B (4:21)

Yes.

C (4:21)

And so I think a lot of our clients have sort of missed that. They see the almost 50 basis points between the 10 year and the 5 year on the treasury and don't understand that spreads have come in dramatically on the ten year.

B (4:31)

Now historical rates explain a lot about what's going on in real estate more broadly. So for example, we haven't seen much in the way of distress because it's less about debt stock and much about debt expense. And the real issue will come with a wall of refinancing that will come at, at what will be rates that are higher notwithstanding a trajectory that's heading down. But it will be higher than where the incumbent debt sits.

C (5:00)

Yeah, I think, I mean as you know very, very well had SVB had a contagion effect on the rest of the banking sector. Everything we're looking at today would have been, I mean, everything would have flipped on its head. We were really, really lucky that we avoided that contagion. Throughout the banking system, svb, being limited in its scope, made it so that banks have been very accommodative over the past couple years. Everyone likes to say extend and pretend. There's no pretending. There's. They're not pretending that the asset is not necessarily impaired, but isn't. Isn't performing the way they like it to. They're like saying, I'm going to give you a lifeline for the next year or two. We can work with you. We're not going to write this off. Fortunately, banks didn't have to call those loans. I think as we move forward here, as bank balance sheets get stronger and stronger, they're going to have the ability to take those lumps now. And they might say to somebody, hey, pay me off, got to go.

B (5:49)

Yep.

C (5:50)

So we might see a little bit more there, but that doesn't necessarily then play that that's going to become distressed properties. The other thing to it is that particularly in multi, which is where you guys, you know, as far as housing is concerned, where you all play and where we spend a lot of our time, it's got Fannie and Freddie in there. So even as things got tight, I mean, look at the office market. A year ago today, if you came to our team here in New York and said, please finance this office building, we could not get a bid. I don't care at what price, we could not get a bid. Today you say, I got an office building finance in Manhattan, there are 10, 15 lenders who are lining up.

B (6:24)

And what changed? What changed to facilitate that move?

C (6:28)

I think health in the banking system that some of the big lumpy portfolios like a Wells Fargo had or a JP Morgan had, they, they'd work through some of that risk, if you will. So they went from a complete risk off attitude to we might take a little bit of incremental risk.

B (6:41)

Yeah.

C (6:42)

I think they also got paid off in a lot of their other commercial real estate. And so the commercial real estate groups wanted to keep capital, not just have.

B (6:48)

It all run off.

C (6:50)

And then I would also say just back to the office, which has really started to play in. But somebody said to me, who was it? Last week I had Tom Gilbane on the Walker webcast and he was talking about what Rockpoint is up to. And one of the comments he made on Office was just he thinks there is as much productive office space in Manhattan alone than is in the rest of the country. In other words, this market is super.

B (7:15)

Privileged right now, meaning this market could be anomalous to what we see in the balance.

C (7:19)

Very much so. Except I will say this, I was over at Blackstone this morning and we were talking about both office as well as multi, and they were very, what I would call constructive on San Francisco. I think there's been a lot of kind of wait and see on San Francisco. You're really starting to see noi build and clearly there's still going to be distress out there, but the people are feeling like the corner has sort of been turned on San Francisco.

B (7:42)

I will say it does speak to the notion of dispersion in a market, not limited to the office market, but equally to residential real estate, which is that markets are changing. You look at the East Bay or Oakland, in the San Francisco area, it's very hot. There's low vacancy in. And that's an area that had been troubled for a long time. San Francisco itself is benefiting from AI investment that's happening in the city proper. But this is a larger issue, meaning if you look at largest MSAs, you could draw certain conclusions. But there is dispersion across markets and within markets at the time.

C (8:18)

As, as, as everybody in this room knows. I mean, real estate is exceptionally local. There's, I mean, people ask me about cities. Does Walker and don't have like lending there or life there. I'm like, you show me the asset, the operator and what's going on and I'll tell you whether we like it or don't like it. I can't say that I love Charlotte today for everything. And I can't say I hate Cleveland today for everything. There's always going to be pockets of opportunity.

B (8:40)

Let me step back a second to talk about residential real estate more broadly. So earlier in the symposium, Don Mullen, the CEO of Pretium, spoke to a set of inconsistencies or observations and just to sort of get your reaction to them. On one hand, he said that home builders have excess inventory, yet housing stock is not affordable for most Americans. Second, there's record home equity and low LTVs, yet there's a significant uptick in defaults in a section of the mortgage market, probably at the lower end. Birth rates are low, but we have a housing crisis and the country wants to promote home ownership. Yet there are fears of systemic risk that have led to limited credit for potential buyers and home builders. How do you reconcile some of those?

C (9:32)

A lot in there and all correct. Yeah, if you will. All correct. I guess the question would be, what do you do about it? How do you, how do you make, you know, how do you change things? And obviously, Secretary Yellen, do you call her secretary doctor or chairwoman?

B (9:50)

I think you're meant, I think you're meant to refer to her by her most senior title.

C (9:54)

Right. Which is secretary or correct?

B (9:58)

I think it's secretary.

C (9:59)

Okay.

B (10:00)

So our listener, she's not departed the symposium.

C (10:02)

So we want to understand just a little. I think Don called her doctor. So I think that's actually the lowest one of her many, many distinguished titles.

B (10:10)

Second only to Janet.

C (10:11)

Yeah, yeah, right, exactly. But Don can do that.

B (10:14)

Yes.

C (10:14)

You and I can't do that. So let's kind of peel the onion here a little bit. And so while I believe the Trump administration is very focused on this specific issue and we'll come on to that, and I believe that they're going to come out with an executive order that's going to try and change the entitlement process from local jurisdictions, and they're going to put big carrots and big sticks behind it. They're going to say, you want this federal transportation funding? Change this. You don't want that federal transportation funding. You ain't getting it.

B (10:44)

So they don't have control over the decision, but they can control other elements that influence or compel a decision.

C (10:52)

Correct. And the one question on that is how they going to measure it.

B (10:54)

Right.

C (10:55)

Like, so, I mean, just let's stick on Denver for a second. Let's just say that they say to Denver, we need to change this type of entitlement process and every single county goes and does it, but nobody wants to build.

B (11:04)

Right, right.

C (11:05)

So glad you changed it. But we don't have any more supply of housing.

B (11:08)

That's correct.

C (11:09)

So I, I think one of the big challenges there will be to figure out what's the indicator of them actually doing it or not to be able to get the money. The other thing that they're very explicit on is that they don't really feel like, like fighting the, the, the vertical density issue as it relates to multifamily. So having someone who is in a single family neighborhood have a big multifamily property built in their backyard. So they're really going to focus on the entitlement of single family and lower grade.

B (11:33)

So the link in this chain to the home builder inconsistency is that the Trump administration will strong arm local authorities to do things they need to, and the home builders will adapt to what is necessary to build.

C (11:48)

Correct. And the one thing that I would put forth there that I think the risk on bet there is manufactured housing. I think that if you can get that entitlement process going, the quickest way for us to deliver affordable housing is manufactured. Right. And I should say modular. So maybe you get some stacked multi out of it. But the, you know, Pulte's average home price year to date is $570,000. You and I know that's not an affordable home to someone that's not even close to affordable. So I'm making median income in America. So we've got to get single family manufacturers down to 300 to $400,000 a home to be able to have that supply to meet demand.

B (12:25)

It may well be the only way that we can achieve a million homes a year for the next 10 years such that supply demand can come into. Into equilibrium. Correct.

C (12:36)

And the one thing I would say on that stuff is without some big move by the Trump administration and some eo, that dynamic is not going to change. I don't expect the big home builders to change the price point that they're building to.

B (12:48)

Right.

C (12:49)

And as a result of that, sfr, which you guys are deeply into multi are going to be really, really good asset classes over the next couple of years.

B (12:57)

So you, your next dollar of investment would go where on that basis? Well, like do. Do you favor multifamily single family? Where does BTR fit in that mix? I'm just curious against the backdrop of what we might expect the Trump administration to do, which is to sort of set. Set sail on a series of programs or influence outcomes in local jurisdictions, who wins in that regard or on a relative basis, who excels?

C (13:26)

It's hard to tell, quite honestly, in the sense that, I mean, SFR right now is good, it's not great. Multi seems to be ahead of it as it relates to coming out of where we've been for the last three years.

B (13:39)

Perhaps because absorption is happening sooner. Yeah, We've had verb on new builds is coming off faster.

C (13:44)

Yes. And yes. So on through Q2, we had 725,000 multifamily units absorbed over the T12.

B (13:53)

Right.

C (13:53)

Okay, 725,000 units. Nobody predicted we'd get that kind of absorption, right? Nobody. And the only reason you have that is because single families become so unaffordable that people are sitting there saying, I'm going to go rent that apartment below. Okay. So this huge overhang of supply on the multifamily market has been absorbed Much quicker than people had expected.

B (14:13)

Yes.

C (14:13)

The question then becomes like Austin, Texas, it's at 86% occupancy today. National average is at 96.

B (14:19)

Right.

C (14:20)

Okay. So when do you invest in Austin, Austin, multi?

B (14:23)

Yes.

C (14:23)

When it gets to 90.

B (14:25)

Right.

C (14:26)

When it gets to 94. Because one thing that's sure to happen is that cap rate is going to come down as we get from 86 to 90 and 90 to 94.

B (14:34)

Correct.

C (14:34)

So are you going to buy in at a cat at a. I'll, I'll swag it. You're going to buy in at a 550 cab rate today in Austin. Right. Are you going to wait until you're at 94% and then you're buying it at a, you know, 4,75.

B (14:43)

Right, right.

C (14:44)

So that's the big investment question. The other thing that I, that I have on someone like Austin versus some of the other markets that have held up better is job growth. Like, there's no doubt in my mind that I would rather own multi 10 years from now in Austin, Texas than Cleveland, Ohio, for that reason, for job growth. It's where the jobs are. Now. Cleveland over the last two years has been a much bigger, better market to own multi in than Austin, Texas.

B (15:12)

True. Of the upper Midwest, generally 100%.

C (15:15)

But the question would be, are you buying for this year? Are you buying for seven years from now or ten years from now? And if you've got that kind of a horizon, you're definitely going with where the jobs are. It's one of the things that's plaguing my home state right now, Denver, Colorado, Colorado and Denver more specifically is you can complain about the crime and the homelessness and the mayor is trying to clean all that stuff up.

B (15:36)

Yeah.

C (15:37)

What you can't, what you've got to get your arms around is there's no job growth in Colorado right now. Colorado is one of the fastest growing states in the country. There's no job growth. And so until you get that job growth back, all the other things are sort of window dressing.

B (15:51)

But I will tell you that this touches on the subject of workforce housing. And you go to some of the southeastern states, you go to Georgia or South Carolina where they have long been petitioning automotive manufacturers to build plants, but there hasn't been a corresponding growth in homes in that it touches on this issue of job growth, meaning run to where it is in terms of where the next build or the investment ought to go.

C (16:15)

Yeah. And I mean, I think one of the things that's interesting about that that's, you know, tangential to tariffs and you know, the drive to try and pull manufacturing back to the U.S. yes. This is back to something that Don and Secretary Yellen talked about a little bit as it relates to, you know, the middle class and is the middle class being left behind? And when you hear what Secretary Yellen was talking about, you say, oh, we've got to do something to try and, you know, reshore manufacturing and, and make it so that a larger percentage of our economy is based off of a manufacturing economy. Clearly the Trump administration has been trying to do that. The, the, the, the, the challenges there are a, the tariffs are a one time tax, they get hit and then you move beyond them. Whereas trying to get people to come back here and build for the long term is very, very challenging. The other piece to it is that, you know, if you look at the housing markets and the cost of housing, both single family as well as multifamily, many people back in May and June thought that costs, that tariffs were going to impact construction costs dramatically. They haven't. Our most recent Zelman survey as it relates to the single family home builders, all of them have said that tariffs have impact their cost to build zero.

B (17:22)

The interesting thing about the Zelman survey, because I watched that podcast that you did with her, is that homebuilders have held leverage over suppliers. So you haven't seen the impact of tariff. That said, you do see it in Home Depot and Lowe's and therefore you see the inflationary effect on the consumer that's looking to do work on their home 100%.

C (17:46)

And the question would there, there be? I mean, you think about that in the sense that, okay, the suppliers are taking the cost.

B (17:52)

Yes.

C (17:53)

And they're not sending it across to the single family home builders. Single family home builders have been for the last three years buying down rates at a very significant correct level and their margins have come down significantly. Many of them are sort of at that point where they, they've taken too much of a hit, if you will, on their margin. So the question would now be unless you get rate relief. And look, we may have gotten, did we get 95? And we got it 25.

B (18:16)

All right.

C (18:17)

We didn't get 52 more cuts, two more cuts this year. So I, it just turns out to.

B (18:24)

Be an interesting podcast where it's our audience.

C (18:25)

I love it. It's great. I, I was Peter Linneman, some of you may know. A year and a half ago I was with Linneman and it was the time when no one thought the Fed was going to cut. And Peter was talking about them doing three rate cuts last year. And I said, there's no way. And I said, I'll kiss your feet if they end up doing three rate cuts. And they sure enough did three rate cuts. And I had to kiss Peter's feet. Um, and so again in May of this year, when nobody thought it was going to happen, Peter came out and said, I think there'll be three rate cuts this year. I said to him, I'm going to have to buy you a new pair of cowboy boots this year. And so I think I got to save up for a pair of cowboys for Peter. But I think that it's very surprising that tariffs haven't come into the construction picture.

B (19:05)

Yep.

C (19:05)

The other piece to that is Secretary Yellen, I think, was trying to say this data lags, so don't declare victory on this one yet. Tariffs may yet come into play into the cost of construction.

B (19:17)

Let me ask you about the issue of affordability and whether or not we, we have enough a housing crisis born of that. And I'll just make the observation that when you have Tucker Carlson and Elizabeth Warren both speaking issues of affordability, something is going on in the world. And I'm just curious your view on it. I mean, it's quite clear the gap is, is very observable and it's changing behaviors to the point that something on the order of 70% of household formation was in rental stock over the last year relative to homeownership. Talk to me a little bit about what that means and what's the impact of it.

C (19:58)

I think, Steven, we've got to be careful not to think that the American dream is static, that the American dream that you and I had as right out of college getting our first jobs, before you went to law school, before I went to business school is the same.

B (20:17)

It goes all the way back to the GI Bill.

C (20:19)

Right? Well, of course it goes back to.

B (20:20)

So in other words, the dream was defined by home ownership. And it may well be that the dream needs to be inclusive of a rental population who could live in a better neighborhood than they can by virtue of the unaffordability or relative unaffordability of home ownership.

C (20:36)

I don't want to in any way discount an individual's desire to live in a detached single family home with a white picket fence in the Norman Rockwell picture.

A (20:45)

Right.

C (20:46)

That probably still exists.

B (20:47)

They can, but they don't have to own it.

C (20:49)

But I think the other piece to it is that are we trying to meet someone's hopes and dreams of their life, or are we trying to create economic wealth? Because those are two different things, yet we tie them together. And I think one of the things there is that homeownership has been a great wealth accumulator and it's been the driver of wealth accumulation in the middle class. In America, someone said you own your home, you've got a long term fixed rate mortgage, you're going to make money in equity there and that's going to be your real. That's right, you know, nest egg. That's going to be where you can really create wealth. Well, that was when the stock market was owned by far fewer people. That's when, you know, people didn't have the ability to potentially have a sovereign wealth fund that they're invested in that actually is making them equity returns because you've got a nationalized sovereign wealth fund that is going to be used to lower cost of housing, lower cost of taxes, everything else. So I'm not, I would just. I think you're making the point. Shouldn't someone feel as if they've had a successful life career if they lived in multifamily their entire life and never actually owned a single family home? Sure. As long as they have the wealth to retire upon.

B (21:54)

I would say there was one qualifier which is that when you look at first time home buyers, the age of which has been going up, now 39, 38, 39 years old, there's a large percentage that are buying in zip codes with a lower median income than they have. Right. Whereas they could rent in a community which may be more affluent, which may have better schools, which may have better access to jobs, et cetera. So the question is not just about the vehicle for wealth accumulation. It also becomes one about raising a family in a neighborhood that is better by any measure relative to that which you could afford as a home buyer.

C (22:37)

I think it's a very good point.

B (22:38)

And we'll see how that changes. Yeah, we'll see how that changes. Are we at an inflection point now in multi and single family? I say that because there are lower rental listings, therefore the promise of greater rent growth. Speaking from an investor's point of view on this, there's lower supply of homes across single family and multifamily after a fairly large surge and now absorption to happen, the gap in affordability between the two. Are we at an inflection point? This runs a little bit to where this is the moment to enter with a time horizon that's reasonable.

C (23:21)

I'm I'm very surprised that more manufacturers of multifamily housing are not building more supply right now.

B (23:32)

Right.

C (23:33)

You look at the lack of starts right now and Jay Parsons, who is here, and Jay's got more data than anybody else on the face of the earth. And it's really great data. Jay will show you a chart that sits there and says to anybody, just look at where we are from a supply standpoint, the number of shovels going into the ground, the delivery schedule, and where we're going to be under supplied in two years. If you're on the Federal Reserve, you got to be concerned about that.

B (23:56)

Yes.

C (23:57)

Okay. Now we don't need to spend a lot of time debating whether the Federal Reserve's data is any good on housing, because last week on the CPI report, it was the only thing that spiked. And I don't know, if you look at our data on rent growth, the rent growth that they're picking up out of the CPI does not exist. Market. No. And then as it relates to owner's equivalent rent, you and I have never paid owners equivalent rent on any home we've ever had.

B (24:16)

That's true.

C (24:17)

Ever. Yeah. It's just nobody's ever paid own equivalent rent. So the idea that that's what's pushing inflationary marks today makes no sense. And the thing that scares me about that is if they keep taking those data feeds and there's none in the system today and it's showing a false positive, what happens when we actually start getting 2, 3, 4, 5% rent growth?

B (24:34)

That's right.

C (24:35)

That could be wildly inflationary even though it isn't.

B (24:38)

Yes. Well, yes.

C (24:40)

So I think that the. Is now the time to get in. You know, I was this morning when I was in a meeting at a little. I already said it, I was at Blackstone and we were sitting around talking about the amount of multifamily out on the market today.

B (24:58)

Yes.

C (24:58)

And one of the people in the meeting said, what percentage of that product do you think is actually investable?

B (25:06)

Interesting question.

C (25:07)

Okay, so roll the tape back to 2000. 2021. First half of 2022. Every property we took out to market was investable by the market because the market was on fire.

B (25:18)

Correct.

C (25:18)

Everyone's like, I'll buy that, I'll buy that, I'll buy that. Okay. Today the sense is about a quarter of what's out in the market, not just what walker knob selling, not just what Hillary and Berkady are selling, but across the board, about a quarter is actually investable. And when you Say investable. It's like.

B (25:33)

Yeah, I was going to say define that.

C (25:34)

Define investable, right.

B (25:36)

Yes.

C (25:36)

Somewhere where you're thinking that you're putting money to work that has good long term fundamentals to it and a reasonable cap rate today.

B (25:43)

Yep.

C (25:43)

Okay. So what I'm seeing today and the growth that I see ahead of me is about a quarter. So if you can actively bid on that quarter and do well, great time to be in.

B (25:53)

Yeah.

C (25:53)

Okay. Or the other three quarters, it's overpriced. There's someone waiting for some type of market movement. And I think the other piece to it though is this. If you've got a longer term outlook, buying multi today and being able to put on. We, we rate locked a deal yesterday, five year deal at 4:78. Okay, 478. If you're buying at a 478 fixed rate.

B (26:22)

Yes.

C (26:22)

And you've got positive leverage going in. You gotta be able to make, Mark.

B (26:26)

Yep.

C (26:26)

You gotta be able to make.

B (26:27)

Yep, yep. Let's talk a little bit. What about what might bring stock into or supply into the system? So the lock in effect particularly around single family home has been significant. Meaning the percentage of people that are holding mortgages sort of below that which they could refinance. The notion of downsizing has paradoxically become a more expensive proposition. So it doesn't happen rates coming down, which don't necessarily translate to tomorrow. Mortgage rates coming down. But as they do, does that unlock supply? Does it change the percentage of investable properties that are there?

C (27:07)

So if you think about that, the, the, the, the, the setup today.

B (27:12)

Yes.

C (27:13)

That there's this locked in. Secretary Yellen talked about it. 60% of outstanding mortgages have a, have a coupon rate on them. Less than 4%. Yep. It's a lot. Yep. It's a lock in effect.

B (27:22)

Yes.

C (27:23)

A lot of people don't want to move.

B (27:24)

7. The statistics are 72% below 5, 54% below 4.

C (27:30)

Below 4. So if you've got a mortgage that's got a 375 handle on it and you got to go buy something new and put a six and a half or six and a quarter handle on it going, you're not moving.

B (27:40)

No.

C (27:41)

Right now the one thing that I will put there is on the higher end of the market, even where the stock market is today.

B (27:46)

Yes.

C (27:47)

Do not underestimate that. There are people there who are really, really rich in their, their investable portfolio and say I don't care about my mortgage anymore, I'm going to go do it. Yeah. There's no doubt at the higher end of the market you'll see that inventory start to flow I think as the stock market if it continues to move forward. But let's talk about sort of middle America. The reason I want to focus on this is this. The person who is locked in on that is not putting their, their property on the market. Which means that the four built new manufacturing market has the market basically by the horns right now. And they're not building. They're not building.

B (28:22)

Yeah.

C (28:23)

Like when will it ever get better for a home builder than to have this half the market be locked in and not even thinking about putting their existing inventory on the market. There will almost never be less existing inventory on the market than is today. Which says it's a market made for the single family home builders and they're not increasing production.

B (28:41)

Well the interesting corollary of that is that BTR in some sense is an outgrowth of that.

C (28:48)

It is.

B (28:48)

Right. Which is that the home builder, the home builder doesn't want to leave a market where they have, notwithstanding current market conditions where they've made an enormous investment in labor and in supply chain. So they build the fact that investors can come forward in BTR and speak for a third of a project. This is all about de risking.

C (29:11)

Right.

B (29:11)

The investment that's there. I'm saying that only because it ought to bolster the argument you're making which is it's the moment to build for them 100%. But they're not. No.

C (29:20)

Why?

B (29:22)

Who?

C (29:23)

I mean you have to ask Stuart Miller and Ryan Marshall and a bunch of the other big CEOs. Only of the, of the single family. I look, they've had a great run.

B (29:32)

Yeah.

C (29:34)

Just like in the CMBS world where you and I saw a lot of carnage.

B (29:38)

Yes.

C (29:39)

0809010 not necessarily just at Goldman Sachs and Walker Nello, but in other places. I was always shocked that the market didn't get back to its stupid ways quicker. We learned something from the gfc.

B (29:52)

We did.

C (29:53)

And I think the home builders learned something from the gfc. The carnage that happened in the single family space in the gfc. First of all, the big have gotten bigger. So independent homebuilders just aren't there. So there's not a lot of a competitive threat from the, from the independent homebuilders. And the big have gotten so big and control the market so well that as long as they continue to put up the margins that they're putting up, investors will stick with them. They've got a really Nice market.

B (30:17)

I'm not remember also we heard this morning that from a bank analyst that in fact that's only turbocharged by the fact that the Pultes of the world, the Lennars of the world, have ample access to big bank financing. The smaller guys are having a harder time access financing as regional banks and others have retrenched.

C (30:37)

And they also don't have the balance sheets to be able to buy down rates and take that out in their market. So the big will continue to get bigger and the question would be what stimulates them to go and actually build more back to that 45,000 Pulte homes in 2004, 40, 31,000 in 2024.

B (30:54)

I suspect some of what the bigger guys are worried about is ballooning a balance sheet and that the public markets don't, don't reward them for that 100%. And then also this is all about velocity, turn of capital and that's what they're looking to do. And they're nervous, you know, about how and if that plays.

C (31:13)

Yeah, but I, I think, you know, back to your question of like is now the time to be in bfr, sfr and this, the macro picture would say to you very much yes, and that we're going to have a good run here for the next, I don't know, hopefully three to four years at a minimum.

B (31:29)

Yes.

C (31:29)

The other piece to keep in mind there, Steven, is this. Go wind the climb back, wind the clock back. 2010 Q2 of 2010 was our peak 60 day delinquencies in our portfolio as it relates to loans from the gfc. Okay, so think about that. When did the, when did the clock strike on the GFC? October of 08. We hit peak delinquencies in Q2 of 10.

B (31:52)

Right.

C (31:53)

Okay. But that didn't result in losses. That was just 60 day delinquencies and that was 148 basis points for us at W and D. And over the next year that went from 148 basis points of 60 day delinquencies to less than 10 basis points of realized losses. Right. Okay. What happened? The market started to kick in, People started to invest in assets. They took those loans off of our watch list, they kept performing and all of a sudden we were out of the crisis.

B (32:17)

That's true.

C (32:18)

So you think about that lag effect to the market and where we are right now in the great tightening, making a lot of people sort of sit there and say, oh, I had a floating rate loan on my property and I can't breathe Right now. And I'm going to give the keys back to where we are today. We're starting to see things cure. And as you cure through the problem loans, people start to get conviction. Equity capital comes in and bails people out. People get to a point where they just say, I've had it. I'm not going to make my promote on this deal, but I'm going to put it on the market and move on. The other thing that I think, you know, you all don't have this issue, but a lot of other private equity firms have this issue. Fundraising has fallen off a cliff.

B (32:52)

Yes.

C (32:52)

In commercial real estate, from 2022 fundraisings to 2024 fundraisings, it's straight down. And a lot of those private equity firms are sitting there going, unless we start to return capital to our investors, they're not going to invest in my next fund. And so they're being forced sellers right now where they might not be loving what they're going to make on that sell, but they're going to go sell it because they need to recycle the capital back to the investor to raise their next fund. And whether that's, you know, as an investor, and I know there are many investors in the room, they're like, I hope my, I hope my private equity firm isn't doing that. To me, the bottom line is that they've basically given up on their promote in a lot of these situations, and they understand that their going concern is based off of raising their next fund. So they will. They've been holding on for hope for two to three years. The rates would come down precipitously or that, you know, and why would go up. And now there's sort of this capitulation happening in the market where people like, I got to sell it, I got to recycle capital and get going.

B (33:45)

Let's come back to Washington for a second. The discussion with Secretary Yellen touched on the GSEs. She gave a bit of an historical view of them. But what's going to happen here? I mean, I think political analysts are looking at the President, the president's friends, investors who are in it and are sort of predetermining an outcome. But where is it going to go? What do we think is going to happen, and where does it matter in the context of how it gets structured?

C (34:15)

So as, as somebody who has been very involved in this through all the various iterations, I actually, when Secretary Yellen was talking about the fact that we got close on a legislative fix for Fannie and Freddie, I was like, what world were you living in in 2012? I don't, I don't, I don't recall. There was never anything that was close. Corker Warner was the closest we ever got. And I'm going to see Jonathan McKernan, who's now at treasury as the Undersecretary of Treasury, tomorrow in Washington. And, you know, I don't think Jonathan or I, who I worked very closely with on that, would ever think that it was even close to getting to the floor of the, of the Senate for any kind of vote. So I'm appreciative that she thought that there were things going on where it was going to be a bipartisan effort.

B (34:56)

And Corker and Warner clearly worked right.

C (34:58)

In a bipartisan manner. But there was never any kind of solve for the agencies. And at that time. Fast forward to now. A couple things that I think are very, very important. The two most important, which basically solve everything else of the details, is the first is that Director Pulte and President Trump have both said that they want to maximize return to shareholders, which is you and me.

B (35:24)

That's right.

C (35:25)

Okay. So just on the face of trying to maximize return to shareholders, there's no way you do that if you don't have a strong guarantee behind Fannie and Freddie, period. So you do anything to diminish the guarantee, and the value we get as shareholders goes down. So that gives me great confidence that if they're going to get to what President Trump's number one agenda item is, which is maximizing return to shareholders, that nothing happens to the guarantee. The second piece to it is that they have said repeatedly, both Pulte and Trump, we cannot impact the cost of borrowing to the US Consumer. Now, let's all be really, really clear here. They don't care what your borrowing cost is. They care what you and I, as individuals borrowing costs would be, but not on the multifamily side. Right. So they're not sitting up late at night saying, oh, we got to make sure that the cost of borrowing for multifamily borrowers and big sponsor groups like you all doesn't go up. But to the consumer, they don't want to see spreads go out.

B (36:24)

Correct.

C (36:25)

Again, that means you have a strong guarantee at the basis.

B (36:29)

So because it can work otherwise, because.

C (36:31)

It cannot work otherwise, it's good. Spreads are going to gap out. So if that's the premise, maximize shareholder returns and don't let the cost of borrowing go up to the consumer, you can rest assured that everything else has got to stay somewhere in line. They're not going to sit there and say duty to serve is a higher priority than returns to shareholders. And therefore we're going to focus on Fannie and Freddie just doing affordable housing and we don't care about this other side of it.

B (36:56)

So what changes?

C (36:57)

So I think, first of all, in other words, this.

B (37:00)

Is this a big conversation about a quarter of inch move.

C (37:05)

I heard somebody give me a very. What I would call a very pessimistic analysis on exactly that. Yeah, that a lot of this is kind of optics as sell a 5% interest to some, you know, foreign investors and then you kind of like call it a day and move on and keep them in conservator chefs. I certainly, as someone who's been around this table for a long time, hope that's not where we get Stephen. I really hope that they get out because I think one of the things you have to keep in mind is that Fannie and Freddie have done a fantastic job of not only restructuring pretty much everything in them, implementing credit risk transfer. Secretary Yellen talked about that. She's like, wow, we don't want to go back to that. Of all the things in the world that I would bet on, correct, having another mortgage crisis in America in my lifetime, I would put a very low probability, a welcome outcome. It would not be welcome, but I also think they've done enough as far as CRT to make it so that that doesn't happen.

B (37:56)

Right.

C (37:57)

So they've got totally different systems, crt, everything else. What they haven't been able to do is have a profit motive that has allowed them to generate earnings that pay big bonuses to their employees. So every year they've got great people at Fannie and Freddie, but that profit motive isn't there. Well, think about it.

B (38:15)

It's. It's hard to manufacture a high ROE to the extent that the denominator is where it is. In other words, how much equity needs to be kept behind these? What's the government to require? Is there enough private capital to come behind it?

C (38:33)

So I don't doubt that there's enough private capital to come in at a reasonable valuation. These things are cash machines. The other thing is that there's been talk about making the monopoly. I certainly hope they do not think about making the monopoly. The duopoly works, particularly in the multifamily sector, where Fannie and Freddie have different securitization models. They have different client bases. One's really good on float, one's really good on fixed. Even though they both compete across it, the moment you put them into a monopoly, we've got the USPS and Amtrak and we don't want the USPS and Amtrak.

B (39:04)

Your view is, if I understand it right, is that the cash on cash return here could be interesting.

C (39:10)

The cash on cash return could be really interesting. The issue with it is, is you've got to get their roe. One of the reasons their ROE is so low right now is because they've done a great job with crt. That's it. They're not holding the risk that they used to get paid for. That's right. They played it all off and let you and me go buy it.

B (39:26)

Correct.

C (39:27)

That's great. I don't think they reverse that. So then the question would be then how do you get the ROE up?

B (39:32)

Right.

C (39:32)

You get the ROE up by either expanding the conforming loan limit, allowing them to do more in the single family space, letting them do more in the multifamily space. Those would be two ways they can do it.

B (39:42)

Right.

C (39:42)

Those are going to be big decisions to allow them to broaden their footprint. But if the, if, look, the Trump administration has just taken a 10% interest in Intel, I don't think that as JP Morgan, Wells Fargo and others sat around the table at treasury last week and said, hey, don't let them encroach on us in the single family space or in the multifamily space that this administration is terribly sensitive to that.

B (40:04)

No, not in the least bit.

C (40:05)

I think they sit there and say, look, we, we're, we'll let them broaden out. So I would think that they're allowed to broaden out in both single and multi. So again, all of this is tbd. But I would not un, I would not underestimate a Director. Pulte has put this issue front and center and very clearly has the President's ear.

B (40:24)

Yep.

C (40:24)

He is getting Fannie and Freddie ready for privatization and has got the management teams at both focused on top and bottom line growth. And that's, that's, that's welcome to those of us who work with them all the time.

B (40:36)

What do you think the timeline of this is? Well, you've heard, I mean, there's a parade of banks that are marching through Washington with, you know, 30 wonderful flavors of how this is going to play out.

C (40:45)

So I was very interested that Secretary Yellen said it's going to take years and years and it's super complicated. Quite honestly, it's like. Well, and that's the reason that the Biden administration didn't do Anything.

B (40:55)

Say what you want about this president, politics aside, his emphasis is on speed. He's not looking to execute on anything.

C (41:02)

And Howard Lnick, who knows these, these businesses very, very well because Newmark is an active participant in the market. You know, he went on CNBC last week and said that should happen by the end of 2025. I don't think that's a realistic outcome, but I wouldn't be surprised if they sit there and say this has to happen in 2026. Let's get this done. Let's get a moderate done and get it, get it, get it over the finish line. That would not in any way surprise me.

B (41:27)

You know, one thing that you and I talked a little bit about earlier was kind of stratification, economic stratification around housing, meaning the wealthy are taken care of by virtue of their standing and in fact, low income have been taken care of by the likes of Section 8 and other programs. And the real squeeze in terms of housing is on the middle class.

C (41:54)

True, very true. There are two things in there that I would put out there as big numbers that could have a big impact on the housing industry. One is this wealth transfer from the boomers to the next generation.

B (42:07)

Yes.

C (42:07)

The numbers out there are $90 trillion of wealth transfer is going to happen sometime over the next 10 to 15 years. Okay. So $90 trillion of wealth transferring from that dying generation to the next generation has a huge impact on down payment capability.

B (42:22)

That's true.

C (42:22)

Huge impact.

B (42:23)

Okay.

C (42:24)

So that wealth transfer. Don't discount that.

B (42:26)

Right.

C (42:27)

During COVID one of the big drivers of the single family market was people who had unfortunately died. In Covid, someone had inherited their inheritance early and used that for the down payment for their single family home.

B (42:39)

Yes.

C (42:39)

So don't discount that. The second is the seven and a half trillion dollars that's sitting in money market funds today. 7.3, $7.4 trillion. If you look historically at the money market funds, even when interest rates fed funds was zero, about 3 trillion still stayed in money market funds. So there's a certain amount of money that's just going to sit in money market funds is live well liquidity. Just leave it. It's liquidity. It's great. I'm just going to park it. Yes, but let's hypothetically say that 3 trillion rolls out of money market funds as the fed fund rates come down and those people want to be earning more and they're going to go into either equities or they're going to go into longer duration debt.

B (43:16)

Right.

C (43:16)

That could have a big impact on the long end of the curve. And so that's the one thing is I look at the dynamic right now of what could bring down borrowing costs, that rotation out of money market funds into longer duration fixed income or the equity markets, and then also that wealth transfer. Those are two things that could materially move housing in that middle market that could make it a little bit easier for people to buy the single family home, live a better life. Right, but those would be, you know, those are trillions of dollars. You know, we talk about hundreds of billions. It doesn't really make a much difference these days.

B (43:49)

It's really trillion dollar bets on the low income side. Were you surprised that Section 8 and the like actually held its own in the context of budget cuts and adjustments?

C (44:02)

Yes, I will say this. I've been very. I've been. We're the fifth largest indicator of LIHTC in the country right now and we do a lot of HUD financing with Section 8. I was very pleased to see that that has stayed in place. The one thing out there, Stephen, that is tbd is under Secretary Turner's leadership. There is an analysis going on right now about whether that housing assistance ought to sit at the federal level or sit at the state level. And lots of people are trying to kind of figure out whether he's going to make a move on that to push it back to the state. Yes, at the end of the day, from a federal standpoint, the funding has bipartisan support to keep moving forward. The question would be does it stay in Section 8 HAP contracts at the federal level or do they take it and try and push it out to the states? At the end of the day, as long as the funding is getting down at the local level, it really doesn't make much difference.

B (44:55)

We've run out of time. This was terrific conversation. It could go on even longer. But we really appreciate you coming just to visit with us and, and engage in this discussion.

C (45:04)

Thanks, Stephen. Thanks a lot.

B (45:05)

Appreciate it.

A (45:05)

Right over.