probably way too pessimistic right now. And I mean right now as we speak. I think people are too pessimistic. But we'll get into that.
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B
I'm sure we will. So this morning as you and I were flying down together, I turned to you on the plane and said, what do you think the jobs number is going to be? And I said, estimates are at 65,000. You said 100,000.
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A hundred thousand. Positive.
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Positive. And it went 95,000.
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A
You could have lied and said you didn't hear.
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B
Yeah, right, exactly.
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A
The negative. I'm an honest.
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B
We weren't that far away from each other. It wasn't that far.
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C
Just this.
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A
I don't think the data is being manipulated in a political sense or I think they have a lot of trouble with their data right now. Response rates are not great. They're declining for a lot of reasons. I think the job data in particular is vulnerable to small businesses not reporting. There's no stick or carrot associated with reporting. It's 121,000 firms. They survey. A few of you may do that, most of you don't. And then they have algorithms to figure out versus those answers. My intuition, but I can't prove this, is that a whole lot of firms, given the whole ICE episode that's been going on, if somebody showed up and asked you tell us about your employment. I'm from the government and I have many illegal workers. I'm just going to throw it in the bin. And that gets through their algorithms over interpreted as businesses went out of business. I don't know what else they can do. So I told you that last year, officially we had 181,000 jobs growth, even though. Which is 10 basis points of job growth. No job growth, in other words. And in fact you had 800,000 jobs added. In health care, we only had 181,000 total, which means the rest of the economy didn't add jobs. I don't believe that. I just don't believe it. I lived through the year. GDP grew by 2.2%. Okay, maybe it was 2.4, maybe it was 2. You don't get that kind of GDP growth with no labor increase. You don't have unemployment insurance. Claims stay low and flat if that's the case. And I think that they're struggling with that. And I think this month you say, well, what about last month? Last month may have been much better than it said. Yes, they revised down. So I think right now it paints a picture. The picture it paints is notably slow job growth versus two years ago. That I believe, but I believe we basically still have positive job growth. Can I prove it? No. But I can establish a lot of fact pattern to be supportive.
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B
So we have this question about jobs. We have AI out there as this big looming threat to either job creation or job degradation. We're at a university with a lot of bright people heading out into the workforce. How concerned should they be as us being in a stagflation economy right now with no job growth and no opportunity?
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A
So y' all should just commit suicide. Robots and AI are going to take everything. Look all of history, and we don't have a lot else to go on other than history and intuition. All of history says the more technology we have, the more employment we have every time. This is true for 125 years. Every time everybody says, but this time is going to be different. And it's not different. And it's not different for a fundamental reason. When you have something that increases productivity, it creates wealth. And when wealth gets created, people don't bury it. So different people may have wealth, may have a different concentration. There may be particular people hurt, but there's more wealth. And the people who have that wealth are either going to invest it or spend it. I don't think they're going to burn it. I don't think they're going to create wealth and burn it. I don't think they're going to create wealth and bury it. All of history. Wealth got created by productivity and it gets either spent or invested. And if you believe AI is dramatically changing, the game you want to be in is the people who capture that wealth. Where are they going to invest it and where are they going to spend it and get in front of that. And all of history has said, yep, you know, those jobs disappeared. Walking behind a plow horse. Disappeared. Young people your age bending metal, which is what they did, literally bending metal. Go back and look at old photographs. I grew up in a manufacturing city. Okay, those jobs are gone, but there's a whole bunch of new jobs that nobody ever dreamed of. That's what an economy is, and that's what I believe it will be. And I'll give one other thing and then I'll shut up. Not for the rest of the session, but I'll shut up. Which is over a long period of time, and I'm rounding. We get about 1 1/2% productivity growth a year. That's how we get wealthy, right? We get. We're better, cheaper, faster. Right? Not everything better, cheaper, faster. That's with electricity. That's with potable water, that's with modern sewage, that's with computers, that's with internal combustion. Airplanes, cell phones, the whole thing. We get about one and a half percent. The real question is not will AI increase productivity, it's is it why we're going to get 1.5% over the next 20 or 30 years? Or is it in addition to the 1.5% we'd normally get? Now? That's an important question. When you think about 1.5% of GDP a year versus 3% of GDP a year from productivity. My own view is it's probably closer to how we get the one and a half percent. Just like we got it from electricity, we got it from internal. Because these things take longer to integrate than people think it would be. Like, think of, I don't want to go, you know, global warming. If the temperature projections came true that they talk about for the next century, in the next six minutes, that would be tough to adjust to.
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B
You got it.
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A
But if they occur over a century, not such a big deal to adjust to. This is similar. If everything they said about AI happened suddenly like tomorrow, it'll be a big challenge. It'll be a challenge anyway. But if it happens over 20 years or 30 years, things take time to absorb. That's my view.
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B
So two quick things on that and then I'll go to my next question to Peter. One is that at the last real estate roundtable meeting, the head of the Congressional Budget Office was speaking to us and someone stood up and asked him, what do you have in your next 10 year projection as it relates to productivity increase due to AI? So exactly to what Peter was just talking to about that 1 1/2% productivity increase on an annual basis. And he said, we have studied this issue. I have a whole team that's focused on nothing but this. But so far, all we have built in from all the data we've seen is 15 basis points of increased productivity due to AI. He said, There are plenty of people here in Washington, including over at the White House, who tell me our number is way, way off. And they think it's going to be 5x that number, 10x that number. But right now the CBO has 15 basis points built into their productivity gains. The one other thing that I am not trying to sound like a Luddite or somebody who doesn't want to deal with the new age of AI and technology, but one thing that I would remind people of is that in Peter's Linneman Report, there's a week or time period between when someone loses their job and finds a new job and they study that period of time. And over the last 25 years, the average is 10 weeks. So from 2000 to 2007, the average was 10 weeks. If you lost your job and it would take you to find a new job, then in the great financial crisis, that spiked, came back down from 2012-20, stayed at 10 weeks, pandemic hits, spikes up again, comes back down 2022 to 2025, 10 weeks. So I'm sitting there looking at this data. Thank you for the data. And I sat there and I said, but from 2000 to 2007, no one had an iPhone. No one had LinkedIn. No one had any ability to find a job electronically from 2007. From 2000 to 2007. Yet the time period to find a job is exactly the same in 2025 I as it was in 2000. So while I understand this technology is coming in, we sort of sit there and say, wow, that period of time is going to be shrunk dramatically, and it just hasn't.
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A
Well, you also said. We were talking, I think, a while back, and you said, well, and like dating apps.
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B
Right, right.
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A
You said some. And I'm not trying, I am trying to quote you, but it was like dating apps and people still have a hard time finding dates.
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B
And it was supposed to be the most inefficient market on earth was the dating. You had to be at the right bar at the right time to meet the right person. And then all of a sudden, we came out with these dating apps that were supposed to make the most inefficient market efficient. Okay. And many of you in this room have dating apps on. They might be a swipe right, swipe left, what have you. But you're supposed to be able to find your partner. Well, guess what? Between 2000 and 2025, the marriage rate in the United States is down by 26%. So here's this quite efficient market, yet less people are getting married today than they were previously.
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A
Now, by the way, my. I've been married basically 53 years. When I say basically in a few months.
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B
Yeah, I don't want to make it sound like I'm wondering about that.
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A
Yeah, I was.
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B
What's Kathy think about that?
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A
Let me restate that. Kathy and I have been married for almost 53 years. When I heard this, I said, well, maybe the apps are working. These people shouldn't be getting married. You know, that's a little cynical.
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B
One thing that you don't have every Linnemann report, Peter. You have your canaries in the coal mine to try and give people a sense of things that you're watching out for that are, you know, the canary in the coal mine, that could be something that's going to cause us problems. And in your last Linnemann letter, you have 55 canaries and 12 of them are dead. So 22%, which is the highest number of dead canaries you've had in I
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don't know how long since the pandemic,
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at least since the pandemic. So why, where's the caution and why?
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A
You're starting to see, I'll give you one obvious. You're seeing bigger deals, right? Bigger deals. Deals have natural barriers. Like when you see the biggest deal that's ever occurred, it meant you've overcome hurdles, right, that are beyond normal. And that means people must have money. And when they have a lot of money, there's a risk. They have more money than brains. Not to suggest they're stupid, that's a very different thing. You can have more, you can be brilliant. But if you have more money than brains, what are you going to do with it? Right? And so that's a good example. You're starting to see mega deals, right? Which means people have maybe a little too much confidence in trees growing to the sky. AI, AI, to me, I can believe in it, but I don't believe trees grow to the sky. I believe trees grow, but I don't believe they grow. Unbelievable, you know, forever. And so those are the kind of hints of. You don't see many of them in, in real estate. The only one notably you see in real estate could relate to data centers.
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B
Right? And, and you said a year ago when I said to you, pick your asset class right now in commercial real estate. And you said, well, if you want to get, if you want to stay wealthy multifamily. And then I said to you, if you want to get rich.
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Yep.
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You said do office. And I said, and if you want to get poor, I said in a
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longer term horizon, do data centers. And my rationale is simply three things. Come on, I'm almost 75. So you don't ask for a 75 year old to have great insights on technology. Right? But, but the margins, I heard Nadim Nadeem said what, the yield on cost is something like just under 8%. Where else can you get an 8% yield on cost developing? No. Right. So it means a lot of money going there. Means the margins very big. You show Me, a sector in any industry over my lifetime, including this one, where margins are double or 50% to 100% higher normal. Guess what you have in two or three or four years, oversupply. Even if demand's good, you end up markets adjust. So my concern is on the supply side. And then the other concern is, and I think Nadim mentioned it, who takes out who's the takeout? And that's a challenge. We don't know who the takeout is. Well, if I don't know the take, I own an apartment complex in Dover Slash, New Philadelphia, Ohio. Nobody knows it. I assume I don't have a takeout equity. I will, but I assume I don't. Why? Because nobody knows. So as I evaluate it, I assume nobody knows. There is a pricing of these deals where everybody seems to act like they know what the takeout is. They seem to know that just because a tenant is credit worthy today, they'll be tenant credit worthy in three years. I'm old enough to remember when strip centers begged to get Kmart as their anchor tenant. And by the time the center opened, Georgetown Strip center, they were an anchor, not an anchor tenant. Okay, got it. And by the way, at the moment Kmart was really doing well. So it's not like I have some insight beyond. I just have seen too many companies. What makes Microsoft, what makes Walmart and a few other companies. Amazing is they have successfully reinvented themselves repeatedly over 40 years. Not easy to do if you went to the record of most companies. If you can reinvent yourself twice over a 30, 40 year period, you're doing great. And everybody assumes that the hyperscalers will be forever gold. Did you ever hear of a company called Ford Motor? Did you ever hear of a company, when I was a kid, they truly meant that whatever was good for gm, General Motors was good for America, right? Would anyone say that in the last 25, 30 years? No.
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GE, GE was the most valuable, most valuable company on Earth in 2000 at a market cap of half a trillion
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dollars and what, nine years later it
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was at 125 billion and almost died. Almost died.
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So I'm not trying to pick on anybody. I'm just.
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B
We're picking on George, we're picking on ge.
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They deserved it. They deserved it.
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B
So, Peter, in the canaries in the coal mine, one of the ones that you've had for quite a while is the misguided Fed. And I think in the last one you had four canaries dead on a misguided.
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Only because I'm nice They're on all five.
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So we're about to have a new Fed governor come in, Kevin Warsh, who is a exceptional. He's now just a candidate to be Fed Chairman. A couple of things on that. First of all, where should rates be today?
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A
So I have a very simple approach to this and obviously there's more complicated equations and data behind it. I'm going to make this real simple. To take a short term, highly liquid risk. I don't think I need a big return premium over inflation. All right, that's step one. Step two, where's inflation? If you look at the roughly 80,000 items that people truly consume, inflation is running about 2.1 to 2.2% for the last two years. Not for the last two months. For the last two years, it's been running at 2.1 to 2.2 a year. The only reason it registers higher is because, mainly because of an item called owner equivalent rent. And any of you who own homes, I want you to tell me immediately, how much rent do you pay yourself for your home? And your answer is, nothing. No one ever bought it. And that's a quarter of what drives the Consumer Price index and it's been high and it's what causes it to be up.
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B
Just as an aside, he helped create it with Milton Friedman way back, way back when he helped create that owner equivalent. So he knows it all too well because he actually created the measure.
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I was. Yeah. So the point is, there's a. There's a. No, there is a context in which it's an interesting question.
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B
There is. Particularly when you didn't have Zillow to do an automatic valuation of a home.
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A
Spirit of what you were trying to do. You were trying to compare, for example, it was a useful. I'm not saying perfect, was a useful effort to basically ask, what's the cap rate you apply to your home? And is there an arbitrage between rental and an owner of a home? Got it. That was what motivated me. You could say, well, that was stupid. I was young and stupid. Right? That's what I did. But 2.1, 2.2% for two years. By the way, the 30 year average of the inflation, not including that owner equivalent for the 30 years prior to the onset of the pandemic was 2.2%. So for two years we've been back to basically where we were with noise for 30 years prior to the pandemic, which kind of disrupted everything. All right, we've been back. If it's 2.2%, what how much return do you need? I would say 50 basis points, maybe 75 basis points. That says 2.75 to 3. There are some people would say you only need 25 basis points. That would say 2.5. So somewhere between 2.5 and 3, I would say closer to 2.75. It is currently 3.5. I'm being kind. It's currently 3 point. Well, that's 75 basis points too high. And the way I've quote, won my bets is nothing more than this little insight, which is the rates are too high. So is the rate closer to where it should be? Of course. Is it where it should be? No, it's still 75 bips too high with the new appointments. By the way, if you were the President and you think rates are too high and you're choosing people, are you going to pick somebody who believes it should be 100 basis points over inflation or 25 basis points over inflation? Doesn't mean you're going to force an answer on them. They went to the same universities, they worked at the same jobs, they all have integrity. Okay, but you're going to pick people, right? So it's very possible you're going to get a majority in there in the course of the next year or so that believe it should be 25 to
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B
50 and you're on for this year
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A
then for 75 basis points cut, I think is absolutely in. They'll backload it again like they've done the last two years. I think they'll do one probably before the middle of the year and again probably two at the end of the year. And depending on resignations, like, I think Powell will go off. I don't know that, but I think he'll go off. He has more term. That's another appointment that's going to be another person who believes 25 over inflation and so forth. So it could easily be 100.
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B
So let me. If any of you are poly market betters, you might want to go and make a bet on Polymarket on what Peter just said. Because in 2024.
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Three. Three and four.
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Well, four and four and five.
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A
Four and five, yes.
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B
So in 2024, you all may recall that the outlook was that the Fed was not going to cut it all during that year. And Peter came out at the beginning of the year and said we'll have three rate cuts. We got to about June, Peter said we're going to have three rate cuts. And in June of 2024, nobody, and I mean nobody dot plot said there's no way they're cutting this year here. Peter and I were in Philadelphia together. He said, we're doing three this year. I said, if there are three, I'll kiss your feet at the end of the year. So fast forward to the end of the year, and sure enough, we get three rate cuts in 2024. And in our January webcast, I got down on my knees and I kissed Peter's feet.
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A
So I wore clean shoes and socks.
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B
Just so you know, this past year, yet again, Peter goes three. We get to June of last year. Nobody's believing that we're going to have three again. Peter's like, we're going to have three. I said, look, I kissed your feet last year. I don't want to kiss your feet again. But if it's three, I buy you a new pair of shoes. And if it's less than three or more than three, you buy me a pair of shoes. So that pair of New Balance shoes, right there are a pair of shoes that I bought for Peter.
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A
Thank you. He's a man of his word.
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B
They were very expensive, by the way. They're huge. They charge you for when they're 13 and a half.
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A
When I'm done, there'll be big shoes to fill.
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B
Let me just. I got normal sized feet. They charge me normal prices. They charge you high prices. There are just two things on those shoes that are kind of funny if you watch Peter walk away from you. One says 3x25, which is three rate cuts in 25. The other one. Peter and I tease each other on Wharton versus HBS as the better business school. And I was trying to come up with something to put on the back of one of them to kind of poke him on it. And I couldn't find a single poll or ranking that had HBS over Wharton. So I wanted to put something on there. And I couldn't figure it out. And then I went into Grok and I said, what business school has the wealthiest alumni base in the world? And it came back undeniably Harvard. And so it says on the back of that hb and the S is a money sign just to remind him of that one.
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A
Okay? So when I got that, and he told me, you do know where Elon Musk went to school, don't you? Not Harvard, Wharton. He alone is richer than all these Harvard snots. You know,
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B
I don't know where to go from there. I was going to throw in that the President also went to Wharton. So, you know, also you've got two of them. So let's switch gears for a second here. We've talked about rates. Oh, I wanted to get on this. A lot of people are concerned about our national debt. And you did a calculation in your last letter that I think is just so insightful for people to keep in mind as it relates to our overall net wealth in America versus our debt. And so just for a moment, if you would talk about the $175 trillion of net wealth in America and why because of that number. You're not concerned about our $37 trillion of gross debt, $28 trillion of net debt.
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A
Let me do it this way. If you're worth 175 trillion, are you terribly bothered? By the way, let me go one step further. You're worth 175 trillion and it's growing by 8 to 10 trillion a year. Your wealth is 175 trillion. Growing 8 to 10%. 8, 1. I'm putting it in trillions then to round it, right? So it's growing 8 to 10 trillion a year. Okay. And you're worth 175 trillion to start with. But against that is off balance liability of 27 trillion in federal government debt. And that's rising by 2 trillion a year. So your wealth is 127 and the other debt is 27. What's your net like? 148 trillion. You got a lot of wealth, don't you? Got a lot of borrowing capacity, if you will. Got a lot of collateral, if you will, on that liability. Right. And another way of viewing it is if your wealth is growing, let's just say 8 trillion a year. Okay. Do you think you could take on another 2 trillion in other liabilities? That 8 trillion is net of normal debt. Right. So I'm. There's this other 2 trillion that we're running as a deficit. Well, if I could always create 8 trillion in wealth, I could take on another two that. Should I or shouldn't I? That's a totally different question. Right? Should I or shouldn't I is a different question. Can I? Of course. And that's why my entire life I've heard people say we can't go on. It's going to destroy the economy. And yet over my life the economy has grown not because of, but it doesn't melt the economy down because we create wealth and everybody. Follow what I mean by that, Right. It's kind of obvious when you think and people say, well, how would we pay it off? Well, we could tax ourselves. And remember, when we pay off that debt, 2/3 of it, we owe ourselves. So this half the room pays it, that half the room gets two thirds of it. You know, it's not as bad as it sounds. Right. And. And so the real problem is if we don't create wealth, and the United Kingdom, I'm not picking on them, has not created wealth. In 2007, different problem for them. You don't create wealth. The growth in that deficit is a bigger problem. Germany hasn't grown since 2016. If you don't create wealth, it's a bigger problem. Zimbabwe never created wealth. When Zimbabwe runs a debt deficit, it's a problem. Okay? And I'm not saying we should have a deficit. We shouldn't have a deficit. I'm saying we can. And we're not robbing our children and grandchildren. When you go out to eat tonight, are you robbing your children by paying for your meal? No. It's part of your normal life, right? That's it. And people say, well, how do we keep floating this debt? Because we're wealthier. Is that simple. And because the rest of the world gets wealthier. And where would you rather if you just struck oil in Guyana and you're the one who's getting a lot of that wealth, would you want to invest it in Guyana or in US Bonds? I know where I'd invested. Same place as you do it. So why would they do it?
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B
So this morning we were talking about oil. Oil runs through everything. Oil has a huge impact on the inflation print. It has a huge impact on GDP growth, everything. So you said to me this morning, and this is before I showed you walking out here, that it was over 90 bucks a barrel. But you said to me this morning, oil will be at like 64, some
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A
number like that, by the end of the year, by a year. Why? I believe in basic economics. Okay, what's the basic economics? Who's the marginal producer of oil in the world since about 2014? US. We're the largest oil producer in the history of the world. We're 21% of all oil production in the world. Why? We weren't before fracking. And fracking changed everything. And the best numbers I see, and they're not perfect, is by and large, fracking is available at scale with some degree of profitability at around 40 to 45 dollars. And then you have to layer on overhead, right? You have to kind of put that on. We know they were willing to frack at record levels when the price was 58 and 60. Okay? Now the price goes to 90. What are you going to do you're going to do more, by the way, somebody comes up to you and says, are you going to do more? Wall street had a stupid article the other day and said, oh, they're not going to do it this time. Are you nuts? If you were willing to do it at 58, you're really willing to do it at 90, you're still willing to do it if it's 86, you're willing to do it at 82, you're willing to do it if it's 78. And if you kind of do crude math, if it's breakeven incrementally at, let's say, 45 or 50, and you layer on overhead, you kind of see where it's at, and that's the incremental supply and the tar sands. The math is not so different up in Canada. It's different, but it's not so different. So why will it come down? It's going to come down because supply will come on. Had it not been for fracking, do you realize where oil would literally be at today if it had not been for the us if we would have done like Europe does and say, no, no, we're not going to frack, or like New York State does, we're not going to frack. Oil would easily be over $200 as we're talking today, and it would be worse than it sounds, because we net as a country, not every individual benefit from higher oil prices. We're the largest producer in the world, so when the oil price goes up, we gain, just like Saudi Arabia gains, except we're not being bombed. If it weren't for fracking, we would be a net importer and we'd be getting crushed economically with no opportunity to take advantage of it. So the world changed dramatically. Is. And by the way, everything I just said about oil, you can kind of do it with natural gas. The numbers are different, but the concepts are the same. And so that's why I believe it'll be down. Do I know when the war ends? No. Do I know how it ends? No. All I'm counting on is the world doesn't end. And by the way, and I don't mean to be totally glib, if the world ends, I've had 75 good years, so.
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B
And on that, by the way, everyone in this room is about to learn from Steve Witkoff when the war is going to end. So, I mean, they're in the right place at the right time. They hear from you, don't worry about it. And then they get to hear from Steve when it's actually going to get off.
- [35:50]
A
Right? No, I just, I just, I. All I'm saying is we're going to produce and. Because if he doesn't produce, the guy in the well next to him is going to produce.
- [36:05]
B
So let's switch for a moment as we've got about five more minutes till we're going to go to some Q and A and then we'll give up the stage.
- [36:12]
A
By the way, aren't these great shoes?
- [36:14]
B
He loves to remind me of it. So Peter, as I have tried to underscore, you've been really right on a lot of the big things over the last five years.
- [36:24]
A
Uh oh, I hear it coming though.
- [36:26]
B
Here it comes.
- [36:26]
A
There's a but coming.
- [36:27]
B
I know it's only in that. What have you missed? What's been the piece of the economic analysis that has happened that you sat there and said I didn't think this was going to happen.
- [36:36]
A
The big one I got wrong. Since COVID Since the. Which was six years ago.
- [36:45]
B
Six years ago almost today.
- [36:46]
A
Almost to the day. Right. Just to put this in context was how fast people would come back to the office. I thought they would have been and I was very.
- [36:57]
B
So other way of saying that.
- [36:59]
A
How slowly, how slowly they have come back. I, I understood productivity. I understood the literature on cognitive behavior. I used to joke and say I can barely get my people. This is not literally true. But I used to joke saying I can barely get them to work when they're here. How am I going to get them to work when they're not here and they're walking their dogs. And, and yeah, if you have a really nice pat place to work and you're really disciplined, which this group would tend to be. But that's not most people. Most. So most of the people most of the time the cognitive literature showed you're better off working in a group than alone for a variety of reasons. And I thought by late 22 they'd be back and hence office would be back. And what happened was they didn't come back or they came but much more slowly. In the meantime, office got hollowed out and that led capital to just flee was self reinforcing. So not only was the rent and occupancy bad capital left and I. And by the way, as you know, people are coming back. Right. But it's massively. I mean I give myself a score of, you know, this is a John Maynard Keynes in the long run I got it right, but I didn't get it Right. That would be the biggest, I would think. I made a. I made a. I made a couple of other mistakes, but not a lot. The, the job market last year was not as weak as the data shows, but it was weak. And if you look back, what I said at the beginning of 2025, I think I was saying like a million four.
- [38:41]
B
Yep.
- [38:42]
A
And I think it ended up around 800,000. I don't believe the 180,000. We could have a conversation, but I told you kind of why, and that's a pretty big miss.
- [38:55]
B
Do you believe any of these. GDP growth goes from 2.8% to 4% to 5% to 6% due to AI. There are a lot of people out prognosticating just unprecedented GDP growth in the United States.
- [39:08]
A
The staggering part of that is in one breath they predict it, and the next breath they predict that it will destroy the economy, which is completely logically inconsistent. It's impossibly inconsistent because what's going to happen with all that wealth? What's going to happen with all that income? Right. So you can't have one belief and have the other. In my view. I would love it. I would love nothing more than to see AI raise productivity from 1.5% a year to 3 or 4% a year, and then you'd get that GDP. Why? For the same reason I'm glad we have tractors instead of walking behind plow horses. And I'm glad we have computers and I'm glad we have automation to lift steel instead of somebody having to lift molten metal. You know, all those reasons. I don't think it'll happen, but I would be thrilled if it happened because we would have more leisure. Remember, by the way, you go back 100 years ago, you understand the workweek was six and a half days a week. So what's happened is we get a percent, I'm rounding all this. We get a percent and a half productivity growth a year. We consume about two thirds of that and we take about a third of it in leisure. So we went from working six to a half days a week to six days a week to five and a half days a week to five. We probably got, we probably were close to four and three quarters days when Covid hit. We continue to create wealth. Is it surprising you see it drifting down and everybody said, well, it can't go lower. Of course it can go lower. Right. And so we may be in the midst of a four day work week. That doesn't mean every company works four days, not every person. So I'D love to see that. I don't think I'm going to see it on a sustained basis, but I'd be thrilled.
- [41:08]
B
One final thing, and we're going to go to some questions after this on that. If we were sitting here in 2000 and I said to you the Internet and E commerce seems to be a big thing and there's this company called Amazon out there, you and I would have run out and bought Amazon. Particularly if I told you that it was going to turn into a $5 trillion market cap company. Right. That would have been the right move.
- [41:29]
A
Where were you when I needed you?
- [41:31]
B
Right. But you and I also would have shorted all bricks and mortar retail. If you told someone in 2000 that Amazon would become a $5 trillion market cap company, you would have sold every piece of bricks and mortar retail that anyone ever owned. Yet today, how much retail is online versus bricks and mortar?
- [41:50]
A
Six out of every seven dollars, not including auto. Right. Six out of every seven retail dollars still go through bricks. That's not to say online hasn't grown. Of course, it's growing. And online has taken weight, like 90% of the growth. But six out of seven dollars keeps a lot of people busy, Right? And it's going to keep them busy a long time and gives Walmart a
- [42:18]
B
trillion dollar market cap.
- [42:20]
A
Think about that. By the way, you know the main difference between Walmart and Amazon in terms of retail? Walmart makes money on their retail. Amazon does not make money on their retail. How does Amazon? Trust me, if you go through the number, how does Amazon make money? They make it from web services. So the cloud, if you will, is a huge moneymaker. And they make it from procurement services. Right. Which is a service. So Amazon makes money from being a warehouse and a procurement company and one other thing, information. And essentially they're willing to sell at zero profit to a small loss to have your information. Why? To sell it to advertisers. That's it. Okay, but they don't make money from retailing. Walmart makes money from retailing. They make money from retailing. And that's why they wanted the online part. Walmart wanted to double dip because they had figured out how to make money from retailing. And if they could also figure out how to make it from gathering information and selling that information for advertising, they could double dip. And they have done it not as effectively as Amazon. On the information side, they come a long way.
- [43:42]
B
I think we have questions now. Yes, Chuck.
- [43:45]
C
All right, so we've got, we've got a couple of questions related to housing affordability. You could take this in any direction you want, but I'm going to interject a thought on it. Richard Green out at USC in the Lusk center, he had a dialogue about this in the fall and he said, you know, there is an underlying demographic issue with housing affordability that we didn't have so much in the past, which is related to the marriage rate, that essentially single person efforts to acquire housing are more difficult than married people. So that was an interesting twist to all of the other things we usually think about with interest rates and other things. But take that in any direction you want.
- [44:24]
B
Well, as you know, the average age of the first time homebuyer in America today is 39 years old. 39, yeah.
- [44:31]
A
Okay. So yeah, so I'll give you. Remember, this is an old guy and I've studied housing a fair amount. Two fundamental things are happening on housing affordability. One, on the supply side, communities don't want you. If you're an entry, they don't want you.
- [44:51]
B
They want Stewart, who's going to come out here in a moment. They want Lennar homes that they want. They just don't want other home builders.
- [44:56]
A
They just don't. They just don't want you. Why two thirds of all. Just think of the following electoral math. Two thirds of all households own their home. If you own a home, the last thing you want is competitive supply. And people figured out how to drive that politically. Oh yeah, we want them. We really want an initiative. We'll subsidize nine houses, see how good we are. But to help with the rest of them, we're not going to let them, really. And by saying not going to let them build, we're going to put fees on, we're going to put delays on. We're going to do, we're going to do. They don't want you politically, two thirds will outvote one third. It's that simple. And they figured it out. The second is on the other side, the consumer side. So when I got married out of university and when I got married out of university, probably 50% of university graduates in the United States did come back five years later, probably down to 15% was right on the cusp of that. If you're getting married, and by the way, many were married before that. If you're getting married in your 20 to 25 and you're having kids two to three years later, you tell me when you need a backyard in schools. And the answer is by 30. If you know you need backyard and schools by the age of 30, you don't do doordash. You don't take a ski trip, you don't take a Caribbean trip, you don't go to Europe because you committed to the little rugrats and you need money for the down payment and so you saved. Now today you get married at 30, rounding and you get two to three years till you have a kid. When do you need a backyard and schools? 40, when you're sort of 38, 39. Guess what you get to do in your 20s instead of saving to buy the home? I'll go to the Caribbean and I'll go doordash. I mean, people do home delivery like it's a birthright. You know, it just staggers me how people who complain about my wife and I carry out from restaurants. We live in Center City Philadelphia. We carry out from restaurants and trust me, we could afford doordash. We see doordash coming in and out of every low income apartment building in the city, right? And there's. There we are. Because I'd be damned if I'm going to pay an $8 fee, right? I'm not saying good or bad consumption choices are consumption choices. It's not mine to say.
- [47:45]
B
It's a good thing you got those great shoes to walk to the store to pick up. All right, go to the next one, Chuck.
- [47:50]
A
Got it.
- [47:51]
C
I think this is a student question, but what is the most difficult part of conducting an economic analysis while still maintaining accuracy when markets are constantly changing?
- [48:01]
A
You. You analyze markets all the time.
- [48:03]
B
I do. Look, I think one of the interesting things about AI is that what's AI going to do? We have a pretty big research division at Walker Nellock called Zelman. What's AI going to do to our research division? Our bankers and brokers use their market intelligence to be relevant to our customers. What could potentially disintermediate that relationship between our bankers and brokers and our customers, where a chatbot is more informative about the market than a banker or broker at Walker and Dunlop, those are very real issues that all of us who are in the service economy and who are lenders into this space are dealing with right now. And so the one thing that I would say is that speed to market is incredibly important. I was signing a lease this week for a house that we're renting, and I don't want to look at leases that much, even though I know a lot about leasing apartment buildings. And so I called up a friend of mine who has a lawyer and I said, danny, I Need a lawyer. You got someone in Southern California for me? He said, great, here's the guy. By the time the lawyer had called me back, I'd already taken the lease, run it through Grok, had Grok Give me the 10 major points on the lease. I'd gone to the owner, I'd negotiated the 10 points guy, sending me his
- [49:16]
A
firm,
- [49:19]
B
his agreement for me to hire him. And I've already negotiated the entire lease myself. That's where this is all going. But the issue with it is I don't think it disintermediates completely that lawyer. I'm going to need him for something that's really big. But on that lease, it was done by Grok and me and less time than he could get me his engagement letter.
- [49:37]
A
I have two, I would add. One is don't focus on the shiny objects. There are too many shiny objects. And by nature, since we were infants, we're attracted to shiny objects and there's a million shiny objects. When you're doing a real estate, you're doing a long term investment. And even if you're only going to hold it for three years, the person who's going to take it off your hands has to look. And I think people get caught looking too much at the short term shiny object. And the second relates to that is they get too politically entwined. And one I think benefit I've had is I basically have always thought both the Democrats and Republicans are scoundrels. And so I never viewed, I had a team. And I'm not saying I'm right, I'm just saying that was my view. So I never felt I had to support a team. And so there's, you'd be amazed. I get these emails saying you're just a Biden apologist. And then I'll next day get, you're just a Trump apologist. And you're just, you know, know this has been my whole career. And I'm saying no, by the way, sometimes they're Right. Right. And so being able to dismiss yourself from your political biases is a huge advantage. Hard to do, but a huge advantage.
- [51:05]
C
Okay, and we'll end with the same question we usually end with. You've got a lot of students in the audience, Peter. You've experienced this like me. Every year you get older and your students are the same age. It's like, how does our advice change?
- [51:18]
A
Let me not get older. We haven't gotten any older.
- [51:21]
C
What advice would you have to them as they set off on their careers?
- [51:24]
A
Oh, don't go to Harvard.
- [51:30]
B
So first of all, get everything out of the University of Miami. You can. You absolutely, like, do everything you possibly can while you are here.
- [51:38]
A
You.
- [51:38]
B
You don't understand how privileged you are to be on this campus with the resources around you. So point one is that the second thing about it is that I think Nadeem said it really, really well. I can't tell you that your first job doesn't make a difference because going to where you went to college made a difference to you and your parents. And where you're gonna go on your first job somehow is gonna either set you on some great path to victory or not completely wrong. But the thing about it is to think of it as there's no bad job, because if you go to a bad company or you have a bad boss, you're learning what makes that bad, which then makes you better. It makes you know what the next opportunity needs to have as it relates to a boss who's investing in you, as Nadeem said, as a company that's investing in you or business practices that you didn't like as the receiver of them. So when you are a manager, you're not going to act the same way that that jerk did in that job that you didn't stay in. So if you're in a bad place, try and continue to learn while you were there before you move to your next opportunity.
- [52:39]
A
And I would add, because I echo all that I would add, you're going to look back as you get older and realize it was about the journey rather than the destination, because the destination keeps changing. And I look back on my career and I thought a particular moment, a particular exercise was about the exercise, which it was. But, gee, that's how I became friends with Sam Zell, or that's how I became with so forth. And that's what it was really all about. So that's one. It's the journey. But make it a worthwhile journey and try to pick interesting places to go. That's one second is nothing is beneath you, that's legal and not immoral. If it's legal and not immoral, nothing is beneath you. And related to that over my career, if you do good work consistently on everything people ask you to do in this economy and in our world, if you will, somebody's going to notice and they're going to give you a chance. If you get a chance, say yes more often than no, which most people don't do. And the second is understand that being able to do things well, consistently is a rare skill. And Will differentiate you. And if nobody has noticed you're doing that after a year or two, go look in the mirror and ask yourself, am I doing as good a work as I think I am? And if not, how do I change? But if you do good work, someone is going to notice and give you an opportunity. May not be the opportunity you were wanting. May not even be the opportunity you thought you were going to get. I'm sure all the speakers, I'm sure you, somebody noticed, gave you an opportunity. You didn't even know it was an opportunity at first.
- [54:48]
B
I have one final thing to say, Chuck. I'm 58. When Peter turned 60, he said, maybe I'm gonna live until I'm 65, but I wanna live till I'm 75. And then he got to 65, said, hey, that 75 looks pretty attainable. Then he got to 70, he said, hey, that 75's looking pretty good. He's about to turn 75 and he's gonna have to reset.
- [55:09]
A
Absolutely.
- [55:09]
B
Peter's Gonna reset to 90 at a minimum. And I would tell you he probably ought to reset to 100. And the reason is because he takes extremely good care of himself. And so the one thing as a college student that I cannot stress to you enough is the one thing you can't get back is your health. And so while you can go out and make all the money in the world, you can go out and meet all the people you want in the world, you can have a great family, you can have a terrible family, your own personal health is the one thing that when you get to be my age, if you haven't taken care of it, it will be the biggest regret you have. And on that, Peter, as always, great, Chuck. Thank you for having us here and
- [55:45]
A
everyone, thank you, Chuck, so much for coming. Thank you. Thank you, Sam.