You're in commercial real estate? What's that like right now?

"How much time you got?" 

High level thoughts below:

1. It's sector dependent. Downtown office space has a rough road in front of it. Strong cities will recover but there will be casualties - mostly owners who have debt coming due. Industrial has never been stronger. Retail - especially in suburban markets is solid. Very little selling (thanks interest rates) but leasing fundamentals are strong and that's key.

2. The interest rate and spread (difference between fed money and where a bank will loan you money) increased so dramatically that the world basically stopped. My two cents are interest rates should have risen sooner than they did and far slower. Sellers think what they own has a 2019 value tagged to it and buyers are incapable of spending that much. The outcome - NOTHING is selling. 

3. In the office sector, we're going to see the greatest value reset in history. Banks will take back keys, they will sell at a loss, new owners will take over office space at a basis 50-80% below 2019 values. Rental rates in turn will drop dramatically. I expect this to happen to over 70% of downtown office buildings... ACROSS THE COUNTRY. 

4. While painful for many, downtown cities will become affordable again and that may be what is necessary to draw companies back. This will not happen overnight - We're looking at a 5-10 year rebuild.

5. Cities will need to recalibrate how they collect taxes. We have catastrophic loss of building value and income. Look no further than Chicago for an example of what other cities likely face (40+ buildings in receivership and a city running in a $500M+ deficit going into 2024). 

By point 3, I've usually lost my audience at the cocktail party as they consider whether UW can run the table this year in the Pac-12. I don't blame them...