March 4, 2024 • 30 mins
Join us with James Bohnaker, Senior Economist at Cushman & Wakefield, as we dissect the anticipated Federal Reserve announcements for 2024. Explore the expected rate drop and its market impact amidst high interest rates and inflation. Discover hidden investment opportunities in the CRE sector, learn which sectors will thrive or struggle, and hear Bohnaker's bold prediction for the Fed's first rate cut. Navigate the twists of the commercial real estate market with insights to thrive in today's landscape.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Rachel Oh (00:04):
Welcome to Peaks and Portfolios, presented by PEG
Companies, your go-to podcastfor all things commercial real
estate investment.
I'm Rachel oh, and togetherwe're diving into current events
, trends, issues andopportunities impacting the CRE
investment space, fromdissecting the latest market
moves to sharing insights ontoday's commercial real estate
(00:26):
landscape.
It's time to maximizeportfolios here in the peaks of
the Mountain West the and beyond.
Okay, welcome everybody.
So glad you're here with ustoday for Peaks and Portfolios.
For today's episode, we will bediscussing, I think, the one
topic that is at the forefrontof everyone's mind in commercial
(00:48):
real estate investment andprobably the rest of the economy
, and that is when will the Fedpivot?
I feel exceptionally privilegedto introduce you today to our
guest joining us from Boston,senior economist James Bohnaker.
James, welcome.
James Bohnaker (01:04):
Hi Rachel.
Thanks so much for having me.
Rachel Oh (01:06):
Oh my gosh.
Thank you so much for joiningus.
We so appreciate it.
How is everything?
How is everything going on inBoston these days?
It's cold, right, or is it warm?
Bomb me, are you on the beach?
What are you doing?
James Bohnaker (01:15):
Everything is good here in Boston.
It's pretty cold out still, asit is most of the year here, but
we got some sunny skies today,so that's all you can ask for.
Rachel Oh (01:24):
Oh, nice, nice, I need to make my way out there.
Okay, well, you know we are soexcited to have you join us, if
you're good.
I wanted to boast about you alittle bit.
James Bonnaker is a senioreconomist within Cushman and
Wakefield's Global Think Tank.
You have an extensive backgroundas a global macroeconomist and
you've provided strategicconsulting for many of the
(01:45):
world's largest investment banksand corporations, while in
previous roles at Moody'sAnalytics and S&P Global, it
looks like you've also worked atCBRE, where you were a leading
member of the firm's Economicand Real Estate Forecasting
Platform.
And wow, I'm so grateful thatyou're joining us because it
looks like you've been featuredin leading news publications,
including the Wall StreetJournal, new York Times,
(02:05):
washington Post and NPR'sMarketplace.
So we wanted to bring you intoday because we know that, with
everything you are seeing andkeeping polls on I mean not to
say that you're clairvoyant, butprobably definitely a little
bit more than most we're hopingthat you can help us to better
read through the tea leaves witha little more certainty and
help predict perhaps the mostimportant question every
(02:27):
commercial real estate investorout there is asking right now,
and that's when will the Fedpivot?
James Bohnaker (02:32):
Absolutely.
Yeah, we'll just stop thecrystal ball a little bit here
today, but there is a ton ofuncertainty out there.
I think that if you just thinkback over the past year or two
years, we've gone through thiscrazy cycle of inflation and
rising interest rates for thefirst time really and a few
decades right and so it's just adifferent environment than
(02:53):
we've been used to over the pastfew years, and so it's been an
up and down ride, but hopefullylooking at some more clarity
here as we enter the mid part of2024.
Rachel Oh (03:04):
Yeah.
So I mean we're a couple ofmonths in and just curious, like
what we've seen thus far in theUS, our economic performance
thus far.
What do you expect maybe willhappen over the next 12 months?
James Bohnaker (03:17):
Yeah, I think really the talk of the day has
kind of been this soft landingscenario right, where inflation
comes down and the Fed can lowerinterest rates and everyone's
happy and people are hiring andinvesting and the commercial
real estate market finally canget back on its feet from an
investment perspective.
(03:38):
And that's obviously the idealscenario, right, that's what we
want to happen.
I think that in my view thoughyou're not to say that
eventually we won't get there,but I think it's going to be a
bumpier ride then is beingadvertised, at least in a lot of
the recent media narrativeright Around, this kind of
perfect disinflation whereeverything sort of goes
(03:58):
according to plan, and you'veseen that with some of the data
points that have come out right.
Just think back to late in 2023, we had 10-year treasury yields
almost at 5% for a little bitthere, and then sentiment
changes very quickly almost bythe week or by the day,
depending on the data that we'regetting out.
So I think it's going to be abit of an uncomfortable ride, at
(04:20):
least for the first half of theyear, but ultimately it is
clear to me in that the Fedwants to lower interest rates.
The question about timing andmagnitude is obviously a big one
, but at least we have a littlemore clarity that finally we're
done with this rate-hiking cycle, which is great news.
Rachel Oh (04:39):
Yeah, I was kind of looking at things.
It looks like since March of2022, we have seen 11 rate hikes
, which it seems to have helped.
Right, it looks like the annualinflation rate is now down to
what?
3.1% in January that's what I'mseeing, has been reported, and
I don't think I fully realizefrom a high of 9.1% of June of
(04:59):
2022.
But I'm also seeing that themost recent January number that
3.1, is probably higher than I'mcurious.
Do you think it's higher thanyou had expected?
And I don't know how that'sgoing to impact the Fed's goal
to driving it down to 2%.
Is that going to further delay?
Because what in the lastmeeting they said, at least for
(05:19):
another six months, they weren'tgoing to do anything.
James Bohnaker (05:21):
Yeah, well, so on the inflation front, right,
we hit 9% at the worst of it in2022.
And you have to think back to,kind of the reasons and what was
going on in the world at thatpoint, right, so we had, at the
start of 2022, russia invadedUkraine, caused disruption in
energy markets, caused gasprices to spike, et cetera, and
(05:43):
we also had this dynamic, whichnone of us have ever experienced
before, where coming off of theawful, awful pandemic, but the
economic implications of thatwere that people were finally
going out and traveling andspending money and doing all of
these things that stimulatedemand across the economy.
But meanwhile, the supply sidemanufacturing, freight,
(06:09):
logistics, all the things thatget those goods where they need
to go we're still extremely logjammed, right, you know,
overseas, especially in China,et cetera, massive supply chain
disruptions, and so you know,econ 101 tells you that when
that happens, you get a massiveprice spike.
Right, and that's what we sawand, as we've kind of, you know,
(06:30):
moved past that phase.
Rachel Oh (06:32):
Right, those were more or less temporary
disruptions, although theylasted for quite some time I was
going to say I don't seetemporary in our business Is the
costs are good, costs are high.
James Bohnaker (06:42):
Yeah, absolutely .
And what I should say whilethere has been some relief,
right, you never see the pricescome down.
They just have stopped risingas fast.
So, you know better than risingat the rate they were.
But the situation we're in now,and have been, is that other
types of services and goods arestill increasing in price at
(07:03):
fairly rapid rates.
Rachel Oh (07:04):
Like you look at rental rates for apartments and
things like that, which is goodfor us, I will say yeah, but I
mean everything's expensive tobuild now.
So you know, net wise, is itreally yield?
It doesn't right.
Things aren't penciling thesame.
James Bohnaker (07:18):
Yeah, that's absolutely true.
And you know, just to kind offinish that thought on inflation
, you know the easy part is done.
You know we went from 9% to 3%,right, and the question now is
how much actual price pressureis still in the economy.
And if you look at, you know,job growth and the labor market,
or you look at consumerspending and just it feels like
(07:41):
the economy is still a littlebit too hot, you know, at least
in the eyes of the FederalReserve, and they want inflation
not only to be in that 2.5%rate but that it's going to be
over the longer run, because,you know, no one likes inflation
, right, right, I mean we all goto the grocery store and the
food store.
Rachel Oh (08:02):
Oh my gosh, $5 for milk.
James Bohnaker (08:04):
Yeah, not happy, absolutely.
It's not a healthy way for youreconomy to be in over the
longer term, right, and so theyhave to be confident in it.
And so what you were getting atwith that January number, you
know it's hotter than a lot ofpeople were expecting and shifts
the narrative right.
So, you know, rate cuts, ratecuts, rate cuts to uh-oh.
(08:26):
Should we still be worriedabout this?
And I think that's what you'reseeing with some of the
messaging coming out of J-PALand the Fed was like, hey, we
need to be a little bit carefulabout this.
Rachel Oh (08:35):
Yeah, Well, okay, so I mean, based on all that and
everything that you know andsort of cycles and whatnot, what
I mean what is your baselineexpectation, Like, what do you
think we're looking at?
James Bohnaker (08:49):
Yeah.
So from the Fed, I think that,well, we have to talk about the
economy first and sort of thosedemands that I talked about,
because we're ultimately whatthe Fed wants is an economy
that's not too hot and not toocold.
And you know I mentioned someof the you know the positives in
the economy, such as consumerspending, algra but there's also
(09:09):
some weak points too, and soyou know we're starting to see,
if you will get kind ofunderlined, some of those
headline indicators.
You know we've got risingdelinquencies, corporate debt is
rising, interest expensepayments are much higher than
they were a few years ago.
So ultimately those things aregoing to affect, you know, the
(09:30):
way people shop and how muchthey spend and how businesses
behave as well, and so I thinkwe're starting to see a little
bit more slack in the labormarket.
If you look at, you know, thenumber of people who are working
part-time because they can'tfind full-time work, that's up.
If you're looking at, the numberof people who are multiple job
holders because they need to getby with these higher prices,
(09:52):
higher expenses, that's up aswell.
So I think there's someweakness in the labor market,
and how that plays out isultimately going to be one of
the factors that the Fed focuseson.
You know, the last couple ofyears it's been all about
inflation, but the other side ofthat is you don't want to keep
interest rates so high that itcrushes the economy.
Nobody wants that.
(10:13):
So really it's finding thatfine line and I think that
ultimately, over the course ofthe next few months here we're
going to enter that sort oflevel playing field where the
Fed is looking at all of thisdata saying, all right, we're
not too concerned aboutinflation as much as we were,
we're thinking more about thehealth of the economy, the
(10:33):
American people, making surethat everyone has jobs, and
we're going to pull our foot offthe gas a little bit.
Rachel Oh (10:40):
Unemployment's low right we're at like three
something.
I think the last number hadthem.
It's still really low.
James Bohnaker (10:45):
Yeah, it's still really low.
It's still about 3.7% andthat's pretty close to a 50, 60
year low.
So thing you have to keep inmind, though that's a bit of a
lagging indicator.
If you look at, you know,across the different sectors of
the economy, right, we've seenvery strong job growth in areas
(11:05):
like healthcare and leisure andhospitality, and even the
government has been hiring morestrongly, but those sectors were
ones that were the last to kindof come out of the pandemic.
If you kind of break it down alittle bit more, you know,
you're seeing more layoffsacross manufacturing, logistics,
retail, even some pockets inthe tech sector and financial
(11:28):
sector, and so I think thatultimately, we're kind of
nearing that point where we willstart to see a little bit
slower job growth or perhapseven job loss.
Rachel Oh (11:37):
Well, I wish they would start going back to the
restaurants because I feel likemy service level in the
restaurants has plummeted.
But anyway, we started kind oflike talking about this earlier.
But you know labor market, allthat is super important to us.
So you know what we do incommercial real estate.
We're doing a lot ofconstruction projects, we're
doing a lot of development andas I look at our underwriting
(11:58):
and different things, I meanlabor is extremely expensive.
I mean costs, construction costs, the price of materials and
things seem to have gone backdown and I think getting things
over from abroad has helped, butlabor costs certainly have
skyrocketed and as a result,it's put pressure on, you know,
the cost of development and thenwith interest rates tied along,
(12:23):
that deals just aren'thappening the same way they used
to.
So, like for the commercialreal estate investor and groups
like ours, like where is theirrelief?
I mean, is there a reliefinside or is this just the new
normal?
And keep in mind my parents arealways saying you don't even
know double digit interest ratesto start complaining.
So, but you know, but it's ournew norm and like.
(12:43):
So just curious, what are yourthoughts there?
James Bohnaker (12:45):
Yeah, I mean, I think in some ways it is.
I think that you know, as I wassaying, prices never, never
seem to go down, right, at leastnot as much as they go up, and
so you know it takes time toadjust to that, right, if you've
got higher costs.
And then you know, on the laborside, it seems that it's just
harder and harder, especially inthose skilled trades, right,
not just construction, but youknow, advanced manufacturing,
(13:09):
things like that.
It seems like we, even beforethe pandemic, right, it seemed
everyone was complaining aboutlack of lack of skilled labor
and that seems to have worsened,you know, following the
pandemic.
And so you know there's somepolicy questions aside with that
how do you get more peopleengaged in the trades?
But leave that aside for themoment.
I think that the real stickingpoint here is the debt markets,
(13:31):
right?
So you kind of you kind ofthink about, you know we've
talked about the Fed and I thinkthat's really, you know, very
critical milestone.
That I think needs to be passedis just, all right, rates
aren't going higher and we havesome clarity that it will be
going down again, but it seemslike we're essentially at right
now, right, you know, barringany kind of unforeseen events.
(13:52):
But so that's great, you knowthat's good.
But I think that there's moreto the story than that.
It's not just all right, theFed's cutting everyone.
Let's get out there and partyright.
Because they're not going backdown to zero.
Rachel Oh (14:05):
That's the reality of it.
Right, those days are gone.
Those days are gone.
James Bohnaker (14:10):
Those days are gone and that's okay.
I mean, obviously you know weall love zero interest rates
forever, but that period is overfor sure.
And so you know, real estatedevelopment, whatever part of
the industry you're in, can bevery healthy, function extremely
well in, you know, a four orfive percent interest rate
environment.
There's no question about that.
(14:31):
You know it happens in the 90sand even higher levels in the
80s, right, yeah, and so we'vehit that first milestone, right
when we have clarity on interestrates.
But you know, the debt marketshave to respond as well, and
there's questions aboutcommercial real estate.
Right now, there's almost everytime you pick up the Wall
Street Journal or CNBC orwhatever news outlet you read,
(14:54):
there's some negative storyabout our industry.
And the reality is that youknow it's much more nuanced than
that and there's a lot of, youknow, good narratives within our
sector.
But you know there's a lot ofbad press and with those issues
that have happened in thebanking industry go back to 2023
.
Remember, we had a few regionalbank failures which didn't
(15:16):
really have, didn't really haveanything to do with commercial
real estate, but it just, youknow, raised the scrutiny across
the board for all types oflenders of, hey, we should watch
out for this.
You know there's going to bedistress, defaults, et cetera,
et cetera.
It's not a good time to lend,and so I think that narrative,
you know, will follow suit oncerates start to come down.
(15:36):
Yeah, but you know it justtakes time, and then you know.
The third thing is, we've gotthis, you know, in the
transaction market, right, it'sjust what is the property worth?
You know, certainly we've gotthe REIT markets.
You can look to those for someguidance because they trade, you
know, on exchanges and you cansee the ticker moving by the
minute.
But in reality, in the privatecommercial real estate market
(15:58):
it's, you know, highly liquid.
You don't have to sell aproperty at, in most cases,
right, you can hold it for aslong as you want.
So we just don't have clarityon you know what, what the price
of an asset is worth.
And I think we're getting there, I think we will get there.
But it's really those, thosesecond two pieces, you know, the
liquidity and debt markets andthe price discovery, which I
(16:21):
think you're going to just takea little bit of time.
Rachel Oh (16:23):
Yeah, yeah, no, I see that and you know you're
touching on that a little bit.
So we're constantly looking atreal estate investments and
where to put our dollars and youknow where our investors may be
interested in.
I mean, let's talk about thisdebt, this debt maturities
coming down.
I keep hearing billions,trillions.
I mean, I have no idea what thereal number is and we see it as
opportunity.
But just curious your thoughtson that Because you know, I
(16:45):
think I think the last thing Iwrote was like 2.7 trillion
maybe coming due between now and2027, 2028.
James Bohnaker (16:51):
That sounds about right.
Yeah, it's about 500 billion ayear on average.
So, yeah, that sounds aboutright, and the thing is, though,
that's not really that abnormal.
It's a little bit higher thanyou know different periods.
The real issue is that it's theunderlying fundamentals of you
know what's going on with thoseproperties, right?
And?
(17:11):
so you know you look for sectorsthat are having issues right
now not to not to slam theoffice market, but that's really
where the big concern is.
And now you're starting to seeas these, you know, debts are
coming to you're having justdifficulty refinancing and you
know more owners are giving backthe keys to lenders but you
(17:33):
know some, some lenders don'twant the properties and so it
creates this kind of dysfunctionin the market.
I will say that you know we arestarting to see, you know,
rising delinquencies, defaults,primarily in the office sector,
but also across the board too,which actually, you know the
silver lining of that is that ithelps with that price discovery
(17:54):
piece, right when you have kindof a forced sale.
You know you're not able torefine it, so I'm just going to
get rid of this for whateverit's worth, and so I think
that's the silver lining thatwe're really kind of finding our
footing on.
You know what is an asset worthin today's interest rate
environment, with fundamentalsthe way they are across
different sectors?
Rachel Oh (18:15):
Yeah, yeah, no, like I said, for us, we see it as
opportunity, so we're kind ofwaiting in the wind.
But I'll you know, be honest,it's not like we've seen, like
other than office, which we'renot really interested in.
We haven't seen the onslaughtthat I think that we thought we
would, but maybe that'll happen,maybe that'll come through, so
okay, that's the key word.
James Bohnaker (18:33):
That's the key word, though, I think, is
opportunity, right?
Yes, so there's a period ofdislocation in the market.
I mean thing is there's a tonof capital out there
specifically targeting realestate.
I know you guys are out therecoming, coming through potential
deals and really looking forthat diamond in the rough, and
(18:54):
you know they're going to peopleare going to find those, and
it's going to happen veryquickly.
I think you know, sort of once,once people get more
comfortable with with where weare.
Rachel Oh (19:03):
Yeah, yeah, no, I think that's true, you know.
I know that our podcast isn'tthe only.
I mean, you're pretty active inthe different publications I
had mentioned and I've seen someof your recent commentary, so
let's shift gears just a littlebit.
Just curious which sectors thenin commercial real estate do
you think will outperform oreven underperform over the next
couple years?
James Bohnaker (19:23):
Yeah, that's a great question.
I think that you know, let'sstart with with just a longer
term.
I think that, ultimately, theway I think about it is you
don't want to overcomplicate it,right?
Think about what.
What do people need?
Right, they need somewhere tolive.
Multimultipan is going to dowell.
We're seeing more activity andsingle family rentals and really
a lot of these alternative realestate sectors, you know data
(19:46):
centers.
Yeah, I agree.
I mean, think about how oftenwe're on our phones, and now AI
comes into the mix and there'sso much computing power needed.
And you know, senior housing,for you know we've got a rapidly
aging population and a lot ofthose people don't want to be,
(20:07):
you know, live their final yearsin their own home.
They need assistance andmedical attention and things
like that.
And so I think that really justlooking at the demographics and
the economics really paint agood picture, you know, for
those sectors.
And then you know industrial aswell, going through a bit of a
bump in the road A little bumpnow.
yeah, A little bump.
(20:27):
That's okay, though I mean,that's a good thing.
Right, there wasn't enough ofit, so we built more, and you
know it'll take time to absorbthat, but I think there's a lot
of opportunity out there acrossmany sectors.
Yeah, you know, the one commonthread that we're seeing that
I'm most excited about is justthe integration of, you know,
(20:51):
retail and hospitality intodifferent types of assets, right
, I think you?
I think ultimately, we get to apoint where everything is
amenitized right, with, you know, that type of service that the
people crave, you know, whenthey travel or go shopping.
We want that all the time.
You know, people aren't justunimodal nowadays.
Rachel Oh (21:13):
They're not just what .
We're not that might not be aword.
New word by James Bonnakerunimodal it's the opposite of
bimodal.
Gotcha, okay, yeah, no, tell meabout that.
I think you're coming ontosomething that I'm not sure I'm
completely following, so tell me, dive into that a little more.
(21:33):
Help me to understand that.
James Bohnaker (21:34):
Well, the way I think about it is you know,
think about, you know e-commerceor think about hybrid work.
Okay, you know the things we'velearned from that is you don't
you know to purchase, you know ashirt or suit or whatever
you're going out to get.
You don't need to be physicallythere in order to do that.
(21:56):
You don't need to visit aretail destination.
Sure, you can do that on yourphone while you're at work,
while you're at a coffee shopacross the country right, and so
that's those types ofdisruptions, you know, obviously
change the nature of realestate and why you know the
value of the place, yeah, and soI think I think similarly about
(22:17):
, you know, this rise in hybridwork, which obviously came about
for necessary reasons, but itis absolutely sticking right.
If you don't need to go to theoffice, you're not going to, but
if you want to go to the office, because there's, you know, a
great fitness center and you cango out to work, to the rooftop
(22:38):
bar with your colleagues afterwork, there's other reasons, and
so you know my point there isthat you know you're not just
thinking about one thing orgoing to a place for a singular
reason, and so the result ofthat and I think where we see
this, you know born out in someof the statistics, you know,
places that are immunitized, notjust office buildings or retail
(23:01):
centers, but I think you'regoing to see more of that across
all types of real estate, wherethere's just more of a mixed
use element to essentially everytype of real estate.
Rachel Oh (23:11):
Yeah, that totally makes sense, Like I spent a lot
of my career in LA and there'sthat flagship Westfield Mall
there in Tintry City and I meanthat's just a play land.
Now right, it's not justshopping.
You've got that Italy thing,you've got Equinox.
I mean, you don't even have toleave there, Everything's taken
care of.
So, okay, gotcha, that makessense.
James Bohnaker (23:33):
Uh, huh, build more play land.
Rachel Oh (23:35):
Yeah, yeah, wow, I like that, okay so, okay.
So we've touched on a fewdifferent things.
You know, it sounds like thereare, there's opportunities.
I think I keep hearing, likeyou know, people want to survive
till 2025.
But what you're saying, I feellike there's far more
opportunities in 2024 with thedifferent things that we
(23:56):
mentioned.
But let's kind of circle backto, like you know, where we
first started this.
The Fed made some announcements.
We see economic indicatorswhere they are now.
Are we talking June?
Are we talking May?
Are we talking?
What's your prediction, james?
What do you think is going tohappen?
James Bohnaker (24:14):
Yeah, I'm going to say May for the first rate
cut and then I think we will gettwo more rate cuts throughout
the remainder of 2024.
No, obviously there's a ton ofuncertainty around that there's.
We've been surprised many, manytimes before and will continue
to be right, and so everyone'sgoing to be overreactive and I
think the lesson for me is thatdon't focus so much on that.
(24:38):
We know that lower rates arecoming.
We know that they're not goingdown to zero.
We're just going to have toride the wave as it comes and
there are going to be some moreups and downs.
I think that the key thing toremember is real estate is real
estate.
It's a real asset.
It's not entirely dependentsingularly on where interest
(24:59):
rates are and when they move.
There's the generate income forowners and provide services for
customers.
So I think really that's whatinvestors are getting back to,
getting back to the core valuethat our industry provides.
Rachel Oh (25:16):
Right.
So then interest rates go down.
We see a couple.
What do you think is going tohappen?
Do you think we're just goingto go big again?
Are we going to see recordvaluations and lots of risk
activity?
What do you think?
No, no, no.
James Bohnaker (25:34):
I don't, at least not right away.
Eventually we're a cyclicalindustry, so eventually it'll
happen.
But I think that there's goingto be opportunistic investors
out there who get in early andmake a ton of money and do
really well for themselves.
But I think that the vastmajority of how this is going to
play out is going to be more ofa gradual, stepwise recovery
(25:58):
throughout 2024, because thereis still uncertainty out there.
Even once we get that rate cut,like I said, it's not going to
be shooting back up to the moonright away.
I think that there's a lot ofquestions about certainly the
fundamentals and investors willget back out there, and 2024 is
(26:19):
going to be the start of that.
But I expect much strongeractivity as we get into next
year.
Rachel Oh (26:24):
Yeah, yeah, no, I see that, okay.
So what do you think then?
Biggest opportunities forcommercial real estate investors
right now, like if you were toput again on your soothsayer
fortune teller, whatever whatwould you tell investors?
James Bohnaker (26:38):
What would you tell your parents?
Rachel Oh (26:40):
Where should they put their money?
Where is that?
Again, the biggestopportunities right now, today.
James Bohnaker (26:45):
So in terms of like sectors, Sectors and then,
yeah, sectors.
Rachel Oh (26:50):
Let's focus on sectors.
James Bohnaker (26:51):
Yeah.
So I think that this might be alittle bit surprising or
controversial, but I'm going tosay open air suburban retail
centers and so like malls orgrocery anchored retail centers,
not malls necessarily.
No, got it Grocery anchoredretail because the fundamentals
(27:13):
are exceptionally strong.
If you look at rental growthoccupancy.
Think you got to remember aboutretail too.
It's been out of favor for solong, yeah, we haven't been
building more of it, no, and thesituation now is that all of
these companies that started outonline, I think, pick all birds
, bird, dogs.
(27:33):
Yeah, I don't know why all ofthem have bird in the name, but
that's besides the point.
Rachel Oh (27:38):
Wings.
They winged the fly, I don'tknow.
James Bohnaker (27:41):
That's right.
So they're recognizing that inorder to grow their business and
be profitable, they need to bein physical retail locations,
because it's so expensive tobuild out a whole supply chain
and reach customers purelyonline, and so that's expanded
the scope of the types ofcompanies that want to be there.
Also, everyone's more engagedin services Think about fitness
(28:05):
centers are doing really well,right now.
Beauty, health and wellness.
Restaurants, for the most part,are doing well and people, so
we're social creatures, and so Ithink that Well, finally
getting back to social creatures, we're getting back to it.
Yeah, we were hibernating solong.
Rachel Oh (28:21):
Okay.
James Bohnaker (28:23):
Yeah, we're getting back, and so the nature
of your retail center orexperience center has really
just changed to cater to thatsocial aspect, and I think
that's a really big opportunity.
Longer term, just given thatthe retail has been out of favor
, it's relatively cheap comparedto other asset types.
Rachel Oh (28:43):
Yeah, and then earlier you all said mentioned.
I mean people all need a placeto live, right, like if you look
at, I mean there's no longerrenters just by necessity, but
you have that whole renter bychoice.
So at the end of the day,people still need a place to
live.
And I mean not to say this is acoined term, but we're
literally creating a generationof renters, because I just don't
(29:04):
see the brisk first time homebuying.
I think that previousgenerations would say would you
agree or disagree?
James Bohnaker (29:10):
Yeah, 100%.
And everyone kind of expectedthe home buying market single
family homes to become moreaffordable because interest
rates were higher.
That hasn't happened at all.
Rachel Oh (29:21):
Right.
James Bohnaker (29:22):
Homes are more unaffordable than they ever have
been, and then layer on themortgage expense that's higher
than it's been in decades andit's really tough for a lot of
people, especially your firsttime home buyers.
And so absolutely I thinkyou're spot on with that
Multi-family and especiallyspecialized types of housing.
I mentioned senior housingbefore.
(29:44):
Student housing is picking upsteam, so I think there's a ton
of opportunity out there tocater to this next generation,
but unfortunately it seems likeit's going to continue to have a
tough time affording homes theway they are today.
Rachel Oh (29:59):
I know, it's just not like it used to be.
Is it Sad commentary oropportunity?
Let's just focus on theopportunity.
James Bohnaker (30:06):
Opportunity.
That's right.
Opportunity for everyone.
Rachel Oh (30:10):
So OK, well, James, I just want to thank you for
joining us today, for yourinsights, and I honestly
probably didn't think that youwould say open-air malls or
grocery anchor would be your bigpredictions.
I'm going to go look upsomething, maybe buy a Walmart
somewhere or something, but no,I appreciate all your time and
(30:30):
joining us today for yourinsights.
I'm hoping maybe you'll join ussometime in the future again.
Would you do that, james?
James Bohnaker (30:35):
I would love to do that.
Thank you so much for having me.
Rachel Oh (30:38):
Awesome.
Thanks, james.
Everybody, thank you so muchfor joining us for this week's
episode of Peaks and Portfoliospresented to you by Peck
Companies.
Have a great day, everybody.
Welcome to Peaks and Portfolios, presented by PEG
Companies, your go-to podcastfor all things commercial real
estate investment.
I'm Rachel oh, and togetherwe're diving into current events
, trends, issues andopportunities impacting the CRE
investment space, fromdissecting the latest market
moves to sharing insights ontoday's commercial real estate
(00:26):
landscape.
It's time to maximizeportfolios here in the peaks of
the Mountain West the and beyond.
Okay, welcome everybody.
So glad you're here with ustoday for Peaks and Portfolios.
For today's episode, we will bediscussing, I think, the one
topic that is at the forefrontof everyone's mind in commercial
(00:48):
real estate investment andprobably the rest of the economy
, and that is when will the Fedpivot?
I feel exceptionally privilegedto introduce you today to our
guest joining us from Boston,senior economist James Bohnaker.
James, welcome.
James Bohnaker (01:04):
Hi Rachel.
Thanks so much for having me.
Rachel Oh (01:06):
Oh my gosh.
Thank you so much for joiningus.
We so appreciate it.
How is everything?
How is everything going on inBoston these days?
It's cold, right, or is it warm?
Bomb me, are you on the beach?
What are you doing?
James Bohnaker (01:15):
Everything is good here in Boston.
It's pretty cold out still, asit is most of the year here, but
we got some sunny skies today,so that's all you can ask for.
Rachel Oh (01:24):
Oh, nice, nice, I need to make my way out there.
Okay, well, you know we are soexcited to have you join us, if
you're good.
I wanted to boast about you alittle bit.
James Bonnaker is a senioreconomist within Cushman and
Wakefield's Global Think Tank.
You have an extensive backgroundas a global macroeconomist and
you've provided strategicconsulting for many of the
(01:45):
world's largest investment banksand corporations, while in
previous roles at Moody'sAnalytics and S&P Global, it
looks like you've also worked atCBRE, where you were a leading
member of the firm's Economicand Real Estate Forecasting
Platform.
And wow, I'm so grateful thatyou're joining us because it
looks like you've been featuredin leading news publications,
including the Wall StreetJournal, new York Times,
(02:05):
washington Post and NPR'sMarketplace.
So we wanted to bring you intoday because we know that, with
everything you are seeing andkeeping polls on I mean not to
say that you're clairvoyant, butprobably definitely a little
bit more than most we're hopingthat you can help us to better
read through the tea leaves witha little more certainty and
help predict perhaps the mostimportant question every
(02:27):
commercial real estate investorout there is asking right now,
and that's when will the Fedpivot?
James Bohnaker (02:32):
Absolutely.
Yeah, we'll just stop thecrystal ball a little bit here
today, but there is a ton ofuncertainty out there.
I think that if you just thinkback over the past year or two
years, we've gone through thiscrazy cycle of inflation and
rising interest rates for thefirst time really and a few
decades right and so it's just adifferent environment than
(02:53):
we've been used to over the pastfew years, and so it's been an
up and down ride, but hopefullylooking at some more clarity
here as we enter the mid part of2024.
Rachel Oh (03:04):
Yeah.
So I mean we're a couple ofmonths in and just curious, like
what we've seen thus far in theUS, our economic performance
thus far.
What do you expect maybe willhappen over the next 12 months?
James Bohnaker (03:17):
Yeah, I think really the talk of the day has
kind of been this soft landingscenario right, where inflation
comes down and the Fed can lowerinterest rates and everyone's
happy and people are hiring andinvesting and the commercial
real estate market finally canget back on its feet from an
investment perspective.
(03:38):
And that's obviously the idealscenario, right, that's what we
want to happen.
I think that in my view thoughyou're not to say that
eventually we won't get there,but I think it's going to be a
bumpier ride then is beingadvertised, at least in a lot of
the recent media narrativeright Around, this kind of
perfect disinflation whereeverything sort of goes
(03:58):
according to plan, and you'veseen that with some of the data
points that have come out right.
Just think back to late in 2023, we had 10-year treasury yields
almost at 5% for a little bitthere, and then sentiment
changes very quickly almost bythe week or by the day,
depending on the data that we'regetting out.
So I think it's going to be abit of an uncomfortable ride, at
(04:20):
least for the first half of theyear, but ultimately it is
clear to me in that the Fedwants to lower interest rates.
The question about timing andmagnitude is obviously a big one
, but at least we have a littlemore clarity that finally we're
done with this rate-hiking cycle, which is great news.
Rachel Oh (04:39):
Yeah, I was kind of looking at things.
It looks like since March of2022, we have seen 11 rate hikes
, which it seems to have helped.
Right, it looks like the annualinflation rate is now down to
what?
3.1% in January that's what I'mseeing, has been reported, and
I don't think I fully realizefrom a high of 9.1% of June of
(04:59):
2022.
But I'm also seeing that themost recent January number that
3.1, is probably higher than I'mcurious.
Do you think it's higher thanyou had expected?
And I don't know how that'sgoing to impact the Fed's goal
to driving it down to 2%.
Is that going to further delay?
Because what in the lastmeeting they said, at least for
(05:19):
another six months, they weren'tgoing to do anything.
James Bohnaker (05:21):
Yeah, well, so on the inflation front, right,
we hit 9% at the worst of it in2022.
And you have to think back to,kind of the reasons and what was
going on in the world at thatpoint, right, so we had, at the
start of 2022, russia invadedUkraine, caused disruption in
energy markets, caused gasprices to spike, et cetera, and
(05:43):
we also had this dynamic, whichnone of us have ever experienced
before, where coming off of theawful, awful pandemic, but the
economic implications of thatwere that people were finally
going out and traveling andspending money and doing all of
these things that stimulatedemand across the economy.
But meanwhile, the supply sidemanufacturing, freight,
(06:09):
logistics, all the things thatget those goods where they need
to go we're still extremely logjammed, right, you know,
overseas, especially in China,et cetera, massive supply chain
disruptions, and so you know,econ 101 tells you that when
that happens, you get a massiveprice spike.
Right, and that's what we sawand, as we've kind of, you know,
(06:30):
moved past that phase.
Rachel Oh (06:32):
Right, those were more or less temporary
disruptions, although theylasted for quite some time I was
going to say I don't seetemporary in our business Is the
costs are good, costs are high.
James Bohnaker (06:42):
Yeah, absolutely .
And what I should say whilethere has been some relief,
right, you never see the pricescome down.
They just have stopped risingas fast.
So, you know better than risingat the rate they were.
But the situation we're in now,and have been, is that other
types of services and goods arestill increasing in price at
(07:03):
fairly rapid rates.
Rachel Oh (07:04):
Like you look at rental rates for apartments and
things like that, which is goodfor us, I will say yeah, but I
mean everything's expensive tobuild now.
So you know, net wise, is itreally yield?
It doesn't right.
Things aren't penciling thesame.
James Bohnaker (07:18):
Yeah, that's absolutely true.
And you know, just to kind offinish that thought on inflation
, you know the easy part is done.
You know we went from 9% to 3%,right, and the question now is
how much actual price pressureis still in the economy.
And if you look at, you know,job growth and the labor market,
or you look at consumerspending and just it feels like
(07:41):
the economy is still a littlebit too hot, you know, at least
in the eyes of the FederalReserve, and they want inflation
not only to be in that 2.5%rate but that it's going to be
over the longer run, because,you know, no one likes inflation
, right, right, I mean we all goto the grocery store and the
food store.
Rachel Oh (08:02):
Oh my gosh, $5 for milk.
James Bohnaker (08:04):
Yeah, not happy, absolutely.
It's not a healthy way for youreconomy to be in over the
longer term, right, and so theyhave to be confident in it.
And so what you were getting atwith that January number, you
know it's hotter than a lot ofpeople were expecting and shifts
the narrative right.
So, you know, rate cuts, ratecuts, rate cuts to uh-oh.
(08:26):
Should we still be worriedabout this?
And I think that's what you'reseeing with some of the
messaging coming out of J-PALand the Fed was like, hey, we
need to be a little bit carefulabout this.
Rachel Oh (08:35):
Yeah, Well, okay, so I mean, based on all that and
everything that you know andsort of cycles and whatnot, what
I mean what is your baselineexpectation, Like, what do you
think we're looking at?
James Bohnaker (08:49):
Yeah.
So from the Fed, I think that,well, we have to talk about the
economy first and sort of thosedemands that I talked about,
because we're ultimately whatthe Fed wants is an economy
that's not too hot and not toocold.
And you know I mentioned someof the you know the positives in
the economy, such as consumerspending, algra but there's also
(09:09):
some weak points too, and soyou know we're starting to see,
if you will get kind ofunderlined, some of those
headline indicators.
You know we've got risingdelinquencies, corporate debt is
rising, interest expensepayments are much higher than
they were a few years ago.
So ultimately those things aregoing to affect, you know, the
(09:30):
way people shop and how muchthey spend and how businesses
behave as well, and so I thinkwe're starting to see a little
bit more slack in the labormarket.
If you look at, you know, thenumber of people who are working
part-time because they can'tfind full-time work, that's up.
If you're looking at, the numberof people who are multiple job
holders because they need to getby with these higher prices,
(09:52):
higher expenses, that's up aswell.
So I think there's someweakness in the labor market,
and how that plays out isultimately going to be one of
the factors that the Fed focuseson.
You know, the last couple ofyears it's been all about
inflation, but the other side ofthat is you don't want to keep
interest rates so high that itcrushes the economy.
Nobody wants that.
(10:13):
So really it's finding thatfine line and I think that
ultimately, over the course ofthe next few months here we're
going to enter that sort oflevel playing field where the
Fed is looking at all of thisdata saying, all right, we're
not too concerned aboutinflation as much as we were,
we're thinking more about thehealth of the economy, the
(10:33):
American people, making surethat everyone has jobs, and
we're going to pull our foot offthe gas a little bit.
Rachel Oh (10:40):
Unemployment's low right we're at like three
something.
I think the last number hadthem.
It's still really low.
James Bohnaker (10:45):
Yeah, it's still really low.
It's still about 3.7% andthat's pretty close to a 50, 60
year low.
So thing you have to keep inmind, though that's a bit of a
lagging indicator.
If you look at, you know,across the different sectors of
the economy, right, we've seenvery strong job growth in areas
(11:05):
like healthcare and leisure andhospitality, and even the
government has been hiring morestrongly, but those sectors were
ones that were the last to kindof come out of the pandemic.
If you kind of break it down alittle bit more, you know,
you're seeing more layoffsacross manufacturing, logistics,
retail, even some pockets inthe tech sector and financial
(11:28):
sector, and so I think thatultimately, we're kind of
nearing that point where we willstart to see a little bit
slower job growth or perhapseven job loss.
Rachel Oh (11:37):
Well, I wish they would start going back to the
restaurants because I feel likemy service level in the
restaurants has plummeted.
But anyway, we started kind oflike talking about this earlier.
But you know labor market, allthat is super important to us.
So you know what we do incommercial real estate.
We're doing a lot ofconstruction projects, we're
doing a lot of development andas I look at our underwriting
(11:58):
and different things, I meanlabor is extremely expensive.
I mean costs, construction costs, the price of materials and
things seem to have gone backdown and I think getting things
over from abroad has helped, butlabor costs certainly have
skyrocketed and as a result,it's put pressure on, you know,
the cost of development and thenwith interest rates tied along,
(12:23):
that deals just aren'thappening the same way they used
to.
So, like for the commercialreal estate investor and groups
like ours, like where is theirrelief?
I mean, is there a reliefinside or is this just the new
normal?
And keep in mind my parents arealways saying you don't even
know double digit interest ratesto start complaining.
So, but you know, but it's ournew norm and like.
(12:43):
So just curious, what are yourthoughts there?
James Bohnaker (12:45):
Yeah, I mean, I think in some ways it is.
I think that you know, as I wassaying, prices never, never
seem to go down, right, at leastnot as much as they go up, and
so you know it takes time toadjust to that, right, if you've
got higher costs.
And then you know, on the laborside, it seems that it's just
harder and harder, especially inthose skilled trades, right,
not just construction, but youknow, advanced manufacturing,
(13:09):
things like that.
It seems like we, even beforethe pandemic, right, it seemed
everyone was complaining aboutlack of lack of skilled labor
and that seems to have worsened,you know, following the
pandemic.
And so you know there's somepolicy questions aside with that
how do you get more peopleengaged in the trades?
But leave that aside for themoment.
I think that the real stickingpoint here is the debt markets,
(13:31):
right?
So you kind of you kind ofthink about, you know we've
talked about the Fed and I thinkthat's really, you know, very
critical milestone.
That I think needs to be passedis just, all right, rates
aren't going higher and we havesome clarity that it will be
going down again, but it seemslike we're essentially at right
now, right, you know, barringany kind of unforeseen events.
(13:52):
But so that's great, you knowthat's good.
But I think that there's moreto the story than that.
It's not just all right, theFed's cutting everyone.
Let's get out there and partyright.
Because they're not going backdown to zero.
Rachel Oh (14:05):
That's the reality of it.
Right, those days are gone.
Those days are gone.
James Bohnaker (14:10):
Those days are gone and that's okay.
I mean, obviously you know weall love zero interest rates
forever, but that period is overfor sure.
And so you know, real estatedevelopment, whatever part of
the industry you're in, can bevery healthy, function extremely
well in, you know, a four orfive percent interest rate
environment.
There's no question about that.
(14:31):
You know it happens in the 90sand even higher levels in the
80s, right, yeah, and so we'vehit that first milestone, right
when we have clarity on interestrates.
But you know, the debt marketshave to respond as well, and
there's questions aboutcommercial real estate.
Right now, there's almost everytime you pick up the Wall
Street Journal or CNBC orwhatever news outlet you read,
(14:54):
there's some negative storyabout our industry.
And the reality is that youknow it's much more nuanced than
that and there's a lot of, youknow, good narratives within our
sector.
But you know there's a lot ofbad press and with those issues
that have happened in thebanking industry go back to 2023
.
Remember, we had a few regionalbank failures which didn't
(15:16):
really have, didn't really haveanything to do with commercial
real estate, but it just, youknow, raised the scrutiny across
the board for all types oflenders of, hey, we should watch
out for this.
You know there's going to bedistress, defaults, et cetera,
et cetera.
It's not a good time to lend,and so I think that narrative,
you know, will follow suit oncerates start to come down.
(15:36):
Yeah, but you know it justtakes time, and then you know.
The third thing is, we've gotthis, you know, in the
transaction market, right, it'sjust what is the property worth?
You know, certainly we've gotthe REIT markets.
You can look to those for someguidance because they trade, you
know, on exchanges and you cansee the ticker moving by the
minute.
But in reality, in the privatecommercial real estate market
(15:58):
it's, you know, highly liquid.
You don't have to sell aproperty at, in most cases,
right, you can hold it for aslong as you want.
So we just don't have clarityon you know what, what the price
of an asset is worth.
And I think we're getting there, I think we will get there.
But it's really those, thosesecond two pieces, you know, the
liquidity and debt markets andthe price discovery, which I
(16:21):
think you're going to just takea little bit of time.
Rachel Oh (16:23):
Yeah, yeah, no, I see that and you know you're
touching on that a little bit.
So we're constantly looking atreal estate investments and
where to put our dollars and youknow where our investors may be
interested in.
I mean, let's talk about thisdebt, this debt maturities
coming down.
I keep hearing billions,trillions.
I mean, I have no idea what thereal number is and we see it as
opportunity.
But just curious your thoughtson that Because you know, I
(16:45):
think I think the last thing Iwrote was like 2.7 trillion
maybe coming due between now and2027, 2028.
James Bohnaker (16:51):
That sounds about right.
Yeah, it's about 500 billion ayear on average.
So, yeah, that sounds aboutright, and the thing is, though,
that's not really that abnormal.
It's a little bit higher thanyou know different periods.
The real issue is that it's theunderlying fundamentals of you
know what's going on with thoseproperties, right?
And?
(17:11):
so you know you look for sectorsthat are having issues right
now not to not to slam theoffice market, but that's really
where the big concern is.
And now you're starting to seeas these, you know, debts are
coming to you're having justdifficulty refinancing and you
know more owners are giving backthe keys to lenders but you
(17:33):
know some, some lenders don'twant the properties and so it
creates this kind of dysfunctionin the market.
I will say that you know we arestarting to see, you know,
rising delinquencies, defaults,primarily in the office sector,
but also across the board too,which actually, you know the
silver lining of that is that ithelps with that price discovery
(17:54):
piece, right when you have kindof a forced sale.
You know you're not able torefine it, so I'm just going to
get rid of this for whateverit's worth, and so I think
that's the silver lining thatwe're really kind of finding our
footing on.
You know what is an asset worthin today's interest rate
environment, with fundamentalsthe way they are across
different sectors?
Rachel Oh (18:15):
Yeah, yeah, no, like I said, for us, we see it as
opportunity, so we're kind ofwaiting in the wind.
But I'll you know, be honest,it's not like we've seen, like
other than office, which we'renot really interested in.
We haven't seen the onslaughtthat I think that we thought we
would, but maybe that'll happen,maybe that'll come through, so
okay, that's the key word.
James Bohnaker (18:33):
That's the key word, though, I think, is
opportunity, right?
Yes, so there's a period ofdislocation in the market.
I mean thing is there's a tonof capital out there
specifically targeting realestate.
I know you guys are out therecoming, coming through potential
deals and really looking forthat diamond in the rough, and
(18:54):
you know they're going to peopleare going to find those, and
it's going to happen veryquickly.
I think you know, sort of once,once people get more
comfortable with with where weare.
Rachel Oh (19:03):
Yeah, yeah, no, I think that's true, you know.
I know that our podcast isn'tthe only.
I mean, you're pretty active inthe different publications I
had mentioned and I've seen someof your recent commentary, so
let's shift gears just a littlebit.
Just curious which sectors thenin commercial real estate do
you think will outperform oreven underperform over the next
couple years?
James Bohnaker (19:23):
Yeah, that's a great question.
I think that you know, let'sstart with with just a longer
term.
I think that, ultimately, theway I think about it is you
don't want to overcomplicate it,right?
Think about what.
What do people need?
Right, they need somewhere tolive.
Multimultipan is going to dowell.
We're seeing more activity andsingle family rentals and really
a lot of these alternative realestate sectors, you know data
(19:46):
centers.
Yeah, I agree.
I mean, think about how oftenwe're on our phones, and now AI
comes into the mix and there'sso much computing power needed.
And you know, senior housing,for you know we've got a rapidly
aging population and a lot ofthose people don't want to be,
(20:07):
you know, live their final yearsin their own home.
They need assistance andmedical attention and things
like that.
And so I think that really justlooking at the demographics and
the economics really paint agood picture, you know, for
those sectors.
And then you know industrial aswell, going through a bit of a
bump in the road A little bumpnow.
yeah, A little bump.
(20:27):
That's okay, though I mean,that's a good thing.
Right, there wasn't enough ofit, so we built more, and you
know it'll take time to absorbthat, but I think there's a lot
of opportunity out there acrossmany sectors.
Yeah, you know, the one commonthread that we're seeing that
I'm most excited about is justthe integration of, you know,
(20:51):
retail and hospitality intodifferent types of assets, right
, I think you?
I think ultimately, we get to apoint where everything is
amenitized right, with, you know, that type of service that the
people crave, you know, whenthey travel or go shopping.
We want that all the time.
You know, people aren't justunimodal nowadays.
Rachel Oh (21:13):
They're not just what .
We're not that might not be aword.
New word by James Bonnakerunimodal it's the opposite of
bimodal.
Gotcha, okay, yeah, no, tell meabout that.
I think you're coming ontosomething that I'm not sure I'm
completely following, so tell me, dive into that a little more.
(21:33):
Help me to understand that.
James Bohnaker (21:34):
Well, the way I think about it is you know,
think about, you know e-commerceor think about hybrid work.
Okay, you know the things we'velearned from that is you don't
you know to purchase, you know ashirt or suit or whatever
you're going out to get.
You don't need to be physicallythere in order to do that.
(21:56):
You don't need to visit aretail destination.
Sure, you can do that on yourphone while you're at work,
while you're at a coffee shopacross the country right, and so
that's those types ofdisruptions, you know, obviously
change the nature of realestate and why you know the
value of the place, yeah, and soI think I think similarly about
(22:17):
, you know, this rise in hybridwork, which obviously came about
for necessary reasons, but itis absolutely sticking right.
If you don't need to go to theoffice, you're not going to, but
if you want to go to the office, because there's, you know, a
great fitness center and you cango out to work, to the rooftop
(22:38):
bar with your colleagues afterwork, there's other reasons, and
so you know my point there isthat you know you're not just
thinking about one thing orgoing to a place for a singular
reason, and so the result ofthat and I think where we see
this, you know born out in someof the statistics, you know,
places that are immunitized, notjust office buildings or retail
(23:01):
centers, but I think you'regoing to see more of that across
all types of real estate, wherethere's just more of a mixed
use element to essentially everytype of real estate.
Rachel Oh (23:11):
Yeah, that totally makes sense, Like I spent a lot
of my career in LA and there'sthat flagship Westfield Mall
there in Tintry City and I meanthat's just a play land.
Now right, it's not justshopping.
You've got that Italy thing,you've got Equinox.
I mean, you don't even have toleave there, Everything's taken
care of.
So, okay, gotcha, that makessense.
James Bohnaker (23:33):
Uh, huh, build more play land.
Rachel Oh (23:35):
Yeah, yeah, wow, I like that, okay so, okay.
So we've touched on a fewdifferent things.
You know, it sounds like thereare, there's opportunities.
I think I keep hearing, likeyou know, people want to survive
till 2025.
But what you're saying, I feellike there's far more
opportunities in 2024 with thedifferent things that we
(23:56):
mentioned.
But let's kind of circle backto, like you know, where we
first started this.
The Fed made some announcements.
We see economic indicatorswhere they are now.
Are we talking June?
Are we talking May?
Are we talking?
What's your prediction, james?
What do you think is going tohappen?
James Bohnaker (24:14):
Yeah, I'm going to say May for the first rate
cut and then I think we will gettwo more rate cuts throughout
the remainder of 2024.
No, obviously there's a ton ofuncertainty around that there's.
We've been surprised many, manytimes before and will continue
to be right, and so everyone'sgoing to be overreactive and I
think the lesson for me is thatdon't focus so much on that.
(24:38):
We know that lower rates arecoming.
We know that they're not goingdown to zero.
We're just going to have toride the wave as it comes and
there are going to be some moreups and downs.
I think that the key thing toremember is real estate is real
estate.
It's a real asset.
It's not entirely dependentsingularly on where interest
(24:59):
rates are and when they move.
There's the generate income forowners and provide services for
customers.
So I think really that's whatinvestors are getting back to,
getting back to the core valuethat our industry provides.
Rachel Oh (25:16):
Right.
So then interest rates go down.
We see a couple.
What do you think is going tohappen?
Do you think we're just goingto go big again?
Are we going to see recordvaluations and lots of risk
activity?
What do you think?
No, no, no.
James Bohnaker (25:34):
I don't, at least not right away.
Eventually we're a cyclicalindustry, so eventually it'll
happen.
But I think that there's goingto be opportunistic investors
out there who get in early andmake a ton of money and do
really well for themselves.
But I think that the vastmajority of how this is going to
play out is going to be more ofa gradual, stepwise recovery
(25:58):
throughout 2024, because thereis still uncertainty out there.
Even once we get that rate cut,like I said, it's not going to
be shooting back up to the moonright away.
I think that there's a lot ofquestions about certainly the
fundamentals and investors willget back out there, and 2024 is
(26:19):
going to be the start of that.
But I expect much strongeractivity as we get into next
year.
Rachel Oh (26:24):
Yeah, yeah, no, I see that, okay.
So what do you think then?
Biggest opportunities forcommercial real estate investors
right now, like if you were toput again on your soothsayer
fortune teller, whatever whatwould you tell investors?
James Bohnaker (26:38):
What would you tell your parents?
Rachel Oh (26:40):
Where should they put their money?
Where is that?
Again, the biggestopportunities right now, today.
James Bohnaker (26:45):
So in terms of like sectors, Sectors and then,
yeah, sectors.
Rachel Oh (26:50):
Let's focus on sectors.
James Bohnaker (26:51):
Yeah.
So I think that this might be alittle bit surprising or
controversial, but I'm going tosay open air suburban retail
centers and so like malls orgrocery anchored retail centers,
not malls necessarily.
No, got it Grocery anchoredretail because the fundamentals
(27:13):
are exceptionally strong.
If you look at rental growthoccupancy.
Think you got to remember aboutretail too.
It's been out of favor for solong, yeah, we haven't been
building more of it, no, and thesituation now is that all of
these companies that started outonline, I think, pick all birds
, bird, dogs.
(27:33):
Yeah, I don't know why all ofthem have bird in the name, but
that's besides the point.
Rachel Oh (27:38):
Wings.
They winged the fly, I don'tknow.
James Bohnaker (27:41):
That's right.
So they're recognizing that inorder to grow their business and
be profitable, they need to bein physical retail locations,
because it's so expensive tobuild out a whole supply chain
and reach customers purelyonline, and so that's expanded
the scope of the types ofcompanies that want to be there.
Also, everyone's more engagedin services Think about fitness
(28:05):
centers are doing really well,right now.
Beauty, health and wellness.
Restaurants, for the most part,are doing well and people, so
we're social creatures, and so Ithink that Well, finally
getting back to social creatures, we're getting back to it.
Yeah, we were hibernating solong.
Rachel Oh (28:21):
Okay.
James Bohnaker (28:23):
Yeah, we're getting back, and so the nature
of your retail center orexperience center has really
just changed to cater to thatsocial aspect, and I think
that's a really big opportunity.
Longer term, just given thatthe retail has been out of favor
, it's relatively cheap comparedto other asset types.
Rachel Oh (28:43):
Yeah, and then earlier you all said mentioned.
I mean people all need a placeto live, right, like if you look
at, I mean there's no longerrenters just by necessity, but
you have that whole renter bychoice.
So at the end of the day,people still need a place to
live.
And I mean not to say this is acoined term, but we're
literally creating a generationof renters, because I just don't
(29:04):
see the brisk first time homebuying.
I think that previousgenerations would say would you
agree or disagree?
James Bohnaker (29:10):
Yeah, 100%.
And everyone kind of expectedthe home buying market single
family homes to become moreaffordable because interest
rates were higher.
That hasn't happened at all.
Rachel Oh (29:21):
Right.
James Bohnaker (29:22):
Homes are more unaffordable than they ever have
been, and then layer on themortgage expense that's higher
than it's been in decades andit's really tough for a lot of
people, especially your firsttime home buyers.
And so absolutely I thinkyou're spot on with that
Multi-family and especiallyspecialized types of housing.
I mentioned senior housingbefore.
(29:44):
Student housing is picking upsteam, so I think there's a ton
of opportunity out there tocater to this next generation,
but unfortunately it seems likeit's going to continue to have a
tough time affording homes theway they are today.
Rachel Oh (29:59):
I know, it's just not like it used to be.
Is it Sad commentary oropportunity?
Let's just focus on theopportunity.
James Bohnaker (30:06):
Opportunity.
That's right.
Opportunity for everyone.
Rachel Oh (30:10):
So OK, well, James, I just want to thank you for
joining us today, for yourinsights, and I honestly
probably didn't think that youwould say open-air malls or
grocery anchor would be your bigpredictions.
I'm going to go look upsomething, maybe buy a Walmart
somewhere or something, but no,I appreciate all your time and
(30:30):
joining us today for yourinsights.
I'm hoping maybe you'll join ussometime in the future again.
Would you do that, james?
James Bohnaker (30:35):
I would love to do that.
Thank you so much for having me.
Rachel Oh (30:38):
Awesome.
Thanks, james.
Everybody, thank you so muchfor joining us for this week's
episode of Peaks and Portfoliospresented to you by Peck
Companies.
Have a great day, everybody.
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy And Charlamagne Tha God!
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.