October 10, 2025 • 26 mins
The optimism that permeated commercial real estate at the start of 2025 has died down as the year has gone on.
That's the headline from Deloitte's annual CRE executive survey, but Deloitte partner Sally Ann Flood said on this week's episode that the responses showed an increasingly bifurcated market. Some asset classes, like data centers and warehouses, are "red hot," while investors are still grappling with distress in office and multifamily.
But Flood said the most important theme to come out of this year's survey is the technological inflection point the industry has reached.
“The technology revolution is here for real estate. I really believe this is the time that we can embrace it and really see improvements to the bottom line by adopting the technology.”
From companies embracing AI to digitize leases, partnerships between big tech, real estate companies and energy providers and increased operational efficiency, Flood says this is the year the notoriously tech-averse industry leaps into the digital age.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Mark Bonner (00:06):
Welcome to First Draft Live. I'm Mark Bonner,
business editor in chief comingto you live from New York. It's
Friday, October 10. For those ofyou new to the program this
week, this is a show where wetake the mess that is commercial
real estate and wrestle it intosomething you can actually use.
But quick reality check.
This is not the main event. Themain event is our daily
(00:29):
newsletter, the first draft.That's where the market's
sharpest edges gets filed downinto scoops before they hit the
wires, charts before they hitthe decks, and context before
the speed the PR spin. It's notfor the casual reader. It's for
closers, the ones who measuretheir days in term sheets and
fed minutes.
(00:49):
Written by me and a newsroomfull of wired insomniacs, the
kind of people who think caprate surveys make better
breakfast reading than thejournal. So for our first draft
audience today, we're giving youthe Backstage Pass, seven days
on us. Sign up now atbiznow.com/firstdraft. That's
biznow.com/firstdraft. Okay.
(01:14):
Let's get into today's story.Deloitte's 2025 CRE executive
survey does not sugarcoat it.The recovery hasn't been
canceled, but it has hit pause.The survey, based on responses
from 850 CRE executives acrossthe globe, found capital
availability has leapfroggedinterest rates as the industry's
(01:35):
top concern. That's a shift thatsays more about confidence than
cost.
On one hand, the data looksbullish. New loan volume is up
nearly 90%. $585,000,000,000 indry powder is waiting to to be
deployed, and spreads aretightening. On the other, legacy
(01:56):
maturities are looming, and morethan half of executives face a
loan coming due in the nextyear. For many, the math won't
work.
Office, written off by mostinvestors, is inching back into
the conversations, especially asvaluations reset and cities
return to work. And AI, oncetouted as a cure all, is showing
(02:17):
more friction thantransformation, delivering wins
in leasing and tenantmanagement, but plenty of
headaches everywhere else. Sohere's the real question. Are we
looking at a short stall beforethe market reaccelerates or the
early signs of a longer, harderslowdown? To unpack it, we've
got Sallie Anne Flood, vicechair in US real estate sector
(02:39):
leader at Deloitte.
It's her birthday. Happybirthday, Sallie Anne Flood.
Welcome to First Draft Live.
Sally Ann Flood (02:46):
Thank you, Mark, and it is great to be
here.
Mark Bonner (02:50):
Listen. Every cycle, as you know, Sallie Anne,
has its stall points. Yoursurvey found optimism is
slipping as lenders are gettingchoosier and refi ing gets ugly,
yet fresh capital is flowing.
Sally Ann Flood (03:04):
Mhmm.
Mark Bonner (03:04):
Is the pause just a timing issue, or is there
something deeper at play here?
Sally Ann Flood (03:09):
Yeah. I I think it's a point of reflection. I I
liked the concept of it being apause that it's not that we've
fallen off a cliff again andwe're gonna spiral down. It's
more the sentiment, like, reallywas just slightly more cautious
this year. So considerablybetter than prior years, like,
(03:30):
from, like, three, four yearsago, absolutely better.
But just compared to last year,I think it was just a softening.
And, you know, when you stilllook at the numbers that 83%
still expected their revenues toincrease in the next twelve to
eighteen months, I still thinkthat that's positive. So it's
just not as high as prior years.Also, they expect expenses to
(03:54):
increase. You know?
So I think that was about in thesixties. So I think the pause
concept is right versus afalling off the cliff.
Mark Bonner (04:05):
Celine, do you think if the survey were
conducted today that the resultwould be any different?
Sally Ann Flood (04:11):
Great question. I don't know if that much has
changed in the last, like, fourmonths since we took the survey.
We expected interest rates todecline or take a cut at least
once or twice. We've had onecut. Would have been nicer if it
was bigger, but I I don't knowif that much has changed.
I think we're just in a periodthat this year is going to be
(04:36):
continue to be challenging, AndI think there's a lot of
optimism for '26, as we turn thecorner at the end of the year.
So I I actually don't think itwould have changed too much if
we took it now.
Mark Bonner (04:49):
The only reason why I ask is because four months
ago, we were still at the verybeginning of Donald Trump's
term. Right? And there's a lotof optimism, especially on Wall
Street, but certainly incommercial real estate circles
that that was going to breathefresh life into what many
believed was sort of a slowereconomy, at least here in The
United States. Look, the economyfundamentally is really strong
(05:11):
right now in a lot of areas.There's a lot of wobbliness
under the surface.
There's a lot of fear out therestill about what's to come. But,
you know, when I hear pause, Ithe the main question I think a
lot of our audience will have iswhat does that really mean on
the ground?
Sally Ann Flood (05:26):
Yeah. I you know, it's still I had 75% cent
still expected to increase theirinvestment in real estate. I
take that as a win. So I thinkit's more people are being
cautious. There we are in aperiod of uncertainty.
But when they looked at what wasthe risk factors that they're
(05:47):
concerned about, you touched onit in your opening, it's like
capital availability. You know,that rose to the top. So where
is that going to come from? Wehad some good questions about m
and a deals. Like, that hasslowed down.
Maybe that will open up again in'26. So I think it was more a
(06:07):
period of uncertainty. You know,tax policy is not as, concerning
at the moment. It's always goingto impact real estate, but I
think we were happy about someof the changes that were made
that did not have a dramaticimpact on real estate. So I I
think some of that uncertaintyhas actually gone away, But
(06:30):
what's causing concern is morethe capital availability, you
know, interest rates.
You know, there's there's stillsome of the the usual suspects.
Mark Bonner (06:39):
When you look at the survey and all the other
data that you're pouring over,Sal ian, how do you reconcile
distressed legacy loans withrecord new issuance?
Sally Ann Flood (06:48):
I think it is a tale of two stories. You've got
the legacy loans. You know, 50you touched on a 50% will mature
within the coming year. And Ithink there is some challenges
on refinancing, modifications,renewing that debt. So I think
(07:08):
that that legacy debt, there'sstill some challenges there.
But I think that gives a hugeopening to the new debt. So
we're seeing new sources offunding coming from high net
worth individuals, insurancecompanies, the banks, banks,
like, are opening up again. So Ithink it's more a source of new
(07:28):
funding that I'm finding veryexciting. So I think CRE is
gonna see really a blend of thetwo, the legacy and new debt, to
kind of take impact this year.
Mark Bonner (07:41):
You know, commercial real estate has
drummed up a lot of cutesymottos over recent years.
Survive to '25, bliss in '26.Who knows what that means? You
know, but the focus is now, asyou point out, it's like it's
all about 2026. Two questions,when?
When in 2026 and what would youwant? What would you what do you
(08:01):
need to see to know that themarket is actually restarting
broadly?
Sally Ann Flood (08:06):
You know, hopefully, we'll see continued,
reduction and cuts in theinterest rates. I think real
estate really needs that as acut like, to jump start,
activity. And 25 basis pointsnot gonna be enough. Like, it's
it's kinda we're looking forsomething big. I think that is
impacting transaction volume alot.
(08:28):
But I think, you know, we areseeing more consolidation in the
industry. We're seeing morejoint ventures have been opened
up, new structures. So I thinkthere's that's coming together
in '25. So I I am moreoptimistic for '26 and that
we'll see a turn and probably inmaybe second, third quarter next
(08:51):
year.
Mark Bonner (08:51):
Second or third quarter. Okay. And I would I
would imagine that a big part ofthat is gonna be this
$585,000,000,000 in dry powder.Right? The story, you know, for
this whole year hasn't been lackof capital.
Right? It's been a where and howit gets deployed. So who's
deploying smarter capital rightnow?
Sally Ann Flood (09:13):
Well, I think I'd probably more focus on where
is it going. It's going to thetop asset class like you saw
data centers rise to the topagain. Like, you can't pick up
the newspaper without seeingsome new announcement of either
a joint venture withorganizations, institutions, but
data centers are on fire. Youcan see a 100% of data centers
(09:37):
in nine significant markets arepre leased. That's insane.
You know, so that is reallygood. We're also seeing the
industrial, the warehouses moveto two and three, and that makes
a lot of sense with logistics, alot of focus on trade in The US.
And so the placement of two andthree, I think, is a great
(09:59):
reflection of The US economycoming back and volume being
here. And I think that that'sbeen kind of interesting to kind
of monitor. Our top four assetclasses, it kind of just shifted
a little bit compared to lastyear, but not not any no one new
came in.
(10:19):
Multifamily is still there. Lifesciences moved up into kind of
the top five. And then, ofcourse, you mentioned office.
Like, office is slowly comingback. So I I'm focused more on
where it's going.
I think with office, likesitting here in Downtown San
Francisco, I think we're we'vecome across the bottom, like
(10:40):
we're turning back up, but it'sgonna take a while. And I think
that's gonna be more a flight toquality. And this I think, you
know, you're going to you'regonna see potentially for those
quality assets in office, a lotmore competition, multiple bids.
And so I think that will take awhile, but it's coming back up,
(11:01):
which is exciting.
Mark Bonner (11:03):
You know, yesterday when you were on the phone, we
talked briefly about the capitalstack. Right? Yeah. How
different is that gonna lookmoving forward, especially as we
get into 2026?
Sally Ann Flood (11:13):
I think you're gonna have multiple sources.
Like, it's not that equity isdead. I think equity will be
there, but I think you're goingto have the debt structures
being a lot more interesting andpotentially giving similar
returns to equity. So a lot morecreativity going on there. I was
just in Europe at Expo Real,earlier this week.
(11:36):
A lot of discussions on the debtfunds and how they can deploy
that capital. They're veryinterested in like hospitality,
for example, data centers, ofcourse. But I think that's going
to be the shift. They're goingto have much more of a blended
stack to attract kind of themoney in.
Mark Bonner (11:56):
Right. You know, you you mentioned offices, you
know, and it seems like officesare coming back from the ashes,
but valuations are down 30 to50% in many markets. Suddenly,
are circling. Have we finallyfound the floor for office?
Sally Ann Flood (12:10):
I think so. I think some of the metrics we're
showing that, we're seeing acouple of quarters in a row with
values moving up. Work I workclosely with Nacreif, and their
returns are kinda showingagainst specific areas some some
uptick. But there's also concernabout, like, the metrics for
(12:32):
evaluations, a lot of concernabout the assumptions going in.
There's still not a lot oftransactions that you can point
to.
And so I think it was even 3% ofsurvey recipients. They said
they trusted the assumptionsgoing in because there's not a
lot of transactions. So I Ithink we have seen a turn in
(12:55):
valuations, but until we see anuptick in transaction volume, it
is extremely challenging stillto come up with the key
assumptions underlying thosemodels.
Mark Bonner (13:05):
Right. I mean, we've seen this movie before.
There have been a lot ofpredictions about this is now
the new floor. We're coming backon office. I guess the question
is, and I and I think I knowwhat the answer is, which is, is
this actually the true resetthat we've been waiting for, or
do we believe this is valuehunting before more pain?
Sally Ann Flood (13:24):
It's a great question. I I think there's I
think we have reached thebottom. I think we are on the
uptick, but I think there'sgonna be a lot more pressure on
the quality of the asset.Tenants have a lot of choices,
and so there's a lot more, youknow, TI is gonna have to be
offered. You know, it's gonnathere's a lot of competition and
(13:46):
for some of these downtownassets.
And I think until we see kind ofall of the foreclosures take
place, you know, I think therewas, you know, 12% still
anticipated doing foreclosureswith the this debt wall. Until
all of that really irons out andthose assets are then actually
transacted upon, not just held,you know, by the banks with
(14:09):
empty buildings. Until we seethose assets come back out onto
the market, we're not reallygoing to see the big change. So
it's I think we've started thechange. Is it gonna be a quick
uptick?
No. I think it'll be slow, but Ithink it's gonna be really on
these landlords developing thesequality assets, looking at
(14:32):
amenities, you know, look ateven working with mayor's
offices and cities as to, okay,how do you make sure my building
is safe outside? How do you makesure all the amenities and
entertainment zones andconference centers and
convention zones? How do weparticipate more to help the
(14:52):
cities be successful and notjust think of yourself as a,
like, a loan on an island. So Ithink a lot more collaboration
with cities, with mayor'soffices is gonna be kinda
critical to maybe the odd like,the downtown office sector.
Mark Bonner (15:08):
You're just joining us. This is First Draft Live.
We're unpacking Deloitte's 2025CRE executive survey with Sally
Ann Flood, who's calling intoday from San Francisco. Sally,
you talked about data centers. Imean, that is the secretariat of
commercial real estate assetclasses.
It's unstoppable, but there's alot of headwinds out there for
data center development power,local politics. There's a lot of
(15:32):
doomish scenarios out thereabout a bubble bursting at some
future point in time,considering the strength of
capital that's pouring intothose things. The most
interesting thing that I tookaway from the report was the
survey shows that theseexecutives that you all surveyed
are cooling on AI after all ofthe hype from last year and
(15:52):
obviously at this very moment.What do I make of that? What do
you make of that?
Sally Ann Flood (15:58):
Well, I am in San Francisco. So, you know,
while there is a risk of mebeing in a bubble, I am
surrounded by all of the AItechnology in the companies and
listening to a lot of whatthey're saying. I think there's
really two things. I think therewas potentially a lot of hype
last year, and in in the survey,that was reflected a lot of hope
(16:24):
that potentially AI was going tosolve everything. The reality is
that it is hard to assess whereit's going to make the biggest
impact.
Can it be transformative? Yes.But it's not just a scatter
plot. You can't just throw itout and see, okay, it's gonna
fix all my problems. I thinkthis is more a reflection.
(16:46):
The challenges are a reflectionof challenging to adopt the
technology and relooking at theprocesses was really important.
Also, a culture kind of shiftbecause who was driving the AI
revolution in a company is thetop management and not being
really supported by those thatdeal with it every day. I think
(17:09):
that's a challenge. But and thebig but is I think the
technology companies are finallylooking at real estate. Mhmm.
That's what I'm excited about.Every week, even this month,
you're seeing a new alliancebeing announced, between a real
estate company and a technologycompany. And that that gets me
(17:30):
excited because you need them atthe table to really look at the
processes. And that's where Ithink we've got some great
optimism.
Mark Bonner (17:40):
When you look through this survey, Sallie
Anne, there's a lot of top lineitems. And by the way, think our
producer shared the link in thechat. Please go check out the
story. It's very deep. SallieAnne's quotes are all over our
reporting on this.
What is something that is belowthe surface in this report that
maybe doesn't make the headlinebut raised your eyebrow as you
(18:01):
studied it?
Sally Ann Flood (18:02):
Think and I I touched a bit on it with
connecting with, say, mayor'soffices and cities, for this new
kind of future of real estate.And I I think it touches on the
alliances that I think realestate organizations have to
participate in, either to getaccess to new markets. But I I
think there's really somethingto be said about the public
(18:25):
private partnerships, and thisindustry convergence with
construction, withinfrastructure, working with
cities and states to kinda lookat how you can have these long
term plays in cities, ten,thirty year programs. I think
cities have to learn about howto attract the institutional
(18:46):
investments and also the realestate community. But I think
that is kind of something that Idid pause and have a look at a
little bit more.
Doesn't make always theheadlines, but I think that's
gonna be interested interestingto see these strategic alliances
both from JVs, but also thepublic private partnerships.
Mark Bonner (19:08):
So every downturn, if you wanna call it a downturn,
right, also is an opening.Right. And I and we and I think
everyone on this callunderstands that, like broadly,
commercial real estate isn't inone just great downturn. There's
many different asset classesthat are on their own cycles.
Some are up, some are down, someare in the middle.
Some are going to come backagain stronger than ever. Some
(19:29):
are going to just flatline for alittle while before they can
grow again or go away. But thebig unknown, I think, in today's
pause is it sets the stage for astronger rebound perhaps or a
longer grind. What do you thinkis the biggest risk for the
greater commercial real estatemarket between now and probably
for all of next year? Like, whatare you looking at?
Sally Ann Flood (19:51):
Gosh. I think there's still a lot of focus on
cost containment. Like, you youhit it right that no one's quite
sure whether it is gonna be thatslow grind out. Again, depends
on the asset class because underthis umbrella of real estate,
we've got so many phenomenalasset classes that are on fire.
But overall, I think there stillis a cost containment.
(20:14):
They organizations, I feel,order to get to that next level
of efficiency, we'll have torelook at their data, relook at
their processes, look attechnology, it can really bring
an ROI. The where we're seeingsome good impacts are on tenant
(20:35):
relationships, construction,leases, gosh, digitized leasing,
phenomenal. Like that, that canactually be a game changer. Like
we've seen, you know, you candigitize like 500 leases in
thirty minutes. I think aboutthat.
10,000 leases, and I think itwas either an hour or ninety
(20:58):
minutes. Like okay. So now youstart kinda thinking about,
okay, the manual days are overand how what can you do with
that with an intelligenttechnology platform? So I I
think cost containment,technology, all of this is going
to be if you if you let thatpass by you, then I think you're
(21:22):
in the slow grind. If youactually take it and embrace it
and embrace kind of thetechnology and be bold, I think
then you're going to actuallytake kind of a leapfrog above
the rest.
And because I think theopportunities are absolutely
there. I know it was in our ourphrasing of this, but the
opportunities are there if youtake it. Otherwise, you're gonna
(21:43):
be in the slow grind.
Mark Bonner (21:45):
I completely agree. And look, the fire hose has been
so strong coming out of theWhite House on some of our
fronts. I think people forget toyour point, Sallie, and that,
like, that crypto legislation,which I believe came after one
big beautiful bill, which stolea lot of headlines, that has the
ability in 2026 even movingforward to completely
revolutionize the industry interms of how it builds capital
(22:05):
stacks, how it deals with,property management to your
perspective. I think there'ssome scary things that are not
maybe as scary as we believethem to be in terms of job
killers. The ludite fallacycomes to mind, but huge
opportunities here, along thoselines.
Sally Ann Flood (22:24):
Huge. You know, I think cryptocurrency,
blockchain, like, are all earlytechnologies for real estate.
And I think we had this in ourprior year survey that and until
the big players really take aposition and enter into kind of
this technology and leveragingcrypto and blockchain in a major
(22:47):
way, I think we've we've apotentially a harder path to
take, but it's there. So I thinkthe deregulation is absolutely
helping. It is absolutelyhelping, and that's going to
facilitate more people beingengaged, But we need the big
players to engage.
Mark Bonner (23:05):
Sallie Anne, me get to a question from our audience.
Data centers. Viability ishighly dependent on public
infrastructure, electricity, andthere have been signs of strong
public resistance, localpolitics, which I referenced
earlier. Mhmm. What is theimpact for CRE?
How does that get resolved?
Sally Ann Flood (23:24):
I I don't know how you get it resolved, but
it's true. The the constraint ispower. And we're I think it's
this industry convergence. Soyou have to work closely with
the utility companies, the powercompanies, the government
sector, state, local, business.And so it isn't just real estate
(23:46):
can go alone.
And you're seeing that with thetop players that they are kind
of really branding themselves astechnology, power, real estate.
It's not just real estate. So II think this industry
convergence is ultimatelycritical for it to work, and you
(24:06):
can't go alone because you'lljust have that backlash. But
it's like, the power is the isthe constraint, and so I think
people have to be creative. Butnow really good point by one of
your listeners.
Mark Bonner (24:19):
Okay. Final question, Sallie Anne. If you
could leave the industry withone headline takeaway from the
survey, what would it be?
Sally Ann Flood (24:27):
The technology revolution is here for real
estate. I I really believe thisis the time that we can embrace
it, and really see improvementsto the bottom line by adopting
the technology. That I think isexciting, and now's the time.
Mark Bonner (24:48):
Yeah. And look for an industry that has been
historically resistant totechnological evolution and
change, I think the pandemicreally spurred that forward in a
very significant way, inparticular on the prop tech side
of things. So, yeah, I I think Iagree with you. And so I guess
under the surface of what yousaid, Sallie Anne, it sounds
like you don't think it'shappening fast enough.
Sally Ann Flood (25:10):
I don't think it's happening fast enough in
that but but as I said earlier,I'm very excited. I think the
technology companies are nowlooking at real estate. I am
they've been working with thebanks. They've been working with
the insurance companies. I thinkreal estate has been a sector
that has not got attention, andthat's what I'm excited about.
(25:30):
Just keep a lookout in all theseannouncements. They're with the
big players in the industry.They're with the big players in
AI technology. And thecombination of these two
cultures is, to me, superexciting because I've seen both.
I work with some of thetechnology companies here in the
Bay Area.
Seeing the the combination ofthe two is exciting because we
(25:53):
in real estate, we know ourbusiness so well. We know the
processes. So we have to educatethe tech companies as to what
the roadblocks are and where theimprovements can be made. And
once we have them at the table,I think magic is gonna happen.
Mark Bonner (26:10):
Sally Anne, thanks so much for being here today.
Sally Ann Flood (26:12):
You're welcome. No. Thank you for having me,
Mark.
Mark Bonner (26:14):
And have a happy birthday.
Sally Ann Flood (26:16):
Thank you. I will.
Mark Bonner (26:18):
If you missed any part of this episode or wanna
hear earlier shows, you'll findevery conversation in your
favorite podcast app. Justsearch First Draft Live. We'll
be off next Friday, but look outfor upcoming conversations with
JLL CEO Christian Ulbrich,Industrious CEO and cofounder
Jamie Hodari, and a specialin-depth interview with WeWork
(26:38):
CEO John Santora live and onstage with me at the Cree Tech
Conference in New York City onOctober 21. Holler at me at the
Javits Center. This is FirstDraft Live.
Have a great weekend y'all.
Welcome to First Draft Live. I'm Mark Bonner,
business editor in chief comingto you live from New York. It's
Friday, October 10. For those ofyou new to the program this
week, this is a show where wetake the mess that is commercial
real estate and wrestle it intosomething you can actually use.
But quick reality check.
This is not the main event. Themain event is our daily
(00:29):
newsletter, the first draft.That's where the market's
sharpest edges gets filed downinto scoops before they hit the
wires, charts before they hitthe decks, and context before
the speed the PR spin. It's notfor the casual reader. It's for
closers, the ones who measuretheir days in term sheets and
fed minutes.
(00:49):
Written by me and a newsroomfull of wired insomniacs, the
kind of people who think caprate surveys make better
breakfast reading than thejournal. So for our first draft
audience today, we're giving youthe Backstage Pass, seven days
on us. Sign up now atbiznow.com/firstdraft. That's
biznow.com/firstdraft. Okay.
(01:14):
Let's get into today's story.Deloitte's 2025 CRE executive
survey does not sugarcoat it.The recovery hasn't been
canceled, but it has hit pause.The survey, based on responses
from 850 CRE executives acrossthe globe, found capital
availability has leapfroggedinterest rates as the industry's
(01:35):
top concern. That's a shift thatsays more about confidence than
cost.
On one hand, the data looksbullish. New loan volume is up
nearly 90%. $585,000,000,000 indry powder is waiting to to be
deployed, and spreads aretightening. On the other, legacy
(01:56):
maturities are looming, and morethan half of executives face a
loan coming due in the nextyear. For many, the math won't
work.
Office, written off by mostinvestors, is inching back into
the conversations, especially asvaluations reset and cities
return to work. And AI, oncetouted as a cure all, is showing
(02:17):
more friction thantransformation, delivering wins
in leasing and tenantmanagement, but plenty of
headaches everywhere else. Sohere's the real question. Are we
looking at a short stall beforethe market reaccelerates or the
early signs of a longer, harderslowdown? To unpack it, we've
got Sallie Anne Flood, vicechair in US real estate sector
(02:39):
leader at Deloitte.
It's her birthday. Happybirthday, Sallie Anne Flood.
Welcome to First Draft Live.
Sally Ann Flood (02:46):
Thank you, Mark, and it is great to be
here.
Mark Bonner (02:50):
Listen. Every cycle, as you know, Sallie Anne,
has its stall points. Yoursurvey found optimism is
slipping as lenders are gettingchoosier and refi ing gets ugly,
yet fresh capital is flowing.
Sally Ann Flood (03:04):
Mhmm.
Mark Bonner (03:04):
Is the pause just a timing issue, or is there
something deeper at play here?
Sally Ann Flood (03:09):
Yeah. I I think it's a point of reflection. I I
liked the concept of it being apause that it's not that we've
fallen off a cliff again andwe're gonna spiral down. It's
more the sentiment, like, reallywas just slightly more cautious
this year. So considerablybetter than prior years, like,
(03:30):
from, like, three, four yearsago, absolutely better.
But just compared to last year,I think it was just a softening.
And, you know, when you stilllook at the numbers that 83%
still expected their revenues toincrease in the next twelve to
eighteen months, I still thinkthat that's positive. So it's
just not as high as prior years.Also, they expect expenses to
(03:54):
increase. You know?
So I think that was about in thesixties. So I think the pause
concept is right versus afalling off the cliff.
Mark Bonner (04:05):
Celine, do you think if the survey were
conducted today that the resultwould be any different?
Sally Ann Flood (04:11):
Great question. I don't know if that much has
changed in the last, like, fourmonths since we took the survey.
We expected interest rates todecline or take a cut at least
once or twice. We've had onecut. Would have been nicer if it
was bigger, but I I don't knowif that much has changed.
I think we're just in a periodthat this year is going to be
(04:36):
continue to be challenging, AndI think there's a lot of
optimism for '26, as we turn thecorner at the end of the year.
So I I actually don't think itwould have changed too much if
we took it now.
Mark Bonner (04:49):
The only reason why I ask is because four months
ago, we were still at the verybeginning of Donald Trump's
term. Right? And there's a lotof optimism, especially on Wall
Street, but certainly incommercial real estate circles
that that was going to breathefresh life into what many
believed was sort of a slowereconomy, at least here in The
United States. Look, the economyfundamentally is really strong
(05:11):
right now in a lot of areas.There's a lot of wobbliness
under the surface.
There's a lot of fear out therestill about what's to come. But,
you know, when I hear pause, Ithe the main question I think a
lot of our audience will have iswhat does that really mean on
the ground?
Sally Ann Flood (05:26):
Yeah. I you know, it's still I had 75% cent
still expected to increase theirinvestment in real estate. I
take that as a win. So I thinkit's more people are being
cautious. There we are in aperiod of uncertainty.
But when they looked at what wasthe risk factors that they're
(05:47):
concerned about, you touched onit in your opening, it's like
capital availability. You know,that rose to the top. So where
is that going to come from? Wehad some good questions about m
and a deals. Like, that hasslowed down.
Maybe that will open up again in'26. So I think it was more a
(06:07):
period of uncertainty. You know,tax policy is not as, concerning
at the moment. It's always goingto impact real estate, but I
think we were happy about someof the changes that were made
that did not have a dramaticimpact on real estate. So I I
think some of that uncertaintyhas actually gone away, But
(06:30):
what's causing concern is morethe capital availability, you
know, interest rates.
You know, there's there's stillsome of the the usual suspects.
Mark Bonner (06:39):
When you look at the survey and all the other
data that you're pouring over,Sal ian, how do you reconcile
distressed legacy loans withrecord new issuance?
Sally Ann Flood (06:48):
I think it is a tale of two stories. You've got
the legacy loans. You know, 50you touched on a 50% will mature
within the coming year. And Ithink there is some challenges
on refinancing, modifications,renewing that debt. So I think
(07:08):
that that legacy debt, there'sstill some challenges there.
But I think that gives a hugeopening to the new debt. So
we're seeing new sources offunding coming from high net
worth individuals, insurancecompanies, the banks, banks,
like, are opening up again. So Ithink it's more a source of new
(07:28):
funding that I'm finding veryexciting. So I think CRE is
gonna see really a blend of thetwo, the legacy and new debt, to
kind of take impact this year.
Mark Bonner (07:41):
You know, commercial real estate has
drummed up a lot of cutesymottos over recent years.
Survive to '25, bliss in '26.Who knows what that means? You
know, but the focus is now, asyou point out, it's like it's
all about 2026. Two questions,when?
When in 2026 and what would youwant? What would you what do you
(08:01):
need to see to know that themarket is actually restarting
broadly?
Sally Ann Flood (08:06):
You know, hopefully, we'll see continued,
reduction and cuts in theinterest rates. I think real
estate really needs that as acut like, to jump start,
activity. And 25 basis pointsnot gonna be enough. Like, it's
it's kinda we're looking forsomething big. I think that is
impacting transaction volume alot.
(08:28):
But I think, you know, we areseeing more consolidation in the
industry. We're seeing morejoint ventures have been opened
up, new structures. So I thinkthere's that's coming together
in '25. So I I am moreoptimistic for '26 and that
we'll see a turn and probably inmaybe second, third quarter next
(08:51):
year.
Mark Bonner (08:51):
Second or third quarter. Okay. And I would I
would imagine that a big part ofthat is gonna be this
$585,000,000,000 in dry powder.Right? The story, you know, for
this whole year hasn't been lackof capital.
Right? It's been a where and howit gets deployed. So who's
deploying smarter capital rightnow?
Sally Ann Flood (09:13):
Well, I think I'd probably more focus on where
is it going. It's going to thetop asset class like you saw
data centers rise to the topagain. Like, you can't pick up
the newspaper without seeingsome new announcement of either
a joint venture withorganizations, institutions, but
data centers are on fire. Youcan see a 100% of data centers
(09:37):
in nine significant markets arepre leased. That's insane.
You know, so that is reallygood. We're also seeing the
industrial, the warehouses moveto two and three, and that makes
a lot of sense with logistics, alot of focus on trade in The US.
And so the placement of two andthree, I think, is a great
(09:59):
reflection of The US economycoming back and volume being
here. And I think that that'sbeen kind of interesting to kind
of monitor. Our top four assetclasses, it kind of just shifted
a little bit compared to lastyear, but not not any no one new
came in.
(10:19):
Multifamily is still there. Lifesciences moved up into kind of
the top five. And then, ofcourse, you mentioned office.
Like, office is slowly comingback. So I I'm focused more on
where it's going.
I think with office, likesitting here in Downtown San
Francisco, I think we're we'vecome across the bottom, like
(10:40):
we're turning back up, but it'sgonna take a while. And I think
that's gonna be more a flight toquality. And this I think, you
know, you're going to you'regonna see potentially for those
quality assets in office, a lotmore competition, multiple bids.
And so I think that will take awhile, but it's coming back up,
(11:01):
which is exciting.
Mark Bonner (11:03):
You know, yesterday when you were on the phone, we
talked briefly about the capitalstack. Right? Yeah. How
different is that gonna lookmoving forward, especially as we
get into 2026?
Sally Ann Flood (11:13):
I think you're gonna have multiple sources.
Like, it's not that equity isdead. I think equity will be
there, but I think you're goingto have the debt structures
being a lot more interesting andpotentially giving similar
returns to equity. So a lot morecreativity going on there. I was
just in Europe at Expo Real,earlier this week.
(11:36):
A lot of discussions on the debtfunds and how they can deploy
that capital. They're veryinterested in like hospitality,
for example, data centers, ofcourse. But I think that's going
to be the shift. They're goingto have much more of a blended
stack to attract kind of themoney in.
Mark Bonner (11:56):
Right. You know, you you mentioned offices, you
know, and it seems like officesare coming back from the ashes,
but valuations are down 30 to50% in many markets. Suddenly,
are circling. Have we finallyfound the floor for office?
Sally Ann Flood (12:10):
I think so. I think some of the metrics we're
showing that, we're seeing acouple of quarters in a row with
values moving up. Work I workclosely with Nacreif, and their
returns are kinda showingagainst specific areas some some
uptick. But there's also concernabout, like, the metrics for
(12:32):
evaluations, a lot of concernabout the assumptions going in.
There's still not a lot oftransactions that you can point
to.
And so I think it was even 3% ofsurvey recipients. They said
they trusted the assumptionsgoing in because there's not a
lot of transactions. So I Ithink we have seen a turn in
(12:55):
valuations, but until we see anuptick in transaction volume, it
is extremely challenging stillto come up with the key
assumptions underlying thosemodels.
Mark Bonner (13:05):
Right. I mean, we've seen this movie before.
There have been a lot ofpredictions about this is now
the new floor. We're coming backon office. I guess the question
is, and I and I think I knowwhat the answer is, which is, is
this actually the true resetthat we've been waiting for, or
do we believe this is valuehunting before more pain?
Sally Ann Flood (13:24):
It's a great question. I I think there's I
think we have reached thebottom. I think we are on the
uptick, but I think there'sgonna be a lot more pressure on
the quality of the asset.Tenants have a lot of choices,
and so there's a lot more, youknow, TI is gonna have to be
offered. You know, it's gonnathere's a lot of competition and
(13:46):
for some of these downtownassets.
And I think until we see kind ofall of the foreclosures take
place, you know, I think therewas, you know, 12% still
anticipated doing foreclosureswith the this debt wall. Until
all of that really irons out andthose assets are then actually
transacted upon, not just held,you know, by the banks with
(14:09):
empty buildings. Until we seethose assets come back out onto
the market, we're not reallygoing to see the big change. So
it's I think we've started thechange. Is it gonna be a quick
uptick?
No. I think it'll be slow, but Ithink it's gonna be really on
these landlords developing thesequality assets, looking at
(14:32):
amenities, you know, look ateven working with mayor's
offices and cities as to, okay,how do you make sure my building
is safe outside? How do you makesure all the amenities and
entertainment zones andconference centers and
convention zones? How do weparticipate more to help the
(14:52):
cities be successful and notjust think of yourself as a,
like, a loan on an island. So Ithink a lot more collaboration
with cities, with mayor'soffices is gonna be kinda
critical to maybe the odd like,the downtown office sector.
Mark Bonner (15:08):
You're just joining us. This is First Draft Live.
We're unpacking Deloitte's 2025CRE executive survey with Sally
Ann Flood, who's calling intoday from San Francisco. Sally,
you talked about data centers. Imean, that is the secretariat of
commercial real estate assetclasses.
It's unstoppable, but there's alot of headwinds out there for
data center development power,local politics. There's a lot of
(15:32):
doomish scenarios out thereabout a bubble bursting at some
future point in time,considering the strength of
capital that's pouring intothose things. The most
interesting thing that I tookaway from the report was the
survey shows that theseexecutives that you all surveyed
are cooling on AI after all ofthe hype from last year and
(15:52):
obviously at this very moment.What do I make of that? What do
you make of that?
Sally Ann Flood (15:58):
Well, I am in San Francisco. So, you know,
while there is a risk of mebeing in a bubble, I am
surrounded by all of the AItechnology in the companies and
listening to a lot of whatthey're saying. I think there's
really two things. I think therewas potentially a lot of hype
last year, and in in the survey,that was reflected a lot of hope
(16:24):
that potentially AI was going tosolve everything. The reality is
that it is hard to assess whereit's going to make the biggest
impact.
Can it be transformative? Yes.But it's not just a scatter
plot. You can't just throw itout and see, okay, it's gonna
fix all my problems. I thinkthis is more a reflection.
(16:46):
The challenges are a reflectionof challenging to adopt the
technology and relooking at theprocesses was really important.
Also, a culture kind of shiftbecause who was driving the AI
revolution in a company is thetop management and not being
really supported by those thatdeal with it every day. I think
(17:09):
that's a challenge. But and thebig but is I think the
technology companies are finallylooking at real estate. Mhmm.
That's what I'm excited about.Every week, even this month,
you're seeing a new alliancebeing announced, between a real
estate company and a technologycompany. And that that gets me
(17:30):
excited because you need them atthe table to really look at the
processes. And that's where Ithink we've got some great
optimism.
Mark Bonner (17:40):
When you look through this survey, Sallie
Anne, there's a lot of top lineitems. And by the way, think our
producer shared the link in thechat. Please go check out the
story. It's very deep. SallieAnne's quotes are all over our
reporting on this.
What is something that is belowthe surface in this report that
maybe doesn't make the headlinebut raised your eyebrow as you
(18:01):
studied it?
Sally Ann Flood (18:02):
Think and I I touched a bit on it with
connecting with, say, mayor'soffices and cities, for this new
kind of future of real estate.And I I think it touches on the
alliances that I think realestate organizations have to
participate in, either to getaccess to new markets. But I I
think there's really somethingto be said about the public
(18:25):
private partnerships, and thisindustry convergence with
construction, withinfrastructure, working with
cities and states to kinda lookat how you can have these long
term plays in cities, ten,thirty year programs. I think
cities have to learn about howto attract the institutional
(18:46):
investments and also the realestate community. But I think
that is kind of something that Idid pause and have a look at a
little bit more.
Doesn't make always theheadlines, but I think that's
gonna be interested interestingto see these strategic alliances
both from JVs, but also thepublic private partnerships.
Mark Bonner (19:08):
So every downturn, if you wanna call it a downturn,
right, also is an opening.Right. And I and we and I think
everyone on this callunderstands that, like broadly,
commercial real estate isn't inone just great downturn. There's
many different asset classesthat are on their own cycles.
Some are up, some are down, someare in the middle.
Some are going to come backagain stronger than ever. Some
(19:29):
are going to just flatline for alittle while before they can
grow again or go away. But thebig unknown, I think, in today's
pause is it sets the stage for astronger rebound perhaps or a
longer grind. What do you thinkis the biggest risk for the
greater commercial real estatemarket between now and probably
for all of next year? Like, whatare you looking at?
Sally Ann Flood (19:51):
Gosh. I think there's still a lot of focus on
cost containment. Like, you youhit it right that no one's quite
sure whether it is gonna be thatslow grind out. Again, depends
on the asset class because underthis umbrella of real estate,
we've got so many phenomenalasset classes that are on fire.
But overall, I think there stillis a cost containment.
(20:14):
They organizations, I feel,order to get to that next level
of efficiency, we'll have torelook at their data, relook at
their processes, look attechnology, it can really bring
an ROI. The where we're seeingsome good impacts are on tenant
(20:35):
relationships, construction,leases, gosh, digitized leasing,
phenomenal. Like that, that canactually be a game changer. Like
we've seen, you know, you candigitize like 500 leases in
thirty minutes. I think aboutthat.
10,000 leases, and I think itwas either an hour or ninety
(20:58):
minutes. Like okay. So now youstart kinda thinking about,
okay, the manual days are overand how what can you do with
that with an intelligenttechnology platform? So I I
think cost containment,technology, all of this is going
to be if you if you let thatpass by you, then I think you're
(21:22):
in the slow grind. If youactually take it and embrace it
and embrace kind of thetechnology and be bold, I think
then you're going to actuallytake kind of a leapfrog above
the rest.
And because I think theopportunities are absolutely
there. I know it was in our ourphrasing of this, but the
opportunities are there if youtake it. Otherwise, you're gonna
(21:43):
be in the slow grind.
Mark Bonner (21:45):
I completely agree. And look, the fire hose has been
so strong coming out of theWhite House on some of our
fronts. I think people forget toyour point, Sallie, and that,
like, that crypto legislation,which I believe came after one
big beautiful bill, which stolea lot of headlines, that has the
ability in 2026 even movingforward to completely
revolutionize the industry interms of how it builds capital
(22:05):
stacks, how it deals with,property management to your
perspective. I think there'ssome scary things that are not
maybe as scary as we believethem to be in terms of job
killers. The ludite fallacycomes to mind, but huge
opportunities here, along thoselines.
Sally Ann Flood (22:24):
Huge. You know, I think cryptocurrency,
blockchain, like, are all earlytechnologies for real estate.
And I think we had this in ourprior year survey that and until
the big players really take aposition and enter into kind of
this technology and leveragingcrypto and blockchain in a major
(22:47):
way, I think we've we've apotentially a harder path to
take, but it's there. So I thinkthe deregulation is absolutely
helping. It is absolutelyhelping, and that's going to
facilitate more people beingengaged, But we need the big
players to engage.
Mark Bonner (23:05):
Sallie Anne, me get to a question from our audience.
Data centers. Viability ishighly dependent on public
infrastructure, electricity, andthere have been signs of strong
public resistance, localpolitics, which I referenced
earlier. Mhmm. What is theimpact for CRE?
How does that get resolved?
Sally Ann Flood (23:24):
I I don't know how you get it resolved, but
it's true. The the constraint ispower. And we're I think it's
this industry convergence. Soyou have to work closely with
the utility companies, the powercompanies, the government
sector, state, local, business.And so it isn't just real estate
(23:46):
can go alone.
And you're seeing that with thetop players that they are kind
of really branding themselves astechnology, power, real estate.
It's not just real estate. So II think this industry
convergence is ultimatelycritical for it to work, and you
(24:06):
can't go alone because you'lljust have that backlash. But
it's like, the power is the isthe constraint, and so I think
people have to be creative. Butnow really good point by one of
your listeners.
Mark Bonner (24:19):
Okay. Final question, Sallie Anne. If you
could leave the industry withone headline takeaway from the
survey, what would it be?
Sally Ann Flood (24:27):
The technology revolution is here for real
estate. I I really believe thisis the time that we can embrace
it, and really see improvementsto the bottom line by adopting
the technology. That I think isexciting, and now's the time.
Mark Bonner (24:48):
Yeah. And look for an industry that has been
historically resistant totechnological evolution and
change, I think the pandemicreally spurred that forward in a
very significant way, inparticular on the prop tech side
of things. So, yeah, I I think Iagree with you. And so I guess
under the surface of what yousaid, Sallie Anne, it sounds
like you don't think it'shappening fast enough.
Sally Ann Flood (25:10):
I don't think it's happening fast enough in
that but but as I said earlier,I'm very excited. I think the
technology companies are nowlooking at real estate. I am
they've been working with thebanks. They've been working with
the insurance companies. I thinkreal estate has been a sector
that has not got attention, andthat's what I'm excited about.
(25:30):
Just keep a lookout in all theseannouncements. They're with the
big players in the industry.They're with the big players in
AI technology. And thecombination of these two
cultures is, to me, superexciting because I've seen both.
I work with some of thetechnology companies here in the
Bay Area.
Seeing the the combination ofthe two is exciting because we
(25:53):
in real estate, we know ourbusiness so well. We know the
processes. So we have to educatethe tech companies as to what
the roadblocks are and where theimprovements can be made. And
once we have them at the table,I think magic is gonna happen.
Mark Bonner (26:10):
Sally Anne, thanks so much for being here today.
Sally Ann Flood (26:12):
You're welcome. No. Thank you for having me,
Mark.
Mark Bonner (26:14):
And have a happy birthday.
Sally Ann Flood (26:16):
Thank you. I will.
Mark Bonner (26:18):
If you missed any part of this episode or wanna
hear earlier shows, you'll findevery conversation in your
favorite podcast app. Justsearch First Draft Live. We'll
be off next Friday, but look outfor upcoming conversations with
JLL CEO Christian Ulbrich,Industrious CEO and cofounder
Jamie Hodari, and a specialin-depth interview with WeWork
(26:38):
CEO John Santora live and onstage with me at the Cree Tech
Conference in New York City onOctober 21. Holler at me at the
Javits Center. This is FirstDraft Live.
Have a great weekend y'all.
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