June 20, 2025 • 29 mins
The Federal Reserve decided yet again to hold interest rates steady at the June FOMC meeting. But CRE sees a turning point. This week, Avison Young CEO Mark Rose said the decision was irrelevant anyway. The CRE recovery isn’t coming soon, he said. It’s here now.
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Episode Transcript
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Mark Bonner (00:10):
Okay. Welcome to First Draft Live. It's Friday,
June 20, and we're coming to youlive just forty eight hours
after the Fed's latest ratedecision. No cut, no hikes, but
maybe, just maybe a turningpoint. We're thrilled to have so
many of you tuning in fromacross North America, and you're
a big shout to everyone stayingup late across The Atlantic.
We really appreciate it. We'restreaming live right now across
(00:34):
social media. I'm your host,Mark Bonner, BusinessOut's
editor in chief, and I'm comingto you live from New York. On
today's program, we're talkingmonetary policy, real estate
stress signals, and what a postzero rate world looks like,
because even with no rate cutthis week, the ice may beginning
to thaw. Bond yields aresliding, layoffs are creeping
(00:55):
up, tariffs are still hangingover the economy, and inflation
has cooled for four monthsstraight.
The pressure is building on WallStreet, on Main Street, and all
across commercial real estate,and the industry is waiting,
hoping, desperate for relief. Sowhat happens next? Is your own
pal setting the stage forSeptember? Can real estate
(01:15):
finally start to price in a newcycle? And what does a return to
normal even mean when the oldnormal is gone for good?
Joining us today to break it alldown, Mark Rose, chair and CEO
of Avinson Young. Since youdon't know, he's transformed the
firm into one of the world'smost forward looking real estate
companies. Under his leadership,the company's grown from 11
offices in Canada to over 100worldwide, and he's become a
(01:38):
mainstay voice at Davos andbeyond. Mark, welcome to the
program. I know you're joiningus from Chicago.
Mark Rose (01:44):
Thank you, Mark. Appreciate it.
Mark Bonner (01:46):
Okay. So let's jump on in. The Fed had stealthy. The
Fed held held steady, but themarket isn't moving. Jerome
Powell from the lectern with hisremarks after the decision said,
quote, we haven't been through asituation like this, and I think
we have to be humble about ourability to forecast it.
Obviously, a reference toLiberation Day tariffs. Here's
the president of The UnitedStates. Here's his response. We
(02:08):
have a stupid person, frankly,at the Fed. Europe had 10 cuts,
and we have had none.
He's a political guy who's notsmart. He's costing the country
a fortune. So, Mark, questionfor you. Is Jerome Powell
stupid? Is he costing The US andtherefore Siri a fortune?
Mark Rose (02:28):
I don't think Jerome Powell is stupid at all. I do
think that he is a bitpolitical, but I don't think
he's stupid. Listen, he is atthe cause of this as well. He
held on for too long rightthrough June thirtieth of twenty
twenty two. The Fed was stillbuying 65% of all mortgage
(02:50):
originations in this country.
He'll, you know, we held on withwith incredible free monetary
policy for way, way too long.And, you know, you had to deal
with the, you know, therepercussions and ramifications
of that. So, Jerome Powell iswho who who, you know, who he
is. I think he's, you know, asmart guy. I do think there's a
(03:14):
political issue between he andthe president, but we need to
let them settle that themselves.
Mark Bonner (03:20):
What's your reaction to the Fed decision?
Mark Rose (03:23):
Nothing is a nonissue. Right? Whether you
know, honestly, if there was acut, it would have been a good
thing, but a cut of 25 basispoints really wasn't going to
change anything. It didn't feellike there was any chance of
interest rates going up, andquite frankly, consensus was
(03:45):
that it would stay there becausethe tariff issue, the tariff
flip flops, the conversationshave really led to this
situation where there is aclear, a clear recovery that's
going on. But unfortunately, wein the industry, you and the
(04:05):
media, have to cover changesthat happen minute by minute,
day by day, and month by month.
Having a history in thisindustry for over forty two
years, I would just tell youthat doesn't change how we look
at the future. That's just along way of saying the interest
(04:29):
rate decision of this week wasnever going to impact anything.
If in fact there was one out ofthe blue a cut, it would have
been better, but it doesn't getus to where we need to be. But I
think we will get there on ourown because, as I said, the
recovery is absolutely intactright now.
Mark Bonner (04:47):
Right. I mean, you're not the only person who's
told me this week that thisdecision didn't matter. However,
CRE transaction volume is down40% year over year. Even trophy
asset deals are struggling inthe clear. How could it not
matter?
Mark Rose (05:03):
Yeah. So let's just say that there are certain
product types that areoperating. For example, you
know, industrial is selling.Industrial isn't necessarily
leasing at the moment, butindustrial is selling. Well, why
isn't industrial leasing?
Well, every day, those whooperate, own, use, develop, not
(05:23):
quite sure of what the costs areof building, not quite sure
about what tariffs are going tomean to products moving back and
forth between, you know,countries. Same thing for
retail, and therefore you have,you're kind of limited at the
moment to anything data centerworks, class A office works,
(05:47):
industrial sales work. It's justa long way to say that, again,
there are far more factors thaninterest rates. The key one is
getting us back to stability,getting us back to where we can
underwrite again. In the shortterm, the movements in rhetoric,
(06:07):
the geopolitical issues, arejust masking or holding back
what is something that is movingquite positively every day right
now.
Mark Bonner (06:17):
And that, I'm guessing, is what is keeping
capital on the sidelines. Howdoes it get off the sidelines?
Mark Rose (06:25):
Stability. For example, if the president of The
United States right now wouldstart talking about his views on
deregulation, which everybody'sabsolutely in favor of, and his
views on tax cuts, which you cantake either side. Is it too
much, or are the extensions ofthe previous tax cuts right? If
(06:47):
that's the conversation, we'reoff to the races. As long as
we're going to keep lobbingthreats back and forth around
tariffs, which again,ultimately, I don't think is
going to have a great impact,but you have to read into that
that there's uncertainty.
Uncertainty never helps markets.Clearly isn't helping our market
(07:11):
in the short term. With thatsaid, volumes are going to get
better. We can see it. We cansee the green shoots.
We can see what people want todo. I think they would have
transacted already. I don'tthink you would have been able
to throw out the stat that we'redown because it's really being
(07:32):
pushed to the sidelines. To giveyou a perfect example, as we are
a Canadian based company, assoon as the comments that were
made both tariffs and then thekind of the ridiculous comment
about the fifty first state, weliterally shut down. And, you
know, we know that proper,sophisticated Canadian investors
(07:56):
are struggling to get excitedabout The US.
Well, when you remind yourselfthat all of Canada's office
inventory in the entire countryfits pretty much in Manhattan,
The US is still a place whereeverybody will have to operate.
It is the biggest sandbox in theworld, and we have to get
(08:19):
through hurt feelings. All ofthese things are temporary. All
these things will work their waythrough the system, and we need
to just get back to how do weunderwrite, how do we make money
for our investors, know, in ourclients, and put together the
best real estate for occupiersto enjoy. And that is still
(08:43):
happening.
Mark Bonner (08:45):
And look, has Donald Trump been good for
commercial real estate so far?
Mark Rose (08:51):
Again, at a certain level, and again, I don't want
to get into the politics of any,you know, of any of this, but
Donald Trump's policies or theoutcomes that he's aiming for,
in some cases, are ones thatmany of us absolutely believe
in. Can anyone say thatexecution to get there has been
(09:12):
positive or even? No, no. Buttrying to take waste out of
system, trying to makegovernments smaller but proper,
okay, if we stay on proper. Ithink many, including myself,
could take issue with the socialside of it.
But the financial side, we'retalking about, much of what he
(09:35):
wants to do, the outcomes makesome sense, okay? But we are
still dealing with how to getthere, and how you get there.
You know, Elon Musk and Dogehave made a lot of sense. Again,
waste out of government. Who canreally argue about that?
(09:55):
Should we have fired everybodyright away and then have to
bring them back? Probably notthe best execution in the world.
The tariff conversationcompletely get where the outcome
is intended to go. Putting themon, taking them off, changing
(10:15):
them, what that does is itimpacts our industry because
it's very, very difficult tounderwrite if you want to
execute today or tomorrow. Okay.
I do think that that's gonnasettle.
Mark Bonner (10:31):
Okay, and assuming status quo remains, no black
swans, and boy, do we have abunch out there right now that
could be black swans. I'm not aconspiracy theorist, but black
swans do happen. We won't get tosub 3% rates until late twenty
six, maybe even early twentytwenty seven. That is a far cry
from the zero rate environmentthat defined the previous pre
(10:53):
pandemic cycle. How are youhelping real estate investors
reset expectations in this newera?
Mark Rose (10:59):
So where were interest rates in 2019? Above
the five. Okay. You know, insome cases, or or should be the
Fed funds, but but interestrates at zero for for the entire
period of time was the anomaly.Right?
(11:21):
And the cycles that we have beendealing with, and we are in a
cyclical business. We were very,very used to five percentage
rates, six even, sevens. Wecould deal with that, right?
Those numbers before the GFC.Having ten years of zero
(11:48):
interest rates pushed the mostmoney through the system that
has ever been pushed through thesystem, anyone and everyone who
got comfortable with that werekind of living in the dream
world.
We had sophisticated ownerstaking credit for billions and
(12:11):
billions of dollars of valuecreated when, in many ways, it
was just a reduction in, youknow, in cap rates and free
money. We have to keep goingback to there's a history to
this industry. There are cyclesto this industry, and we have
(12:34):
gotten better and more maturedecade after decade after
decade. But interest rates atfour, at five, at three, as long
as we know what they are, weknow what to do with this. They
do not have to get back to zero.
If we ever do, it's the icing onthe cake that we lived with and
(12:55):
had a lot of fun with for adecade. Probably never gonna see
that again in our lifetimes.
Mark Bonner (13:03):
The phrase survived till '25. It became something of
a rallying cry for commercialreal estate. It captured the
mood. Wait out rate hikes, holdoff on trades, extend loans,
pause projects. Now we'rehalfway through the year.
Rates haven't dropped, lendingis still tight, and many sectors
are still in survival mode. Soif we're surviving to '25, but
(13:27):
what exactly, Mark? As as Imean, I know you and I spoke
yesterday, but I'd love for youto talk about, is it possible
that even in this moment withthis uncertainty that CRE has
actually made it through theworst period of all this?
Mark Rose (13:42):
Oh, there's no doubt we've made it through. We we've
been through two two black swansback to back, which have rarely
ever happened. This cycle inthis downturn, hand over heart
is the worst I've seen in mycareer since the first time that
you had central banks andgovernments effectively working
(14:04):
against you. Back in the late80s, the early 90s, You had the
S and L crisis, but you had theRTC. You had government stepping
in in 1998 with the Russian bombdefault.
There was money after the dotcom implosion. Clearly, with the
GFC, had you know, quantitativeeasing. This is the first time
(14:29):
that you actually had theFederal Reserve, and we can talk
about this in a minute, reallytake interest rates to 14%.
Everybody thinks they went tothree and four and five. They
actually went to 14% becausewith quantitative tightening,
the amount of money that wassucked out of the system and the
regulations that mandated banksnot lend had the impact of about
(14:54):
another eight full percentagepoints of interest rates.
That's what we've been dealingwith. We were at the bottom.
We're coming off the bottom.There is goodness ahead as soon
as we can get to a little bit ofstability, and that's going to
(15:14):
involve a few risk takers, whichwe're seeing with private
equity, and a few less thingsthat are stated, you know, that
rattle the markets.
Mark Bonner (15:28):
Okay. If you're just tuning in, we're diving in
interest rates and the Fed's bigno move moment on Wednesday and
what it all means for commercialreal estate. With us today is
Mark Rose, CEO of Avinson Young,helping us look past the
headlines into what's next forcommercial real estate in this
Hire for Longer world. Mark, I'mgoing go to a question from the
audience here. If the currentimmigration policies in The U.
(15:48):
S. Are implemented long term,That implies that how Siri is
done fundamentally changes.Examples, higher labor cost
issues or labor availability.How are you thinking about this?
Mark Rose (16:03):
Yeah, so again, this is something that you'll see, I
believe, some changes inpolicies. Remember, you know,
we're only, what, eighteenmonths away from the midterms,
you know, the midterm electionsin The US. Right now, it is not
that much of an issue mainlybecause the amount of
(16:24):
development and building, youknow, is down quite
considerably. Depending on whatthe administration's policies
are, and they are theirpolicies, and they governments
get to make decisions, right orwrong, there will be an impact.
If things are great and we wantto start to build again, we're
(16:45):
going to have to think twiceabout it in terms of the
pricing, which again, therefore,I think we will have a, on one
hand stubbornly, or maybe on theother hand, quite a methodical
rebirth of building developmentas you deal with all pricing,
(17:06):
including labor pricing.
But if there are less, you know,if there's less labor, that's
inflationary.
Mark Bonner (17:17):
Davidson Young publishes a lot of real time
market indicators and has dealvisibility across a plethora of
asset types and globalgeographies. Mark, what are your
teams seeing right now thatothers aren't?
Mark Rose (17:29):
So again, this is a data driven world, and the
information that is produced isreally meant to deliver
empirical evidence to boardroomsand investment committees. We're
not just relying on opinionsanymore. You want the backup to
it, and the backup's been prettyclear. Lease terms have been
(17:53):
growing a bit. Right?
It's not, you know, out of theballpark, but they are growing.
It's positive. The data alsocomes down to you can literally
go city by city, product byproduct, and country by country,
and almost have a differentview. So, let me, you know,
(18:15):
bring all this and, you know,and attempt to summarize and
bring it full circle. Ourrecovery is intact.
Our busyness index, which isbeing reported everywhere and
was recognized by Fast Company,tells us very clearly we are
seeing employees come back tothe office. We are seeing owners
(18:39):
of businesses ask for theirfolks to come back to the
offices. We can go through theHR piece of this that folks
missed out on, you know,promotions by not being in the
office. Net net, the pendulumhas started to swing back. We
will see office usage and officevacancy.
(19:01):
You know, I'll take you toLondon right now. All of the
banks that cut all of theirspace, well, now they're all
scrambling to try to find morespace. There's a major bank that
was reported just a couple ofweeks ago, that right now
they're 7,700 seats short rightnow because they just cut too
much. You have the EPC ratingsin London that are taking whole
(19:25):
swaths of inventory out untilbuildings are brought up to A or
B standard by 02/1930. That is,on one hand, difficult to work
through, but on the other hand,it's very positive because you
have less inventory until it'sretrofit.
Data centers, you can almosttake a dart, put some money on
(19:48):
it, throw it at it, and you'vegot a pretty good chance of
making money. As I said,industrial is going to be fine.
It had to work through, youknow, as a perfect example. Last
year in 2024, we had everyonetalk industrial and going, Oh my
goodness, we didn't grow as amatter of fact. We're down.
Well, that would be an issue ifwe didn't have 100% increases
(20:09):
for the two years before then inrates and values. You can't have
100% increases every year.Industrial is doing fine. Resi
is doing fine. I think thesurprise is going to be office,
not just your A class andtrophy, but 2025 is going to be,
(20:31):
you know, the year of therebirth of the B asset class.
Now they're going to beconverted in some cases. They're
going to be upgraded, but the Bclass asset is about to have its
time. Retail grocery anchoreddoing amazing. Retail malls have
their ups and downs as they'retrying to convert. We used to
(20:54):
have where retail anchored bygrocery, excuse me, by pharmacy,
you know, was awesome.
That pharmaceutical industry,the CVS's, the Walgreens, are
shutting stores down, so it'sgoing through a little bit of
transition. But just remember,fifteen years ago, everybody
(21:14):
said we have the death of retailbecause of the Internet. Well,
we were over retailed. Weconverted, we knocked down, and
the hottest asset class lastyear was retail. So these cycles
move, and the point of givingyou this, I could take you kind
of what's working in Germany andwhat's working in France and
(21:36):
everywhere else.
It is cyclical and it moves, butthey're all in unison moving
upward into a recovery rightnow. We're still going to deal
with country by country and cityby city and product by product
issues that will be temporaryunless we do not address them.
Mark Bonner (21:58):
You mentioned the media narrative earlier, right?
And I know there's been somedoomish headlines out there
across the media landscape, butat the same time, this is an
environment where brokers andadvisors are often working twice
as hard for half as many deals.What's the story that tells
clients about where CERT isright now? What's your story?
Mark Rose (22:20):
Yeah, so again, I you know, I'll put a plug in for
you. So before I do anything inthe mornings, I wake up early, I
read every BizNow along withyour competitors, and I probably
read about 40 articles before Istart my day. And, you know, you
(22:41):
know, I read everything, youknow, for each of your major
market. And I I would say it's adifficult job for you with
credibility when majorstatements are made and then
pulled or flip flopped or movedor something changes. When you
have to report on it, sometimesit does get sensationalized, but
(23:04):
that's because again, you'relistening to things that are
happening on a daily basis in aworld that we want immediate
reactions to things.
I would just say as much as Iread, I don't pay attention to
any of that in terms of buildingthe strategy for our company or
strategies for our clients. Overa period of five years, ten
(23:26):
years, twenty five years, Weknow what the industry looks
like. We have the data to backit up. We can go to clients now
and inform them that the highestand best price and the most
liquidity for all these reasonsfor your project or property is
probably in the first half oftwenty twenty eight for these
(23:48):
reasons, and it's data drivenand it's empirical. When you
have what we have with our datasystems and Avison Young
technologies, we aren't reallyinfluenced by another article
today because, to be honest,sometimes you get it right and
(24:10):
sometimes you don't.
When you don't get it right, inmany ways it's kind of harmless
from your point of view becauseyou're just reporting on what
you hear or see. But it doesn'treally set the stage for what
the ultimate five year plan forsomething might be.
Mark Bonner (24:34):
Well, look, first of all, thank you for reading
Biz Now. We really appreciatethat, Mark. But I mean, but
what's the story? What's theelevator pitch to clients about
where we're actually at?Assuming that, you know, the
media narrative is a little bitoff, maybe it's not totally in
line with your own thinking.
What do you tell your clients?And then what do you tell your
brokers on the front lines here?The story that we're telling
(24:56):
customers at this very moment?
Mark Rose (24:59):
So the good news was I've given these interviews for
a long time, and three and ahalf years ago, much to my
client's dismay, you know, therewere a couple of articles in the
media where we said, thisdoesn't get better for five
years. I would hold to that, andI think we're seeing it. We've
(25:19):
used the example for people tounderstand, particularly
property people, that thetragedies of nineeleven created
a situation where for two yearsnobody wanted to come into
Manhattan, nobody wanted to gointo a tall building, a name
building. We spent billions onsecurity, but after three years,
somebody started to dip theirtoe back into the downtown
(25:40):
markets, midtown markets, namedproperties, year four got a
little better, year five, wewere pretty much back to the
races. Post COVID, and we neededa COVID recovery, right?
Now, didn't expect the otherblack swan of having, you know,
a debt availability crisis, Butpost COVID, which was in 2022,
(26:02):
you needed five years. We areabsolutely 100% on track, as
stated in the articles, thatrecovery to us was never
survived to '25. That was theincremental beginning of
recovery. Your recovery startsin 2026 and you really see it in
2027. And to be able to say toyour clients, we can blow some
(26:26):
smoke if that's what you want,but what we wanted to do is help
you stick handle around issuesand understand them.
It's not pleasant, but listen, Igot to tell you, there are some
major, including the biggest ofthe biggest of the private
equity investors that have movedpast what they had to give back
or write off. They wrote off andthey gave back, and they are so
(26:49):
talented that they're raisingmoney to take advantage of now
the situation of being able topick up in distress. To finish
it up, internally, we were veryclear, Folks, this is bad. It's
gonna be bad. I believe it's theworst we've ever seen.
We're very clear when webelieved we hit the bottom of
(27:10):
the market, which was last year,that the recovery would start
start in 2025, and you have toburst through the door because
what is setting up here is for avery, very good run from '26 at
least to '30. That's what we'vebeen stating. We hold to it. We
(27:31):
have the data to support it. Wehave the history and the
experience to support it, andit's unfolding, you know, in
front of our eyes.
Anything else that is the todayissues around what government
leaders say to us, noise.Impacts then,
Mark Bonner (27:50):
So we're gonna trade in survive till '25, and
we're gonna adopt, what, heavenin '27? Do you like that, Mark?
Mark Rose (27:58):
If you I listen. You take credit because you came up
with it. But, yes, I I'm I'm I'mfeeling really, really good,
really good about '26 and '27.
Mark Bonner (28:10):
I'm getting the hook from my producer. We're
running out of time, but I justwanna acknowledge something
here. You and I are both Metsfans. The Mets are on a six game
losing streak. We've got thePhiladelphia Phillies tonight.
Does it does it do we get backon tonight, Mark? What's your
thoughts on the Metropolitans?
Mark Rose (28:24):
Well, you need to score runs in order to win
games. So let's see. They haveto start to play offense again.
Mark Bonner (28:31):
Scott, look. That's all the time we have today. A
big thank you to Mark Rose forbeing here. We appreciate you.
We'll be back with anotherepisode of First Draft Live next
week, so don't miss out.
You can sign up now onbiznell.com. And by the way, you
can catch all the replays andhighlights of today's episode on
BizNell's social media channels.You can also find First Draft
Live on your favorite podcastapp, Apple, Spotify. Check us
(28:53):
out at Mark. We hope to see youall here at the same time, same
place next week.
This is First Draft Live. Have agreat weekend, everyone.
Okay. Welcome to First Draft Live. It's Friday,
June 20, and we're coming to youlive just forty eight hours
after the Fed's latest ratedecision. No cut, no hikes, but
maybe, just maybe a turningpoint. We're thrilled to have so
many of you tuning in fromacross North America, and you're
a big shout to everyone stayingup late across The Atlantic.
We really appreciate it. We'restreaming live right now across
(00:34):
social media. I'm your host,Mark Bonner, BusinessOut's
editor in chief, and I'm comingto you live from New York. On
today's program, we're talkingmonetary policy, real estate
stress signals, and what a postzero rate world looks like,
because even with no rate cutthis week, the ice may beginning
to thaw. Bond yields aresliding, layoffs are creeping
(00:55):
up, tariffs are still hangingover the economy, and inflation
has cooled for four monthsstraight.
The pressure is building on WallStreet, on Main Street, and all
across commercial real estate,and the industry is waiting,
hoping, desperate for relief. Sowhat happens next? Is your own
pal setting the stage forSeptember? Can real estate
(01:15):
finally start to price in a newcycle? And what does a return to
normal even mean when the oldnormal is gone for good?
Joining us today to break it alldown, Mark Rose, chair and CEO
of Avinson Young. Since youdon't know, he's transformed the
firm into one of the world'smost forward looking real estate
companies. Under his leadership,the company's grown from 11
offices in Canada to over 100worldwide, and he's become a
(01:38):
mainstay voice at Davos andbeyond. Mark, welcome to the
program. I know you're joiningus from Chicago.
Mark Rose (01:44):
Thank you, Mark. Appreciate it.
Mark Bonner (01:46):
Okay. So let's jump on in. The Fed had stealthy. The
Fed held held steady, but themarket isn't moving. Jerome
Powell from the lectern with hisremarks after the decision said,
quote, we haven't been through asituation like this, and I think
we have to be humble about ourability to forecast it.
Obviously, a reference toLiberation Day tariffs. Here's
the president of The UnitedStates. Here's his response. We
(02:08):
have a stupid person, frankly,at the Fed. Europe had 10 cuts,
and we have had none.
He's a political guy who's notsmart. He's costing the country
a fortune. So, Mark, questionfor you. Is Jerome Powell
stupid? Is he costing The US andtherefore Siri a fortune?
Mark Rose (02:28):
I don't think Jerome Powell is stupid at all. I do
think that he is a bitpolitical, but I don't think
he's stupid. Listen, he is atthe cause of this as well. He
held on for too long rightthrough June thirtieth of twenty
twenty two. The Fed was stillbuying 65% of all mortgage
(02:50):
originations in this country.
He'll, you know, we held on withwith incredible free monetary
policy for way, way too long.And, you know, you had to deal
with the, you know, therepercussions and ramifications
of that. So, Jerome Powell iswho who who, you know, who he
is. I think he's, you know, asmart guy. I do think there's a
(03:14):
political issue between he andthe president, but we need to
let them settle that themselves.
Mark Bonner (03:20):
What's your reaction to the Fed decision?
Mark Rose (03:23):
Nothing is a nonissue. Right? Whether you
know, honestly, if there was acut, it would have been a good
thing, but a cut of 25 basispoints really wasn't going to
change anything. It didn't feellike there was any chance of
interest rates going up, andquite frankly, consensus was
(03:45):
that it would stay there becausethe tariff issue, the tariff
flip flops, the conversationshave really led to this
situation where there is aclear, a clear recovery that's
going on. But unfortunately, wein the industry, you and the
(04:05):
media, have to cover changesthat happen minute by minute,
day by day, and month by month.
Having a history in thisindustry for over forty two
years, I would just tell youthat doesn't change how we look
at the future. That's just along way of saying the interest
(04:29):
rate decision of this week wasnever going to impact anything.
If in fact there was one out ofthe blue a cut, it would have
been better, but it doesn't getus to where we need to be. But I
think we will get there on ourown because, as I said, the
recovery is absolutely intactright now.
Mark Bonner (04:47):
Right. I mean, you're not the only person who's
told me this week that thisdecision didn't matter. However,
CRE transaction volume is down40% year over year. Even trophy
asset deals are struggling inthe clear. How could it not
matter?
Mark Rose (05:03):
Yeah. So let's just say that there are certain
product types that areoperating. For example, you
know, industrial is selling.Industrial isn't necessarily
leasing at the moment, butindustrial is selling. Well, why
isn't industrial leasing?
Well, every day, those whooperate, own, use, develop, not
(05:23):
quite sure of what the costs areof building, not quite sure
about what tariffs are going tomean to products moving back and
forth between, you know,countries. Same thing for
retail, and therefore you have,you're kind of limited at the
moment to anything data centerworks, class A office works,
(05:47):
industrial sales work. It's justa long way to say that, again,
there are far more factors thaninterest rates. The key one is
getting us back to stability,getting us back to where we can
underwrite again. In the shortterm, the movements in rhetoric,
(06:07):
the geopolitical issues, arejust masking or holding back
what is something that is movingquite positively every day right
now.
Mark Bonner (06:17):
And that, I'm guessing, is what is keeping
capital on the sidelines. Howdoes it get off the sidelines?
Mark Rose (06:25):
Stability. For example, if the president of The
United States right now wouldstart talking about his views on
deregulation, which everybody'sabsolutely in favor of, and his
views on tax cuts, which you cantake either side. Is it too
much, or are the extensions ofthe previous tax cuts right? If
(06:47):
that's the conversation, we'reoff to the races. As long as
we're going to keep lobbingthreats back and forth around
tariffs, which again,ultimately, I don't think is
going to have a great impact,but you have to read into that
that there's uncertainty.
Uncertainty never helps markets.Clearly isn't helping our market
(07:11):
in the short term. With thatsaid, volumes are going to get
better. We can see it. We cansee the green shoots.
We can see what people want todo. I think they would have
transacted already. I don'tthink you would have been able
to throw out the stat that we'redown because it's really being
(07:32):
pushed to the sidelines. To giveyou a perfect example, as we are
a Canadian based company, assoon as the comments that were
made both tariffs and then thekind of the ridiculous comment
about the fifty first state, weliterally shut down. And, you
know, we know that proper,sophisticated Canadian investors
(07:56):
are struggling to get excitedabout The US.
Well, when you remind yourselfthat all of Canada's office
inventory in the entire countryfits pretty much in Manhattan,
The US is still a place whereeverybody will have to operate.
It is the biggest sandbox in theworld, and we have to get
(08:19):
through hurt feelings. All ofthese things are temporary. All
these things will work their waythrough the system, and we need
to just get back to how do weunderwrite, how do we make money
for our investors, know, in ourclients, and put together the
best real estate for occupiersto enjoy. And that is still
(08:43):
happening.
Mark Bonner (08:45):
And look, has Donald Trump been good for
commercial real estate so far?
Mark Rose (08:51):
Again, at a certain level, and again, I don't want
to get into the politics of any,you know, of any of this, but
Donald Trump's policies or theoutcomes that he's aiming for,
in some cases, are ones thatmany of us absolutely believe
in. Can anyone say thatexecution to get there has been
(09:12):
positive or even? No, no. Buttrying to take waste out of
system, trying to makegovernments smaller but proper,
okay, if we stay on proper. Ithink many, including myself,
could take issue with the socialside of it.
But the financial side, we'retalking about, much of what he
(09:35):
wants to do, the outcomes makesome sense, okay? But we are
still dealing with how to getthere, and how you get there.
You know, Elon Musk and Dogehave made a lot of sense. Again,
waste out of government. Who canreally argue about that?
(09:55):
Should we have fired everybodyright away and then have to
bring them back? Probably notthe best execution in the world.
The tariff conversationcompletely get where the outcome
is intended to go. Putting themon, taking them off, changing
(10:15):
them, what that does is itimpacts our industry because
it's very, very difficult tounderwrite if you want to
execute today or tomorrow. Okay.
I do think that that's gonnasettle.
Mark Bonner (10:31):
Okay, and assuming status quo remains, no black
swans, and boy, do we have abunch out there right now that
could be black swans. I'm not aconspiracy theorist, but black
swans do happen. We won't get tosub 3% rates until late twenty
six, maybe even early twentytwenty seven. That is a far cry
from the zero rate environmentthat defined the previous pre
(10:53):
pandemic cycle. How are youhelping real estate investors
reset expectations in this newera?
Mark Rose (10:59):
So where were interest rates in 2019? Above
the five. Okay. You know, insome cases, or or should be the
Fed funds, but but interestrates at zero for for the entire
period of time was the anomaly.Right?
(11:21):
And the cycles that we have beendealing with, and we are in a
cyclical business. We were very,very used to five percentage
rates, six even, sevens. Wecould deal with that, right?
Those numbers before the GFC.Having ten years of zero
(11:48):
interest rates pushed the mostmoney through the system that
has ever been pushed through thesystem, anyone and everyone who
got comfortable with that werekind of living in the dream
world.
We had sophisticated ownerstaking credit for billions and
(12:11):
billions of dollars of valuecreated when, in many ways, it
was just a reduction in, youknow, in cap rates and free
money. We have to keep goingback to there's a history to
this industry. There are cyclesto this industry, and we have
(12:34):
gotten better and more maturedecade after decade after
decade. But interest rates atfour, at five, at three, as long
as we know what they are, weknow what to do with this. They
do not have to get back to zero.
If we ever do, it's the icing onthe cake that we lived with and
(12:55):
had a lot of fun with for adecade. Probably never gonna see
that again in our lifetimes.
Mark Bonner (13:03):
The phrase survived till '25. It became something of
a rallying cry for commercialreal estate. It captured the
mood. Wait out rate hikes, holdoff on trades, extend loans,
pause projects. Now we'rehalfway through the year.
Rates haven't dropped, lendingis still tight, and many sectors
are still in survival mode. Soif we're surviving to '25, but
(13:27):
what exactly, Mark? As as Imean, I know you and I spoke
yesterday, but I'd love for youto talk about, is it possible
that even in this moment withthis uncertainty that CRE has
actually made it through theworst period of all this?
Mark Rose (13:42):
Oh, there's no doubt we've made it through. We we've
been through two two black swansback to back, which have rarely
ever happened. This cycle inthis downturn, hand over heart
is the worst I've seen in mycareer since the first time that
you had central banks andgovernments effectively working
(14:04):
against you. Back in the late80s, the early 90s, You had the
S and L crisis, but you had theRTC. You had government stepping
in in 1998 with the Russian bombdefault.
There was money after the dotcom implosion. Clearly, with the
GFC, had you know, quantitativeeasing. This is the first time
(14:29):
that you actually had theFederal Reserve, and we can talk
about this in a minute, reallytake interest rates to 14%.
Everybody thinks they went tothree and four and five. They
actually went to 14% becausewith quantitative tightening,
the amount of money that wassucked out of the system and the
regulations that mandated banksnot lend had the impact of about
(14:54):
another eight full percentagepoints of interest rates.
That's what we've been dealingwith. We were at the bottom.
We're coming off the bottom.There is goodness ahead as soon
as we can get to a little bit ofstability, and that's going to
(15:14):
involve a few risk takers, whichwe're seeing with private
equity, and a few less thingsthat are stated, you know, that
rattle the markets.
Mark Bonner (15:28):
Okay. If you're just tuning in, we're diving in
interest rates and the Fed's bigno move moment on Wednesday and
what it all means for commercialreal estate. With us today is
Mark Rose, CEO of Avinson Young,helping us look past the
headlines into what's next forcommercial real estate in this
Hire for Longer world. Mark, I'mgoing go to a question from the
audience here. If the currentimmigration policies in The U.
(15:48):
S. Are implemented long term,That implies that how Siri is
done fundamentally changes.Examples, higher labor cost
issues or labor availability.How are you thinking about this?
Mark Rose (16:03):
Yeah, so again, this is something that you'll see, I
believe, some changes inpolicies. Remember, you know,
we're only, what, eighteenmonths away from the midterms,
you know, the midterm electionsin The US. Right now, it is not
that much of an issue mainlybecause the amount of
(16:24):
development and building, youknow, is down quite
considerably. Depending on whatthe administration's policies
are, and they are theirpolicies, and they governments
get to make decisions, right orwrong, there will be an impact.
If things are great and we wantto start to build again, we're
(16:45):
going to have to think twiceabout it in terms of the
pricing, which again, therefore,I think we will have a, on one
hand stubbornly, or maybe on theother hand, quite a methodical
rebirth of building developmentas you deal with all pricing,
(17:06):
including labor pricing.
But if there are less, you know,if there's less labor, that's
inflationary.
Mark Bonner (17:17):
Davidson Young publishes a lot of real time
market indicators and has dealvisibility across a plethora of
asset types and globalgeographies. Mark, what are your
teams seeing right now thatothers aren't?
Mark Rose (17:29):
So again, this is a data driven world, and the
information that is produced isreally meant to deliver
empirical evidence to boardroomsand investment committees. We're
not just relying on opinionsanymore. You want the backup to
it, and the backup's been prettyclear. Lease terms have been
(17:53):
growing a bit. Right?
It's not, you know, out of theballpark, but they are growing.
It's positive. The data alsocomes down to you can literally
go city by city, product byproduct, and country by country,
and almost have a differentview. So, let me, you know,
(18:15):
bring all this and, you know,and attempt to summarize and
bring it full circle. Ourrecovery is intact.
Our busyness index, which isbeing reported everywhere and
was recognized by Fast Company,tells us very clearly we are
seeing employees come back tothe office. We are seeing owners
(18:39):
of businesses ask for theirfolks to come back to the
offices. We can go through theHR piece of this that folks
missed out on, you know,promotions by not being in the
office. Net net, the pendulumhas started to swing back. We
will see office usage and officevacancy.
(19:01):
You know, I'll take you toLondon right now. All of the
banks that cut all of theirspace, well, now they're all
scrambling to try to find morespace. There's a major bank that
was reported just a couple ofweeks ago, that right now
they're 7,700 seats short rightnow because they just cut too
much. You have the EPC ratingsin London that are taking whole
(19:25):
swaths of inventory out untilbuildings are brought up to A or
B standard by 02/1930. That is,on one hand, difficult to work
through, but on the other hand,it's very positive because you
have less inventory until it'sretrofit.
Data centers, you can almosttake a dart, put some money on
(19:48):
it, throw it at it, and you'vegot a pretty good chance of
making money. As I said,industrial is going to be fine.
It had to work through, youknow, as a perfect example. Last
year in 2024, we had everyonetalk industrial and going, Oh my
goodness, we didn't grow as amatter of fact. We're down.
Well, that would be an issue ifwe didn't have 100% increases
(20:09):
for the two years before then inrates and values. You can't have
100% increases every year.Industrial is doing fine. Resi
is doing fine. I think thesurprise is going to be office,
not just your A class andtrophy, but 2025 is going to be,
(20:31):
you know, the year of therebirth of the B asset class.
Now they're going to beconverted in some cases. They're
going to be upgraded, but the Bclass asset is about to have its
time. Retail grocery anchoreddoing amazing. Retail malls have
their ups and downs as they'retrying to convert. We used to
(20:54):
have where retail anchored bygrocery, excuse me, by pharmacy,
you know, was awesome.
That pharmaceutical industry,the CVS's, the Walgreens, are
shutting stores down, so it'sgoing through a little bit of
transition. But just remember,fifteen years ago, everybody
(21:14):
said we have the death of retailbecause of the Internet. Well,
we were over retailed. Weconverted, we knocked down, and
the hottest asset class lastyear was retail. So these cycles
move, and the point of givingyou this, I could take you kind
of what's working in Germany andwhat's working in France and
(21:36):
everywhere else.
It is cyclical and it moves, butthey're all in unison moving
upward into a recovery rightnow. We're still going to deal
with country by country and cityby city and product by product
issues that will be temporaryunless we do not address them.
Mark Bonner (21:58):
You mentioned the media narrative earlier, right?
And I know there's been somedoomish headlines out there
across the media landscape, butat the same time, this is an
environment where brokers andadvisors are often working twice
as hard for half as many deals.What's the story that tells
clients about where CERT isright now? What's your story?
Mark Rose (22:20):
Yeah, so again, I you know, I'll put a plug in for
you. So before I do anything inthe mornings, I wake up early, I
read every BizNow along withyour competitors, and I probably
read about 40 articles before Istart my day. And, you know, you
(22:41):
know, I read everything, youknow, for each of your major
market. And I I would say it's adifficult job for you with
credibility when majorstatements are made and then
pulled or flip flopped or movedor something changes. When you
have to report on it, sometimesit does get sensationalized, but
(23:04):
that's because again, you'relistening to things that are
happening on a daily basis in aworld that we want immediate
reactions to things.
I would just say as much as Iread, I don't pay attention to
any of that in terms of buildingthe strategy for our company or
strategies for our clients. Overa period of five years, ten
(23:26):
years, twenty five years, Weknow what the industry looks
like. We have the data to backit up. We can go to clients now
and inform them that the highestand best price and the most
liquidity for all these reasonsfor your project or property is
probably in the first half oftwenty twenty eight for these
(23:48):
reasons, and it's data drivenand it's empirical. When you
have what we have with our datasystems and Avison Young
technologies, we aren't reallyinfluenced by another article
today because, to be honest,sometimes you get it right and
(24:10):
sometimes you don't.
When you don't get it right, inmany ways it's kind of harmless
from your point of view becauseyou're just reporting on what
you hear or see. But it doesn'treally set the stage for what
the ultimate five year plan forsomething might be.
Mark Bonner (24:34):
Well, look, first of all, thank you for reading
Biz Now. We really appreciatethat, Mark. But I mean, but
what's the story? What's theelevator pitch to clients about
where we're actually at?Assuming that, you know, the
media narrative is a little bitoff, maybe it's not totally in
line with your own thinking.
What do you tell your clients?And then what do you tell your
brokers on the front lines here?The story that we're telling
(24:56):
customers at this very moment?
Mark Rose (24:59):
So the good news was I've given these interviews for
a long time, and three and ahalf years ago, much to my
client's dismay, you know, therewere a couple of articles in the
media where we said, thisdoesn't get better for five
years. I would hold to that, andI think we're seeing it. We've
(25:19):
used the example for people tounderstand, particularly
property people, that thetragedies of nineeleven created
a situation where for two yearsnobody wanted to come into
Manhattan, nobody wanted to gointo a tall building, a name
building. We spent billions onsecurity, but after three years,
somebody started to dip theirtoe back into the downtown
(25:40):
markets, midtown markets, namedproperties, year four got a
little better, year five, wewere pretty much back to the
races. Post COVID, and we neededa COVID recovery, right?
Now, didn't expect the otherblack swan of having, you know,
a debt availability crisis, Butpost COVID, which was in 2022,
(26:02):
you needed five years. We areabsolutely 100% on track, as
stated in the articles, thatrecovery to us was never
survived to '25. That was theincremental beginning of
recovery. Your recovery startsin 2026 and you really see it in
2027. And to be able to say toyour clients, we can blow some
(26:26):
smoke if that's what you want,but what we wanted to do is help
you stick handle around issuesand understand them.
It's not pleasant, but listen, Igot to tell you, there are some
major, including the biggest ofthe biggest of the private
equity investors that have movedpast what they had to give back
or write off. They wrote off andthey gave back, and they are so
(26:49):
talented that they're raisingmoney to take advantage of now
the situation of being able topick up in distress. To finish
it up, internally, we were veryclear, Folks, this is bad. It's
gonna be bad. I believe it's theworst we've ever seen.
We're very clear when webelieved we hit the bottom of
(27:10):
the market, which was last year,that the recovery would start
start in 2025, and you have toburst through the door because
what is setting up here is for avery, very good run from '26 at
least to '30. That's what we'vebeen stating. We hold to it. We
(27:31):
have the data to support it. Wehave the history and the
experience to support it, andit's unfolding, you know, in
front of our eyes.
Anything else that is the todayissues around what government
leaders say to us, noise.Impacts then,
Mark Bonner (27:50):
So we're gonna trade in survive till '25, and
we're gonna adopt, what, heavenin '27? Do you like that, Mark?
Mark Rose (27:58):
If you I listen. You take credit because you came up
with it. But, yes, I I'm I'm I'mfeeling really, really good,
really good about '26 and '27.
Mark Bonner (28:10):
I'm getting the hook from my producer. We're
running out of time, but I justwanna acknowledge something
here. You and I are both Metsfans. The Mets are on a six game
losing streak. We've got thePhiladelphia Phillies tonight.
Does it does it do we get backon tonight, Mark? What's your
thoughts on the Metropolitans?
Mark Rose (28:24):
Well, you need to score runs in order to win
games. So let's see. They haveto start to play offense again.
Mark Bonner (28:31):
Scott, look. That's all the time we have today. A
big thank you to Mark Rose forbeing here. We appreciate you.
We'll be back with anotherepisode of First Draft Live next
week, so don't miss out.
You can sign up now onbiznell.com. And by the way, you
can catch all the replays andhighlights of today's episode on
BizNell's social media channels.You can also find First Draft
Live on your favorite podcastapp, Apple, Spotify. Check us
(28:53):
out at Mark. We hope to see youall here at the same time, same
place next week.
This is First Draft Live. Have agreat weekend, everyone.
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