JackChat November 2025

My pet peeve right now is an industry that was financed historically 70-80% of the time with ‘permanent’ longer term fixed rate loans, over the past few years, has become 70%-80% financed with short term floating rate loans. I posit, it’s hard enough to create enterprise value in a three year time frame; but volatility on the long bond makes it exponentially harder. I ask you to at least layer on my pet peeve as you consider my observations below. If you are paralyzed, awaiting yesteryear to reappear, I remind you that Louis Gonzales wrote in his book “Deep Survival”, that survivors of the worst events imaginable survived because they gave up their mental memory of the future. They adapted to a new reality because they gave up their expectations of what was going to come along and bail them out.

Inflation:

We hear the rhetoric that the Fed targets a 2% inflation. I think it’s a false prophecy. Tariffs and this administrations policy on immigration are inflationary policies. Inflation will grow and stay elevated due to Demographics (labor shortages), Deglobalization (security and geopolitical concerns), Defense spending, and growing Deficits. While I do not profess to be an economist (I just listened to Ken Rosen speak), it is my long-held belief that the 10yr treasury is a leading indicator for cap rates. Cap rates, based on the 10-yr forward curve suggests we should underwrite exit cap rates in the 6-7.5% range (rather than lighting a candle in the window for cap rates of 4-5% from yesteryear!)

Opportunities are presenting themselves increasingly. However, I think the winners, the successful investors of the future, will be sharp shooters who get the location, the asset, the sponsor, and the business plan right. Our best years are ahead of us; in the interim we need to be buying at below replacement cost, underwrite (and buy/lend/borrower) with an eye to how/when negative leverage becomes positive leverage with long term debt stabilizing in the 5-6.5% range and with entry cap rates 100-200 basis points higher than what we saw in 2022. Again, my feeling is that if “the math doesn’t work” then “move the goal posts” and extend durations of business plans out long enough for “trends become our friends”. There is indeed a lot of credit available at reasonable rates and compressing spreads.

We could see a period of Stagflation (where we have high inflation, high interest rates, and a weak economy). Cap rates will come down in periods of STABLE or falling interest rates; or, when the flow of funds (demand for investments) increases. Increased capital flows are an outgrowth of more sales and investment exits that allow capital to repatriate. I had hoped it would happen in 2025. Maybe 2026 is our baseline year as we have a growth in investing (in fantastic opportunities) in 2026-2028!

Other snippets:

• I love all the talk about AI and data centers. As SF becomes the center of native AI globally, those tech companies are talking about hiring youngins and holding the context of 996 – working 9am to 9pm, 6 days a week – in the office (and they will pay you a lot of money). I like the context of a real workplace work ethic. The way things used to be. Just ask those who went into Investment Banking in the 90’s!
• A good offense can be a good defense. Everyone should be looking at how to protect the values of the assets in their portfolio.
• Immigration was good for this country for more than 100 years. 1.1m legal immigrants a year drove the productivity and wealth creation of our economy for generations. The fact that this year we are approaching 1.5m self and forced deportations is scary to me.
• The far left and the far right’s antisemitism is rising and scares me. Civil unrest over one group rarely stays silo-ed. Is civil unrest a thing of the future?
• Long-term interest rates should exceed inflation by 100-200 bp. Inflation could be volatile between 2.5-5.5 %. Tariffs, a tight labor market, health insurance, the cost of power, construction costs, all drive inflation higher.
• A growing percentage of the population cannot afford a home. Rental rates, health care costs, and the cost of groceries continue to rise and are becoming untenable for more of our population. Civilizations with only rich people and poor people and no middle class don’t survive. Rather, civil unrest only grows. This cycle is vicious, and we need to come together to turn this somehow into a virtuous cycle instead. And, for those who voted for the new New York Mayor, remember, “Socialism only works until you run out of “other people’s money.""
• We seem to be experiencing the lowest college graduate hiring rates in 20 years. This is not good.
• 70% of households have mortgages on their homes with interest rates less than 5%. The economists call that the Lock In Effect. I call it out that those people are not selling or downsizing and they certainly can’t upsize. We will continue to have a housing shortage in this country creating more pressure towards unrest.
• Consumer confidence is down to levels like 2007/2008. Those were not good times.

On a more upbeat note, I believe in innovation and in the innate creativity of human beings – “necessity is the mother of invention”. People in the end make the difference; and we are some of the smartest, most energetic, best entrepreneurs and institutional leaders in the world. IF anyone can rally and avoid these potential land mines, WE can!

Wishing everyone a very happy Thanksgiving with friends and family and a safe return to the Christmas season.