← The Walker Webcast
The Walker Webcast
Kris Mikkelsen (EVP & Co-Head of Capital Markets), Justin Nelson (Senior Managing Director) & Ivy Zelman (EVP & Co-Founder of Zelman, a Walker Dunlop Company)
01:08:36
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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.
- [00:33]
B
Welcome to another Walker Webcast. It is a beautiful Wednesday here in Denver, Colorado, although a little alarmingly warm for this time of year. But it's my understanding that up in the mountains it's both warm and there is still some snow for people to ski on if they're on spring break. Our colleague Aaron Appel, who was going to join us, is actually on spring break. So I asked our colleague Justin Nelson to fill in Aaron's stead to talk about the debt capital markets. I have Chris Mickelson who runs our capital markets group at Walker Dunlop, as well as Ivy Zelman who runs Zellman in our research division. Nice to see all three of you. I have two other quick public service announcements, if you will. First is our colleague Steve Theobold, who's COO of Walker and Dunlop and our frequent guest of the Walker webcast, Peter Linneman. Both have birthdays today and so happy birthday to Steve and to Peter. It is a big one for Peter in that it is his 75th birthday today. And as he and I talked about at the University of Miami where Ivy and I both have kids for Ivy and child of my partner Sarah went to the University of Miami. But when Peter and I were there, we were talking about when Peter turned 60, he set an objective to live until he was 75 and has clearly achieved that and is in fantastic health today, today at 75. And I said in that interview that he's going to have to reset his goal when he turns 75 for what it's going to be. And this morning I said to Peter, tell me your new goal, it better have a nine handle on it. And he came back to me and said it's 95. And so I love the fact that Peter pushed himself out by another 20 years of his time on this earth and sharing his both personality as well as his incredible insights with all of us. So Ivy, I went back and looked at our conversation from a year ago, which was almost to the day a year ago. You and I have had subsequent conversations on the Walker webcast, but with Chris and Aaron, the last time we did the three of us, four of us was a year ago right before the president announced the tariffs and the 10 year was at about 418, 419. At that time the equity markets had actually sold off in anticipation of the tariff announcement and there was a lot of kind of doom and gloom as it relates to the EUPHORIA of a Trump administration was kind of burning off at that time a lot of concern about tariffs. Rates hadn't come down quite as much as we had anticipated and it seemed like there was some real concerns about where 25 was going to sort of unfold unfold to. As you look back on that conversation a year ago, what surprised you and what sort of played to your expectation?
- [03:29]
C
Well, I think the spring selling season was really a bust and given the backdrop that you just described, the uncertainty of what inflation would look like as a result of tariffs coupled with what has already been a challenging market, especially the first time buyer market was really a really disappointing spring and probably more disappointing than we had expected. At the same time I thought we were going to see inflation in building product overall input costs and we really didn't. The large production builders did a great job of pushing back on vendors and actually for some of them that typically cost 3 to 4% on a long term normalized basis. Many of them are actually the bigger ones are down in the low single digits. So that was a surprise that they were able to push back. But that really is telling about how weak the market is that they're not taking price increases. And that really really is still the case right now.
- [04:23]
B
And you have consistently said that consumer confidence is a huge driver in the single family market. If you look at where consumer confidence has gone over the last year it is fallen significantly down to the early read on the University of Michigan consumer confidence index that just came out this week was at 55.3 which is well to give people some sense that's 35% below its long term average in the mid-80s 84 and it is in full bore recession mode as it relates to just that one read yet we are clearly not in a recession concerning to you as it relates to the outlook for most specifically single family for sale housing.
- [05:09]
C
Yes, I mean really as I mentioned in previous discussions, confidence really trumps everything with the exception of outright recession I guess. But when you think about the the hierarchy as it relates to fundamentals, its confidence, its jobs, its rates and confidence as weak it is I think right now is more reflective on slowing move up buyers. They're more in tune to what's happening in the economy. The first time buyer market is much more I guess correlated to affordability and in this case the lack of affordability. But I would say that's what's been interesting. We felt as if spring was starting to spring sprung, it was springing. I don't know the right verb is there but we were seeing some green shoots and I think after we saw the 30 year fixed actually tick a few weeks ago below 6, there was optimism. We're starting to see some markets that were pulling back on incentives and I think that's not necessarily changed across the board. We are hearing mixed results from builders just the last few weeks, some builders. Actually we talked to a builder in the Carolinas yesterday who said, you know, we're seeing actually better than seasonal first time buyers stepping up because they feel that real estate is, is safe and it gives them more of a sense of security. And yet talking to builders out west that are more maybe focused on move up, they're definitely seeing more slowing. Texas is probably the canary in the coal mine. Most challenging overbuilt market. Still challenges in Florida markets. But Carolinas, Midwest I'd say are really the shining stars right now. But it's really mixed. And Chris and I were talking about it, it could be down to the msa. You can have a community that's outperforming a community another builder is trying to sell out of. So it's very difficult. And I say CH but it's not as bad as the spring last year.
- [06:55]
B
Chris, with that backdrop on the single family side, when I hear what Ivy's saying, they're putting aside a little bit of those green shoots that you just heard from that one builder, it sounds like that should be game on for multifamily with the single family purchase market being under pretty significant pressure from both a consumer confidence standpoint, from a rates standpoint and from an overall cost standpoint, is that what you're seeing in the market?
- [07:23]
D
Yeah, I think Ivy's point about the choppiness is a good one. I think the way that we're really just thinking about it right now is where does the demand sit in the market? And to your earlier question, Willie, if I go back to what we were talking about 12 months ago, we were coming off of the heels of 2024 where the trailing twelve month multifamily absorption stats were in the mid 700,000 units. And there was broad consensus that that momentum was going to translate into a solid recovery and operating fundamentals through the course of 2025 that did not materialize in really any sort of even form. The absorption numbers actually peaked mid year last year on a trailing twelve month basis around 785,000 units. But the deceleration that happened in the second half of the year took that trailing twelve number at year end down into the sort of mid to upper 300,000 unit range. So I think what we were, you know, what we were certain of in the middle of March last year was that we were going to get a robust operational recovery that didn't pan out. And then what we were certain of in the first week of April was that tariffs were going to lead to really sticky inflation. And there was much more talk around tariffs leading us into an economic recession than vice versa. None of those things materialized. Inflation rolled over as we worked our way through the year. We finished the year with a GDP print in the mid to upper fours. So as we sit here today and, you know, these sort of questions are back on the table about inflation. And we've had persistent demand in multifamily. It just has not kept up with the amount of inventory that we still need to absorb. But it's clear we've got construction starts that are now, you know, 55, 60% off peak levels. They're 20 to 25% off the levels that we were demonstrating from 2015 to 2019. So while we sort of disappointed in the. In the recovery, the operating fundamentals, in the time since we had our last conversation, I think the market is setting up and really building conviction that 26 is the recovery year and then 27 is the year where the fundamentals start to materially improve on the backs of the lack of inventory that we've started over the last few years.
- [10:07]
C
But you would say, Chris, that it really is similar to everybody talking about a K economy with those at the lower income are suffering more so than those at the higher income. Similar in multifamily, maybe Elaborate on that.
- [10:20]
D
Yeah, I mean, some of this relates to operating fundamentals. Some of this relates to capital markets and demand in the capital markets and the transaction market. But I think if I were going to have one takeaway for the audience, the range of disparate outcomes that we see right now is just continuing to get wider and wider. The highly coveted core assets, particularly if they're in markets that have been insulated from supply pressure. So you think about the gateway markets, you think about, you know, markets where, you know, they're near and dear to Ivy's heart. She's always, you know, her call is always to do build for rent in Cleveland. So I'm sure at some point over the next 60 minutes, like, that's going to be the call I told her last night, you know, she was making fun of me about, like, how long it takes to drive, you know, five miles in Atlanta. And we had that sort of debate back and forth but you know, Midwestern markets, gateway markets, look at the senior housing space, look at all these places where nothing's been built for the last four to five years. That's where the demand is, right? And that's where the growth is. I think the market is very clearly paying a significant premium for any kind of a near term growth story. That growth story might exist in some of the overbuilt markets that the broad brush says they're still soft. But you go into the micro market level and this is sort of what Ivy was talking about with different home builder experiences in the same market. It's, it's down to the micro market level in terms of how each individual asset is performing. I think generally we see the market moving towards higher end product in the multi space in particular, I think there is a conventional wisdom that is built that incomes have risen faster than rents. As you go further up the renter profile, if you will, into the a space where you're targeting renter households that have larger household balance sheets, higher discretionary income, those rent to income ratios are about as affordable as they've ever been. So if the idea is that's where the elasticity and demand exists, I think that's a part of the market that is probably receiving a little bit more capital and performing a little bit better today versus when you work down into the deeper workforce oriented parts of the market where that consumer is a little bit more stretched and maybe a little bit more inelastic.
- [12:54]
B
One of the things Chris, as we were talking prior to doing this and a little bit of pre calling, one of the comments you made to me was I don't think the listeners to this week's Walker webcast want to hear any of us kind of pontificate on oil and where oil's going to go, which I completely agree on. But they are listening to us talk about, they do want to hear us talk about rates and where rates might go and how it might impact the the market. And one of the things that I do find to be so interesting along the lines of what you were just talking about is that from an inflation standpoint the back of the envelope calculation is every $10 of either increase or reduction in the cost of a barrel of oil is about 20 basis points of either expansion or contraction in the CPI print. And so when President Trump came into office, oil was it 84 bucks a barrel. That price fell down to the high 50s and just used 64 bucks a barrel as an easy round number as it were. It's been for nine Months or so. And so in that the administration we had picked up somewhere about half a percentage point in the CPI print because oil flows through everything that's in there. And so now all of a sudden we've seen that reversion and you've got oil above well above 84 bucks a barrel. It's in the mid-90s as I last checked this morning on WTI. And as a result of that, you've added back into potential future inflation print somewhere between 40 and 60 basis points of increased inflationary pressure. But at the same time, because 30% of the CPI is calculated off of housing, if you take what you and Ivy are talking about as it relates to cost of housing, single family coming down and cost of rents, particularly as a percentage of income coming down and being flat or negative, you would hope that that plays in to offset a little bit of the additional oil cost in the CPI print that hopefully gives Kevin Warsh, when he gets into the seat the ability to think about potentially cutting rate to Justin on the debt capital markets. Ivy, you want to jump in on that comment by me of whether you either agree with it or disagree?
- [14:53]
C
Well, as I think about what you just said, I do think that our work that basically coming from our proprietary single family rental surveys and the multifamily survey, we believe rents are going to continue to accelerate which should bring the CPI housing shelter component down. So absolutely agree with you. And that has not yet been fully reflected in the cpi, which we know lags probably anywhere from four to six months.
- [15:15]
D
Yeah, I mean we talked two years ago on this call about the fallacy of owner equivalent rent.
- [15:23]
B
Right.
- [15:24]
D
And what the CPI read would actually look like if we could just get, you know, a data feed from the largest third party property managers and RealPage into the Fed. The 2.7% print that we had at the end of the year last year had 30% of that inflation coming from shelter.
- [15:39]
B
Right.
- [15:40]
D
So there's not a multifamily owner and operator listening to this call that, that, that, that sees, you know, in line with, with a sal like that. So unless they own in Cleveland, to
- [15:50]
C
your point, there is, they're in San Francisco.
- [15:52]
B
Unless they're in Cleveland or San Francisco.
- [15:55]
D
Look, Cleveland's good, it's not 15% good like San Francisco is. But, but look, you need a lot of San Francisco's to drive that number as much as it was driven in the fourth quarter. So getting a little bit more accurate read and maybe having a little bit of that offset with a true shelter read, offsetting Some of the inflation print comes. But what I would say is, and this feeds into a lot of the conversations that we're having right now, Willie. Which I think might be helpful for the listeners. Everyone wants to ask us about timing. If you look at transaction volumes in the first two months of the year, Real Capital analytics came out with some stats this morning. And multifamily transactions, 20 to 25% off of year over year. And the activity in 25 was pretty anemic to begin with. Everyone is standing on the edge of the pool waiting, wondering when to go. The backlog has continued to grow. There's a tremendous amount of inventory that needs to trade starting mid year. Last year. If someone was going to justify waiting, the justification for waiting wasn't because they felt like there was a lot of rate relief on the horizon. The justification for waiting was they were sticking around and they were waiting for a recovery in operating fundamentals before they decided to make a capital decision one way or the other, refinance, recapitalize or sell. So now we've sort of inserted into that conversation real risk that with these inflationary pressures, we could be looking at a higher interest rate environment over the course of the next six months. And I think that that might sort of on the margins, tilt some more of this backlog, this transaction backlog that we've got to just get into the market and transact, particularly if your timelines are sort of six to 12 months.
- [17:40]
B
Justin, a year ago, Aaron was talking about the fact that the debt capital markets were very active for commercial real estate. And we clearly saw throughout 2025 plenty of capital availability, if you will, to finance deals. You and I both went to the CREF C conference in Miami and it was, it was little less than euphoric as it relates to one debt lender to commercial real estate saying, I got more capital than I got any idea what to do with. Let's go, let's go. And then two weeks later we went to the National Multifamily Housing Council meeting in Las Vegas and all the operators were saying, my fundamentals aren't great, my rent growth isn't great. And I'm kind of looking at to what Chris said previously, surviving through 26 and maybe I get some rent growth in 27. Give us an update on the debt capital markets and whether they are still as robust as they were throughout 2025.
- [18:37]
A
Yeah, thanks, Willie. And I'll just to tag on kind of Chris's comment of multifamily transaction volumes a little bit and some recent Conversations we've had. Certainly there's plenty of capital to go buy an asset on the debt side, whether it's agency. On the fixed rate side, floating rate liquidity is still very robust. Mainly as we came out of CREF C, the talking point was hey, the back leverage from the money center banks is driving pricing compression. You have stability in the rate outlook on the floating rate side which is allowing people to say hey, we're going to take a little bit of risk on the buy side for some of these maybe higher supply markets, but the risk is do we get in too late? So I met with two private capital fund advisors in the last week and their business plan is we want to capitalize on FOMO because at some point when the green shoots of good fundamentals come back into the market, you're going to see the institutional capital follow because the institutional capital is waiting for data points. They want to see a firm quarter of COSTAR or real page saying this is where the market is right now. And that might mean they have to endure a lower yield for a year, year, maybe 18 months at most in a higher supply market. Think Phoenix, Austin, Denver, where we sit and the capital markets on the debt side are providing them that Runway for you know, business plan elongation where, where they can weather maybe 12 months of, of cash on cash. That's not where they want it to be, but they want to get out in front of it. So I think, I think where we sit today, despite volatility on the macro level, capital is still going to play a major role and positive role in providing opportunity for those early movers.
- [20:42]
B
Have you seen any change in, if you will, aggressiveness or bidding from debt funds given many of them are controlled by the alternative asset managers who also happen to be in the private credit space.
- [20:59]
A
So specific to that, that point, most of the middle market debt funds we're working with are raising on a closed fund basis versus the major asset managers that have an open, you know, open fund concept where they have redemption queues that can hamper their liquidity. What I'm hearing rumblings of not I haven't seen anything as we sit today on March 25th and we have multiple deals that are a week from closing where repricing could be in play. But what the rumbling is is counter to where we started the year where back leverage was getting exceptionally aggressive both from a pricing and leverage standpoint. Whether it's note on note or fund level pricing, the risk there is does this concern of private credit primarily on business based loans, you know junk based loans trickle into back leverage for funds where we could potentially see an expansion in pricing credit spreads which will ultimately bring down, you know, lower underwritten debt yields etc.
- [22:03]
B
But so far nothing.
- [22:05]
A
So far nothing. We we rate locked a life company loan on an office deal earlier this week. Willie that deal was quoted two weeks ago and they held their spread in pricing and just you know tracking the the Fed's trip index from trough two weeks ago spreads have only moved about 15 basis points on that index so not seen a ton of spread movement yet based on the macro volatility.
- [22:36]
B
Ivy we have talked previously about the build for rent market and the single family rental market. There's the Senate bill that went through the Senate last week with almost unanimous I think it was 919 on the vote support and as I've said to a number of people when you have both Elizabeth Warren and Donald Trump putting their name to a piece of legislation, it's pretty guaranteed that it's going to get through. That legislation has moved to the House and there are a couple pieces to it that are concerning to many people in the housing industry. What's your take on that legislation and what do you think is the impact to the single family BFR SFR space if it gets into law in its current form?
- [23:30]
C
Well frankly I think it's a terrible idea to require institutional investors to have to dispose of their assets. After seven years we're already seeing challenges as a result of that potential new legislation in markets where many of the SFR operators that acquired portfolios, BFR portfolios at some point they have to monetize those portfolios. And so assuming they're you know, institutional investors want to get paid so then when they they might be grandfathered but now when they sell that portfolio to someone else that they that person that's the in the investor buying it has to have a seven year disposition and they have to underwrite it. And apparently the underwritings that are people are contemplating thinking about the legislation could be down as much as a third on values. So it's going to hurt the valuation within markets where it's highly concentrated areas like Phoenix, Dallas, Atlanta, probably the most concentrated SFR markets. But you know, think about the build for rent just, just conceptually I think it's a great strategy for that not only the home builders to continue to build parts of their communities that would go to those that want to rent that don't have the down payment or the credit to buy or just want the flexibility of renting a brand new home. So it's to curtail starts. And I think we're seeing already. I chatted with a CEO yesterday that say builder who distributes a good, call it 15, 20% of their homes that they build to SFR operators and they said there's about two deals that are not going through and three that are still going through. So there's some that are moving forward, some are sitting on the sidelines waiting to see what happens with the legislation. But I think it's really not good for the housing market. The last thing we need is less supply.
- [25:16]
B
And on the role that BFR plays in the single family construction market, my understanding is a lot of the BFR players will come in and they'll make a commitment to buy 20 or 25% of the homes in a given single family development community, which that additional commitment of 20 to 25% of the community makes it so that home builders can go and say, great, I'm going to go build a 300 home community right now. Does the pullback in that capital have long term implications for the single family side as it relates to overall starts?
- [25:54]
C
Yes, I think your numbers are higher than what we're getting from our proprietary contacts. For the large production home builders, it's probably more in the 5 to 10% range. And if you just look at build for rent in terms of total single family starts, it's been hovering below 10. So I think probably not as big as you're indicating, but I do think that it will curtail their incremental starts. And I think that we know that every home that's built creates jobs and we have been at a deficit of starts that really came to fruition because they overbuilt and they're dealing with too much spec inventory now. So it would just further pull back activity which is not healthy for what I think long term we all know is we need more single family homes.
- [26:37]
B
Yeah. So as I hear that, Chris, on the single family 4 build side, it makes me think of Zelman's quarterly survey in the multifamily space of whether a market participant is either a buyer, a seller or a builder. And one of the things we clearly have seen is on the curve of starts, multifamily starts have come crashing down over the last two years from a peak back in 2022. And to that, the supply curve of new deliveries has started to come down as well. But given in your commentary previously on the For Sale for Buy communities, if you will, as it relates to buying assets, if people are feeling like it's not a great time to sell because cap rates are still, if you will, begrudgingly high with fundamentals, not where they need to be to get those cap rates to come down. Why aren't more multifamily developers building new product?
- [27:37]
D
Well, you mentioned the, the sentiment surveys that Ivy puts out. If you look at that buy, sell or build question that they've been asking for almost 15 years now, the percentage of respondents that feel now is the time to sell is at a 15 year low. It was 4% in the last survey that we published. The percentage of respondents that do feel like now is the time to build has actually doubled. It's gone from the sort of mid teens to the upper 20s over the course of the last 12 months. Since the last time we were on this call, I think the idea of getting a project started today, being able to take advantage of some of the cost relief that we've seen over the last 12 to 18 months, like Ivy said, sort of, you know, no one thought that that was really going to be in the cards post Liberation Day. That's what ultimately materialized the idea of delivering an asset out into 2028 into that recovery market. That's getting some play. There is liquidity out there for development. It is incredibly discerning. And you're working through a stack of 50 opportunities to find a couple that really make economic sense. Most notably just the inability to trend so equity capital. When they're looking at these opportunities, they're not going to give a developer any benefit for rent trending during the time period that it's going to take from pre development to when that project ultimately delivers return on cost targets, I should say are still very sticky in and around the mid 6s. I think what's happened in the rate environment over the course of the last couple of weeks has only sort of reinforced that number so directionally. I think it's sort of steadfast in that mid six range. Just really, really tough to make a pencil. I think as time goes on, some of the capital out there that is really focused on buying best in class assets is going to continue to grow frustrated with the inability to acquire those assets, the realization of the price that they need to pay to own these halves. And I do see capital gradually rotating out of the acquisition space into the development space. We are very early innings on. Frankly, I'm shocked that we started 285,000 units last year. I think candidly there's a lot of market participants that wish that number was a lot lower to add Some certainty to the recovery and operating fundamentals that we all need. But there is capital selectively looking at development. It's just an exceedingly, exceedingly high bar. Plenty of debt capital out there, Justin, and the construction lending market can speak to that. Equity is equity is going to be the governor and continue to be the governor. The one thing I would go back before, Justin, before you go, I got a prediction on this call and it's funny how when global events educate the populace on obscure topics that no one really knew anything about, but they become conventional wisdom in a very short period of time. So a good example is after the Strait of Hormuz closed, we all learned that oil wells don't turn on and off like shower faucets. Right. Once you close an oil well, it takes four to six months to get that back open. And there's no guarantee that that oil well ever flows as productively as it did before it was closed. My prediction that no one really knows much about today, but they're going to find out about over the next five to six months is the fifth Amendment of the United States Constitution, which is the Takings clause. There's going to be a lot of conversation around this legislation and Bill for Rent about the federal government mandating private property owners who they sell their assets to and when they sell them. So to Ivy's point, it's not just the fact that you've got to liquidate that asset in seven years, it's who you have to liquidate it to. And you're effectively forcing build for rent owners to sell a condo converters. And anyone that has been in a discounted cash flow model and underwriting a residual knows that there's a completely different set of math when you're selling an income producing asset to an income buyer versus you're selling an asset to a for sale buyer. So that's a massive valuation impact. I mean I would, I would say that the home builder that Ivy mentioned is fortunate that he's still clearing, that they're still clearing some of that bill for an inventory. That transaction market is largely frozen and in wait and see mode right now.
- [32:06]
B
Yeah. The one other thing that I would put to that you're going to the technical side of the takings clause and the fifth Amendment. The other piece to it is any legislator thinking about the fact that he or she is signing legislation that will by definition have people being evicted out of Bill for Rent homes at some point as they are put onto the market to sell, they can't afford to buy them because they're there, because they're in a rental mode. Maybe some of them have saved up the down payment, but you're gonna get a lot of people being evicted out of single family homes and either having to go find another single family home to rent or go back into a vertical multifamily, which I can only imagine that in six or seven years when people are facing that decision with their lives, that will be something that many congressmen and women will be hearing quite loudly from their constituent bases.
- [32:53]
C
And what's funny about it is it's just going to result in more inflation for renters with a supply that will be constrained with not having the same amount, magnitude of what's available to them. So I think that it's going to be a big mistake if it gets passed.
- [33:08]
D
Yeah, yeah. This is a classic case of good intentions gone bad.
- [33:11]
A
Right.
- [33:12]
D
We definitely need to do something about housing affordability. We're just, I think we're a long way to the long way from the finish line here. And, you know, we need to be talking about some of these unintended consequences that might send the legislation.
- [33:22]
B
Yeah. Justin, jump in on capital for construction on the multifamily side. If you think about the incredible starts that happened in 22, there was obviously plenty of capital in 21 and 22 for multifamily construction. Then in 23 and 24, as rates started to rise, banks were trying to deal with their own portfolios. Banks pulled back significantly there. And trying to get construction dollars is extremely difficult. Are the banks fully back? And if I came to you and said I need to finance a multifamily project, maybe not here in Denver, but
- [33:55]
A
let's pick a even here in Denver. Willie, we've got assignments where we've got the construction financing pretty liquid even in some of these high supply markets and even in some of the high supply
- [34:08]
B
submarkets and from big banks and regionals and small banks, or is it mostly
- [34:14]
A
the national banks across the board? Actually, it kind of depends on how I would say on the big bank side, how they're playing in the financing mechanism. And often they're taking a lower leverage position, going to find some private capital equity to lever note on note, that's where they feel more comfortable playing the middle market. Regional guys are definitely back, you know, and as they've seen their loan books dwindle and their lack of, you know, interest income grow, they realize they're behind the curve. And so we're seeing a lot of middle market from Midwest to Mountain west banks in that 30 to $50 million size, very liquid and very active on, on construction, on refinances. To Chris's point though too, where it's really hard to make the developments pencil is the discretion on joint venture equity. And like there's, there's almost no scalable development, multifamily development that isn't going to need a single source. You know, partner, the, the, the size of these deals, where costs have gone, syndication has become really challenging. And quite frankly, a lot of those syndicators have seen a variety of capital calls and are a little disenfranchised right now. I think aside from just the public data, a lot of the equity that's invested in developments, they've got deals that are long in the tooth. So they have very clear insight to what the fundamentals are based on their existing portfolio. That's probably the biggest headwind and challenge right now in trying to sell the future potential of a site is everybody's got too much clarity on what's happening within their existing portfolio. That's going to stump their ability to give any benefit for growth.
- [36:13]
B
And on a loan to cost standpoint, have you seen banks move up at all? One of the big constraints to the construction market has been that while you might be able to get a loan, it's been very, very low on the loan to cost standpoint. And as it relates to, as a response to that, you needed to have a really, really big equity check, which is exactly what you were just talking about. Have you seen any banks step up to where we're getting 65% LTC on a construction loan?
- [36:39]
A
Yeah, if we pan back six months ago, I think 60 was kind of the ceiling. We've seen that 6 that creep up 65 is certainly the comfort level, kind of max level. Maybe you can get a hair more with some recourse on a smaller deal. And then as your deal size gets, it gets bigger. The only way to really breach 65% is by layering in some sort of B position within a whole note from a larger capital source.
- [37:08]
B
Yeah. Ivy, you focused a lot of time and effort at Zelman on cradle to grave and on looking at U.S. demographics to have real insight, sort of ahead of the curve of where's population growth happening, household formation, everything that really drives the US housing market. As Chris talked about previously, if you were to look at the dynamics in the multifamily space in 2025, you sort of saw this supply curve bending down and you saw the demand curve at the beginning of the year sort of Going lower left, upper right. And then all of a sudden, as we kind of got into Q4, the demand curve started to bend with the supply curve and demand sort of fell away. And there have been a lot of people scratching their heads, sort of saying, where did the demand go? If they're not moving into single family because they clearly can't afford single family and they're not showing up to rent a multi family unit, kind of where are they? Why aren't they not? Are they doubling up? Are they tripling up? Are they being deported? Have we cut off the border to such a degree that we're not getting the new supply of renters into the country that we used to get? What's your take from kind of a demographic standpoint as it relates to the demand side of the equation?
- [38:23]
C
Well, household growth definitely has decelerated. And while multifamily had decelerated, it's still outpacing the growth in for sale households. So I think it's just moderated. And I think that that has a lot to do with not only, you know, the, I guess, noise in the market, geopolitical risks. And people may be hesitant, but, you know, young adults are happy living at home and they are doubling up. And the number of young adults that live at home relative to history is up substantially and has been elevated for the last two decades. So if you compare the number of young adults, let's say from 25 to 40, that live at home in the 1980s, 1990s, call it 15%. We're in the low 20% range right now. And it's been sticky there with the exception of COVID During COVID there was significant tailwinds from low rates as well as the desire for more space and distance. So we saw a lot of incremental households that were formed. But I do not believe that the household deceleration is from really deportations or the immigration policy, because those people generally are not in the for sale market. And when we think about multifamily that's being constructed, it is more on the class A front. And so even value add class B. And we don't think that the deportees are living in class A or in for sale.
- [39:41]
D
One thing that I would add to that, Willie, you know, you say demand went away. We said 365,000 units that have been absorbed over the last 12 months. So the demand's there, it's spread and it's uneven. The other thing that I would point out is a lot of these folks are just staying put you know, when I started underwriting multifamily assets, you know, it was sort of common to plug in 40% retention ratios, and that number went up to 45%. You looked at the Q4 earnings calls from the public REITs and retention ratios, mid-60s marching up to close to 70% today. When you look at blended rents across the country, they're still slightly positive because you're getting 4 to 6% increases on renewals. So you've got really high retention even with relatively material moves in price. I think think we get into this conversation about absorption and about trying to draw a direct correlation to demand. I think sometimes we sort of miss the part about retention and what's going on on the renewal side. Once these residents move in, they're staying for longer. And that's another indication of solid underlying demand just happening a little bit unevenly in markets where we just have. Have too much of a supply overhang.
- [41:03]
C
I would add Willie, too. Thinking back to Covid, obviously we all saw the mass migration from north to south or, you know, from the Midwest to the Southwest and Sunbelt, which is why we have more supply than we can absorb. I think that we saw. We're seeing those trends reverse. So when we look at the migration into markets in Texas and in Florida, they've not only normalized, they're below where they were pre Covid. So when you think about the challenging market environments that we're in, it's really the Sun Belt, you know, Southwest, Southeast, and those markets, whether talking Austin, Charlotte or Phoenix or Denver, where they all got overbuilt, you're at the same time people are migrating away from those markets, and they're going back to their, you know, whether it's back to work or they're just the affordability or the congestion and traffic, people are migrating back. So I think that plays a role, because when we think about the challenging markets Southeast, southwest, you say 75% of production are in those regions. So, like, go back to the idea that, you know, Northeast corridor, Midwest, the western markets, San Francisco, Silicon Valley, those markets are hopping because there's no new construction there, and people are taking advantage of that. I don't know if demand is as robust as is a lack of supply, but I think the moving pieces of the country are creating some of the challenges on absorption in these overbuilt markets because people are migrating away.
- [42:24]
B
What are the derivative effects of what Chris talked about, about people not moving? So he talked about retention moving from 40% up to 60 or 70%, and that. That's where you've actually got any kind of rent growth because they're being able to charge on renewals. So people are staying put. If you're U haul, that's probably not great for your business. Is there anything else, Ivy, given that you cover the entire landscape, any other derivative effects there's from people staying in place in multi that we ought to keep in mind because you talked previously. As it relates to single family, the entry level is pretty soft. The move up is where lots of the single family home builders are building. To some degree. A renewal in an existing multi family would be similar to kind of a move up rather than a new entrant into the market. So people aren't, if you will, graduating from multifamily into single family for that entry level, but they are moving up on single family from having been a entry level home buyer to now moving up to the. To the middle. Anything else that either from a single family or a multifamily standpoint we ought to be thinking about, about these kind of trends in the market.
- [43:33]
C
I think mobility trends really going back to 2015 have been on a downward trajectory. Overall people are moving less. And you think about future home buyers, they're renters. Predominantly one third of all homes built are to first time buyers. Production home builders might be concentrated in one price point, but overall the single family homes that are being built, or call it a 1/3 first time and 2/3 move up. And when we think about the lack of mobility or people staying longer in multifamily, it just doesn't bode well for future housing demand for the for sale market. And I think that as you think about people staying put, I think it has a lot to do with risk of what their job situation might look like or the transition called friction costs that are involved in switching costs, I think that's been a factor. But this has been more than a decade that we've seen downward trajectory on mobility overall in the country.
- [44:31]
B
Justin, we've talked in the past a lot about the GSEs, the role they play in supplying liquidity to the multifamily market. Both Fannie and Freddie had fantastic years in 2025. I want to ask you, just as it relates to their role in the market starting 2026 and what you're seeing from a spread standpoint and a liquidity standpoint. And then I want to go to Chris and Ivy as it relates to just for a moment on kind of the future of the GSEs and whether we think that the privatization theme that was very Much in the market in 2025 is either still on the table or is off the table at this point. But why don't you talk for a moment, Justin, about their role in the markets right now and the liquidity they're providing.
- [45:11]
D
Sure.
- [45:12]
A
I mean, going back as long as I've been in this industry, I mean, Fannie and Freddie have always served a really important role in liquidity for assets in markets and assets of certain vintage that just other capital won't touch. And so you know, and you can track the, and you know better than anybody, I mean the historical credit performance of financing those property types which serve a real purpose to maintaining affordability and you know, smaller markets, but where there's real industry is hugely important. I don't think that's any different as we sit today. I do think as we look back last year from a pricing standpoint, they were hypercompetitive across the spectrum of asset quality and market profile. And I think on the life company side, on the CMBS side, it was really difficult from a pricing standpoint to compete. That pricing delta is definitely converged and we're seeing it in real time where for the, for the higher quality deals because of the liquidity need, particularly from a lot of your life insurance company capital who have all increased allocations or desire for real estate credit are starting to compete really well for those B plus to A assets and in good locations and are currently, you know, arguably beating where Fannie and Freddie are pricing deals. I think think from a granular underwriting standpoint as well, because of some of the fundamental drag we have in some markets, there's also the ability for that capital to look forward versus look backward compared to where Fannie and Freddie are. But Fannie and Freddie's benefit to the market is about as strong as it's ever been and they're competing very well.
- [47:07]
B
Ivy, Fannie and Freddie are going to get privatized in this administration.
- [47:12]
C
I am dubious. I've, I've heard, you know, the talk of GSEs coming out of conservatorship for the past decade and I just don't know how they do so without actually negatively impacting the housing market because investors will demand higher rates to, you know, give them the assurance that they're not buying something, that there's going to be pressure for them. So I, I don't feel good about it. I don't think that there's enough due diligence and I'd hate to see an impulsive move by this administration that would create a big Big backlash to the for sale market as well as multifamily.
- [47:45]
B
So, Chris, that sounds pretty much like a business as usual outlook for the agencies as it relates to continuing to supply plenty of capital to the multifamily market and potentially no change to their structure, which would then impact either the cost of capital or spreads. Is that essentially how owner operators of multifamily assets should be thinking about the market? It kind of for the next year or two, yeah.
- [48:09]
D
Look, I think to Ivy's point, affordability is such a sensitive issue, it will dominate the television commercials that we all have to suffer through as we work our way through a midterm election this fall. And so to her point, anything that the administration does that, that could negatively impact affordability, I think is going to be approached with extreme caution and they'll be very deliberate to approach that. In the meantime, what are they doing on the single family side? That's very much an algorithmic business and they're focused on trying to deploy various efficiencies, whether it's through artificial intelligence or processes to drive efficiencies on that, that side of the business. If you look at what they've done in the multifamily space, they've expanded the caps. If you look at the weekly numbers that they are publishing in terms of the amount of deal flow that they're taking in and reviewing all that suggests that there will be even more liquidity in 26 from the agencies that there was in 25. And we saw those year over year numbers grow pretty dramatically in 25 over 24. So it's not a liquidity issue. Back to Justin's point, whether it's capital from the agencies, capital from the banks. An anecdote that I would share with everyone. We're financing, doing the acquisition financing for a very large scaled student housing portfolio. When we got engaged, we sort of looked at it on the surface and we thought that this would most certainly be an agency execution. We go out, we cover the market, and we've got a large commercial bank doing a full underwrite that ultimately won the deal. They underwrote it to tighter debt service coverage ratios. We're much more flexible on structure, things like that. So. So if the agencies are going to ultimately get to the targets the FHFA has put out for them, their caps, they're going to have to continue to be aggressive. It's a very competitive landscape out there on the financing side. So, you know, I don't expect, you know, any material change in that as we work our way through the year.
- [50:18]
B
Chris mentioned AI Ivy, what's your what's the AI impact on the housing market three years from now?
- [50:31]
D
Let's save a softball for you.
- [50:32]
B
Yeah, exactly. An easy straightforward. I know you've got a really explicit answer to that one. The reason I ask is that there are developers and owners like we think about the transaction market and we say, you know, how many analysts are we going to have to hire coming out of college this summer? How many analysts do we need to write research and how does AI impact all that? And obviously those are things that the four of us are focused on every single day. But people who are in the real estate business are making long term bets. They're making five year bets, they're making seven year bets, they're making 20 year bets on building a development to hold it to term. They're putting shovels in the ground to build office buildings and wondering, do I have workers to fill this office building 10 years from now? Do I have tenants of my multifamily property that's next to an office building that I think, I presume people are going to have jobs working for these companies 10 years from now, but I don't really know. So as you think about the impact that AI is having, what's your outlook as it relates to is it a net negative or is it a net positive as it relates to economic expansion in the United States, specifically? Specifically?
- [51:49]
C
Well, I'd say that talking with the leaders in our industry across the whole ecosystem, the sense I get is that they're not going to be incrementally hiring as much and you know, why they might backfill a position. I don't think we're going to see dramatic job losses within our industry. And I think part of it is just the lack of investments right now in the AI initiatives. We have one or two larger companies that are willing to spend and invest. Many are waiting to see, well, let's watch them and see what happens. And you know, our industry are dinosaurs in so many ways. So I would think our industry will not see an impact. That doesn't mean though that the people that are buying their homes or renting their homes might be impacted in terms of other industries that are way ahead of the curve, like our metas and other tech companies that are laying off pretty significant number of people. You know, I think there's a lot of fear and trepidation about what the impact will be. My guess, which is a total layman's guess, is it's probably a lot slower and just Watching our own team, you know, watching how we're, you know, getting approval for different AI, you know, pilots and trying to just figure out how to work with them. There's a, there's a pretty big onboard learning curve and I think that companies are going to struggle with that and I think there's going to be also. I had a good story. One of our top Realtors, largest independent realtor in the country, was meeting with their auditors and they just were doing a presentation on how all this AI initiatives and investments that they've made is going to, you know, increase their efficiencies and blah, blah, blah. So the CEO said, said, so you're giving us a price cut? And they're like, everyone froze. No. And the truth is that many of, whether it's law firms or accounting firms, where there's a lot of tasks that are repetitive that you can argue might be replaced with AI, they don't want to lose the people because then they have to go back and give price reductions to their clients. So there's some gamemanship also happening. But again, right out, this is way outside my lane, Willie, and I'm trying to learn, trying to learn as we go. And I just think there's a lot more hype and they'll be a lot slower to implement and therefore impact the overall job market. But I do see efficiencies and productivity improvement, which should drive of course expansion and higher GDP growth by utilizing these tools. So I'm more bullish that it's a good thing than a bad thing.
- [54:06]
D
Megan Strachan put together a white paper for our executive team and spoke exactly to what you're talking about, Ivy. And the foundation of the paper that she put together for us was there are two curves and you cannot confuse the pace of development, which is on one curve, with the pace of adoption. And then she goes into the pace of adoption and sort of lays out all of the hurdles that need to be cleared before you can really start to adopt, whether it is regulatory hurdles, infosecurity hurdles, privacy hurdles, et cetera. So, so look, it's why there is some of the more nascent entrepreneurial startups have a little bit of an advantage because they can play it a little bit faster, a little bit looser, they can be a little bit more innovative. I think it's important for all of us to within reason also take a bottom up approach, put these tools in different hands of people within our organization and have them bring us use cases. We've done that. I made the analogy yesterday where for the last two years we've been playing around with ChatGPT and we've been using the language functions and it's been sort of helping us with planning and document creation and crafting emails. And then all of a sudden we get a pilot for one of the large models that is very far out ahead on the financial modeling side side. And I said, you know, I feel like my AI journey has been in like a Honda for the last two years. And then I just piloted this and it's like I'm Max Verstappen, like behind the wheel of an F1. To which Steve Theobald said, yes, you can go a lot faster, but you can also, you can also wreck it a lot worse. Right? But it's, it's pretty eye opening and I know a lot of our clients are really starting to, you know, sort of implement Claude and things like that and bring them in more of their business processes. I think the folks that are in the financial services sector are having the aha moment that all of the software engineers sort of had 12 months ago as it relates to the coding capabilities of the model. So it's exciting to watch where it goes. I'm squarely in your camp. I'm in the plentiful camp, the abundance camp. I'm not in the doomerism camp. I think these things are massive efficiency tools and will create a tremendous number of opportunities.
- [56:25]
C
And one other thing, Willie, just to add on Chris's comments, talking with some of the largest mortgage lenders, just for an example, is the idea that that's the part of our ecosystem that probably has the most traction and benefits from AI so far. But they also are in their minds the worst housing market in the past 30 years, excluding the GFC. And their view is they're going to need to ramp up so they're not letting go people, even with AI initiatives and progress. So I think there's some hesitation to be curtailing bodies when they believe things are going to come ramping back or hopefully ramping back. And the other thing is really funny. I was on Grok just trying to ask questions about a market I was looking at and they just deferred me to Zillow, which by the way, Zillow, the stock has gotten killed because of AI fears. So I think there's a lot more negativity priced in a lot of equities about the success that AI will have or a replacement that the AI bots will have with Realtors and other parts of our ecosystem that I'm More dubious
- [57:27]
B
about Justin, you're saying you do a bunch of work on non multi commercial real estate. So in office and in retail for instance, are you seeing any questions in underwriting as it relates to sort of the AI outlook on we're financing a new office building buy, are these jobs still going to exist or anything of that nature? Have you seen that ripple into the underwriting process?
- [57:49]
A
Yeah, less on retail. I think the market's generally pretty bullish on retail given the experiential nature of, of how the herd has been thinned for retailers and the lack of supply that's come on. I mean office remains extremely challenging and depending on the deal you have, lenders focus on the rent roll and the makeup of the rent roll and what people are doing in that building is definitely heightened and I mean take away basis and leverage and all those things. I mean it's adding a different layer of analysis for sure on office as we sit today to Ivy's point point, is it overblown? Probably, but that's how the capital markets thinks and we just got to kind of play by what the ideas that they're reacting to are on a macro level.
- [58:42]
D
Yeah, you look at what the public markets have done really. REITs across all the sectors in the public markets have had a pretty treacherous beginning to 2026. But I think, I think this question, when you saw sort of the sass occur that occurred in late January, questions around again. It gets back to sort of the earlier comment about where is the demand, where is the long term demand? I mean the best demand story in the country right now is the demand for compute. And that's why you see the activity that you've seen in data centers. But the constraint that exists there is in materials and power. And so that in the last four to five months has made execution in that space exceedingly difficult relative to where we were a couple of years ago. There's a long term durability in the office demand very clearly there in trophy assets. But when you talk about the have and have nots, it's probably the pinnacle of that conversation is in the office space. I come back, logistics probably has one of the steadiest demand stories across the country. It also has very balanced supply picture. So a steady flow of liquidity into the logistics space. You've actually seen as many logistics transactions on the sales side through the first seven or 75 days of the year as you've seen on the multi side. So that's a little bit of a shift. Typically multi is going to be out quite a bit ahead of that. So thinking about sort of that demand equation sort of across all asset classes, it gets back to one of the original points that Ivy made, which is just it's very pocket and you really have to develop a lot of conviction in your investment thesis based on where ultimately you're going to play. You can't broad brush any of these sectors, any of these markets by any stretch of the imagination.
- [60:28]
B
So on broad brushes to finish, I got to get the three of you to do a little bit of prognosticating of where we'll be a year from now. So on rates 10 years at 4, where is it? I've got it right now it's at 432. What is it?
- [60:47]
C
432.
- [60:49]
B
So 10 years at 432 up, down or sideways between now and a year from now and if you feel like giving an actual dimensioning on your up, down or sideways, go right ahead.
- [61:01]
D
CHRIS All I know is that I'm going to be wrong. I'm going to say it's going to be range bound four to four and a quarter quarter.
- [61:09]
B
So down quite four to four and a quarter. That's down quite a bit.
- [61:12]
A
JUSTIN I've watched enough. PETER Linneman rates are going down.
- [61:19]
B
Peter likes hearing that on his 75th birthday.
- [61:21]
C
Ivy well, I think this challenge that Chris mentioned with the oil that has been impacted by bombs and will need years to get rebuilt gives me concern about the impact that, you know, the oil inflation will have on the economy and natural gas and so much of that goes into building products and other parts of the ecosystem that I follow. So I do think that that could be a way to keep rates stubbornly high. But at the same time, I think the economy with that backdrop slows. So it's definition of stagflation. So I think rates to Chris's point probably stay in a tighter range. But my guess would be that they trend lower as the economy starts to slow from that higher inflation that we have. I wouldn't want to be the new Fed chairman in trying to figure this out.
- [62:12]
B
No doubt, no doubt on that. Dow's at 46,000 right now. As the president said yesterday, it got up close to 50,000 and had he not decided to go into Iran, it probably would still be up around the 50,000 range between now and a year from now. Do these equity markets get back to that 50,000 range or through it or do they fall from 46 down somewhere lower?
- [62:36]
D
CHRIS Look, I'm generally constructive. I go back to where we were at the end of the year. GDP growth in the mid to upper fours. You look at Atlanta Fed now, projections even in excess of that remainder remain bullish on the intermediate term despite the short term headwinds. So I'm going to say that some of this excess selling corrects itself and we finished the year in mid to high single digits on the S and
- [63:07]
B
P. Ivy, your friend Steve Eisman said week before last he hasn't taken off a single position he has in the equity markets that this is going to be temporary and transitory and that he's staying fully invested. Are you in Steve's camp that the equity markets come back? Are you more pessimistic given your outlook on oil and rates?
- [63:25]
C
You know, I'd say I'd be looking more for opportunities. So I think that we do get a recovery in equities after it's such a bifurcated market. There are stocks that are down massively versus those that are resilient. So I'd say being opportunistic right now is the way I strategize my personal investing. But thinking about the backdrop for at least 26, I think we need some positive catalyst to come to fruition to see markets heading higher in the face of higher oil inflation. So I'd probably say best case is kind of flat to maybe down. But there is going to be great opportunities within, you know, various sectors. And you know, so many companies have gotten killed, whether we're talking the SaaS companies or even in my world. So I think there's great opportunities to capitalize on.
- [64:09]
D
Look at the resi REITs. I mean, they're yielding four and a half to 5% and they're trading in implied caps in the mid sixes. Like Justin.
- [64:19]
A
Yeah, I'm going to tag on with Ivy. I think we're, I think we're flat, a little bit down. I think a big, you know, we have on the horizon some of the largest IPOs possibly to ever hit the market this year. That's going to create a new insight of data and growth expectations and those companies are going to immediately make up a big component of indices. And if that growth trajectory is challenged, I think you're going to see pullback from retail investors who are making up more and more of the investment velocity than we've seen in a long time.
- [64:58]
B
Final question for all of you, and I know I'm way over time, what's the outlier idea that you've heard recently that you said, huh, that's kind of an Interesting one. That's one that actually who knows whether it happens or doesn't happen, but something that captured your attention as it relates to what happens over the next year.
- [65:14]
D
I think it's not really an outlier idea. I think it was a consensus trade at the beginning of the year that a lot of folks were talking about. But just concentrating around materials, these critical elements of the supply chain that are going to go into the manufacturing base that continues to drive of the digital revolution that we're going through. That seems to be a great space to be. I think the other thing that I would say, and just this might be unpopular for some of you that are listening, but two years ago, all we talked about in some of these gateway markets was regulatory risk. And as a result of not talking about regulatory risk, nothing got built. As a result of nothing getting built, rents are now going up 10 to 15% and capital's flowing back to those markets. And no one's having a conversation about regulatory risk today. So me, long term regulatory risk I think is probably the biggest threat to the housing industry. You have the opportunity to trade regulatory risk while you're generating 15, 20% tradeouts. Might be a good time to enter into the transaction market.
- [66:22]
B
Justin. And then I'll give the last word to Ivy.
- [66:24]
A
Yeah, Hora. Working with a kind of master planning developer here in Denver that's putting together a massive, you know, development plan that encompasses office and lifestyle and entertainment and within that lifestyle entertainment, you know, it's, it's got indoor surfing and, you know, outdoor intrigue to it. And so I think, I think it's
- [66:54]
D
really developing it,
- [66:59]
A
it's, it'll be sponsored by WD soon.
- [67:02]
D
Right?
- [67:03]
B
Exactly.
- [67:03]
A
I, I think as far as go big ideas against the face of, you know, development headwinds, that, that's, that's an out of the box idea. I've heard.
- [67:14]
B
You got it, Ivy.
- [67:16]
C
You know, we didn't talk about. What I think is going to be a winning opportunity is the M and A that I think is going to start to heat up in our ecosystem. You know, Brad Jacobs, who maybe you guys know from running a building product business, has created a lot of FOMO in our market. On the building product side, yesterday Home Depot announced a new acquisition of an H Vac distributor. I think you're going to see companies that are on a path for M and A and growth are going to do really well. And some of these small caps in my industry that are trading at substantial discounts probably could be a contrarian way to play it. Because they're going to get acquired.
- [67:52]
B
All great. Thanks to the three of you. Thanks to everyone who listened in today and to all of you listening to this on replay on YouTube or on Spotify or Apple or what have you. Thanks for tuning in, Ivy, Justin, Chris, really appreciate it. Great conversation. Hope everyone has a great day. Happy birthday to Steve and to Peter again, and we'll see you next week.
- [68:16]
C
Thanks.
- [68:16]
D
See everybody.
- [68:17]
A
Thanks.
- [68:17]
C
Bye, guys.