JackChat February 2020

Some quick bold predictions as we gain traction in 2020.  I recently returned from the MBA’s CREF Conference in San Diego, essentially concluding my conference season while chatting literally with several dozen of industry colleagues from across the transactional role spectrum.

• While not a catalyst for a downturn, my prediction for 4Q20 is very still waters. Three major events take place in Q4: The Presidential Election, Brexit, and hitting the caps for the GSEs. This will be a tough time for investors to properly identify, assess, and price risk. So, they won’t!
• Multifamily, in particular, will hit a wall with all the recent new entrants running the party for the experts. I am reminded of a statement made by a teacher in a real estate class in college: “in good times, commercial real estate finds ‘weak hands’; it takes bad times to hit for commercial real estate to return home to ‘strong and reliable hands.’”
• Lending is not changing; the commercial real estate assets serving as our collateral are. CRE is becoming an operating business. We are now heading into a true “management phase”. In this business, it is getting harder and harder to rent; therefore, those who figure it out and can manage well will win. Sponsorship and execution will matter more than ever before.
• Properties across the country will not hit their proforma expectations. What then? Will the borrowing community look to intermediaries and lenders to help them figure out how to meet plan? Or, will they help them find another investor to play the role of a new audience? (Can you say, ‘greater fool theory’?)
• My oldest son is a performance consultant and cognitive enhancement coach. He has a formula: S x B = R (Situation x Behavior = Results). Sub-performing (per proforma) assets, may be over levered, in an environment of capital coming in all shapes and colors is the ‘situation’. Behavior, as in management skill set, will determine the winners.
• In a global race to zero interest rates, mortgages offer relative value to the bond market. More capital coming. Which seems to be why mortgage brokers ‘organize their lenders’ by price. Silly, really. Think about it; it wasn’t long ago that we organized our lenders by skill set, reliability, relationship, and how hairy a deal they would take.
• Speaking of skill sets, we will need to hire for new skill sets. The industry still must reduce the friction between the borrower and capital; the borrowing community seeks a better customer experience.
• Short Term Rental is not only a threat to the hotel industry; it’s a way out of ‘over leverage’ or the reality of not hitting proforma. This includes co-working and co-living concepts.

It’s going to be a fabulous year. I’ll talk to you when I talk to you.