The past year has been a volatile one for commercial real estate, with ever-escalating interest rates, pending debt maturities and questions of an economic downturn and inflation. During the Aug. 30, 2023 Walker Webinar in Sun Valley, ID., Willy Walker – Chairman and CEO of Walker & Dunlop – discussed these issues as well as artificial intelligence’s impact on business economics; climate change; the call for younger leadership in the United States; Federal Reserve rate hikes’ effect on commercial real estate; office sector bifurcation due to COVID-19 pandemic impacts; CMBS financing trends among others.
Walker reminded his audience that while Effective Federal Funds Rate (EFFR) stood at 1.75% in July 2022 , it had risen to 5.25% by August 2023 . The 10-year Treasury interest rate also rose from 2.64%, hitting 4:22 % by October 2023 . He noted that former Fed Chair Paul Volcker had boosted EFFR from 9% to 18%, between July 1980 and December 1980 ; during President Bill Clinton’s expansionist economy era , EFFR was between 5%-6:5%. While this time feels different due its prolonged low-interest environment , “it’s getting from one place to the next that has caused so much pain in economy,” said Walker . He cautioned against belief that Fed will start cutting rates before reaching targeted inflation rate ; citing their decision of raising 25 basis points week after SVB went down despite risk of contagion within banking system .
Outstanding Commercial Real Estate debt stands at $4 trillion with 18 % being Office properties loans ($190 billion ) maturing by end 2021/2022 according to him ; Banks like Wells Fargo & JPMorgan have come out loan loss provisions allowing them renegotiate loans rather than foreclosing office properties given lack sale market currently existing – Overcapitalized banking system likely rollover most paper he believes..
Trophy Office space is selling however owing people wanting be spot leasing average per foot $79 compared Class A space @$40 per square foot according him but going back work issue remains problematic – Cigna example cited where 70K employees only 7K were back office post Labor Day rest 63k need return or lose job..
Politics also discussed along need younger leadership deal AI economic impact quoting Theodore Roosevelt “critic” quote encouraging get involved arena don’t sit sidelines throw potshots understand issues dedicated them ..
