Moody's Talks - Inside Economics - The Sages of CRE

Episode Date: March 31, 2026

Moody's commercial real estate experts Tom LaSalvia and Kevin Fagan join Mark, Marisa, and Cris to take stock of where CRE markets stand today. Tom and Kevin go beyond the headlines to unpack the nuances driving the office market's uneven recovery, multifamily's supply-driven growing pains, and retail's quiet comeback. Their verdict: measured confidence — provided the broader economy cooperates. As a bonus, Tom reveals the philosopher alter ego hiding inside each host. Spoiler alert: not everyone gets to be Socrates. Guests: Thomas LaSalvia and Kevin Fagan Email us at [e-mail] for more info about the Moody's Summit '26 Conference in San Diego Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics Follow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Chris DeReedies and Marissa Dina Talley. How, guys? Hi, Mark. Hi, Mark. Any good news? I'm just looking at my screen, and I see nothing but red everywhere.

I mean, right? It thinks turn around. I'm waiting for President Trump to come up with something to turn this around before the weekend hits. No? What's going on? Just red, huh? Maybe. TSA

shootdown that's good news actually possibly but I don't know that's going to happen before the weekend really but

oh no it may not but I think I'm playing to Nashville on Monday do you think I'll be okay

maybe by then maybe by then yeah I'll still take them a while to get the engine running right but it'll move in the right direction

yeah well have you guys have you guys flown at all during this period? No. No, but I was just talking to your brother and Dante and they were swapping TSA line horror stories with each other. Oh, really? Yeah. In Philly, too. Carl was saying, so. Oh, is that right? Yeah. Okay, well, hopefully over the weekend. Maybe I want to drive to Nashville.

Pardon me? Maybe you want to drive to Nashville. You like driving, right? I do love driving. I love driving. I could do it. I could do it. How long do you think is it from Philly to Nashville? How long do you think that would take me? I don't know. Someone said, that's chat GPT. I don't know, eight hours, 10 hours. Eight hours. Yeah, probably a day. Yeah, I could do that. I could definitely do that. No problem. You got nothing going out on Sunday, right? So yeah. That's true. Hey, guys, we're going to talk about commercial real estate, CRE. And we got two great guests. other folks, our colleagues, Tom LaSalvia and Kevin Fagan,

hey guys, thanks for joining. Joy to be here. Thanks for having us. Did you say joy to be here? Joy to be here. I love that. I love the way he said that. I love that enthusiasm. Everyone else says, thank you, thank you for having me on.

He says, joy to be here. All right. Yeah. So Tom, we're going to begin with you. Tell us a little bit about yourself. Not a lot. I don't want to know a lot, but just a little bit. All right.

Well, I'm the head of our commercial real estate economics team within your group. So thank you for your leadership. Basically, I'm an urban guy. I like this guy. I like this. I like this guy. I'm an urban economist by academics. I love studying location choice, why you or I choose where to live, either by region, metro, or even within.

right, in particular neighborhood choice. That's my favorite thing. So if we want to talk submarkets or why downtown this is doing better than suburban that, I'm your guy. Interestingly, my other part interests, many of them, I'm a avid golfer. And second, more academically, I love philosophy. Oh. Any particular philosopher?

Well, I was actually thinking about you guys before I came on the podcast, and I was trying to relate great philosophers to the three of you. And so, Mark, obviously, a Socrates, Plato, you know, you got to be right there at the upper echelon. Socrates wise, you know, he questioned everything. I really like this guy. I think he's more of a niche guy these days. Well, what I was going to say is he's willing to put himself out there and get himself in trouble. Just as Socrates did, right? So I have a feeling there's something there. Wasn't Socrates knocked off? Wasn't he knocked off? Yes, yes, he was. Being too hubris, though.

So maybe not you quite. But yeah, he kind of put himself out there too much. Chris, I have you as more of a stoic, right? You don't get too too high or too low. So Marcus Aurelius, right? Oh, yeah. And Marissa, Marissa, I had you peg. as a rationalist, a Descartes.

Oh, I like that. So after the dark age, Marissa, you know, give us light and get us thinking again. So, all right. So that's one of my main interests, especially in the last couple of years. Where am I, Tom? Tom, here, who. Yeah, where's Kevin? Where's Kevin in that?

Oh, that's a really good one. Kevin Fagan. I'm going to put you in that world of a stoic as well, right? Especially in the last year or so, I feel like, you know, in previous, you might have gotten a little high, a little low. But last year, I feel this real balanced nature to you. Oh, that's just because I'm dead inside. So Tom, you were an academic before you came to Moody's?

Yes. Where'd you teach? Yes, the College of William and Mary. And what an amazing few years there. Fabulous students and a brilliant campus. goodness, one of the best I've ever been to. And who, which philosopher do you fashion yourself as? If I'm going to go with somebody a little different, I'm going to maybe say a Hume.

Right? So Hume took on what Descartes was saying and bringing that new, you know, kind of coming out of that dark age and then brought in the idea that we have. these urges, preferences, you know, that have to be accounted for when we're thinking about how we think rationally, right? They enter into that equation. And so I like to think that I kind of bring a lot of thoughts about preference, especially kind of tying this my two academic interests together. When I'm thinking about residential choices, right, I really try to think of us as beings that are driven by a real preference structure. that enter into our more rational thinking or cost-benefit analysis.

My friend. My friend. Life is irrational. There is like the only reason I am where I am is because I was born here. So it's like, you know, that's, that's, that's, but you could move. You could move, right? No. Are you kidding?

No. No. I got family everywhere. My wife would, there's no way. I can move. Family is a huge determinant, right? And that will never change in the model. Very hard to model out, too, by the way.

way to see where family is. Yeah, it is. It's hard to get that data, although we have, we have some emerging data on this. And Chris, you probably have some thoughts and, or insights on to have family. Don't, don't, don't, don't, just push Chris in another direction. Because once Chris gets going, I can't. Right. Right. Right. Fair enough. Be careful. Hey, Kevin, uh, tell us, don't tell me you're into philosophy too. Are you, Kevin? No. Not to the level of, not to the level of Hume. I don't. think. Yeah, but just the general.

So you've made with Bootsie's a while, haven't you? I have about 16 years now. Yeah. The old school vet at this point. You were in the rating agency. I know that. Yeah, I was heading research on the CNBS team for a while and then came over to the dark side about three, almost, I guess, four years ago now.

Geez. Dark side, wow. Ouch. Oh, geez. Well, that's what they call it over there. Is that right? I didn't know that. They call us the dark sun. Yeah, well, it's kind of like, you know, kind of going from the public to the private sector, academia to the private sector, you know, there's a little bit of a highfalutinous of like, you know, we're true to analyses where people on the other side are selling, you know. Oh, I see. I see. I got it. We're all selling, Kevin. Yeah. I know. They're all selling all the time. That's all we're doing. That's all we're doing.

That's all we're doing. That's all we're. Hey, Kevin, I got a test for you. Ready? This is the stats game. If you follow the podcast. I do follow the podcast, Mark. Five percent.

What's nine percent? Nine percent. Is it enough to do with CRE? It does indeed. In fact, it's like in your backyard. It's where you came from. You even mentioned the words. That actually threw me. I'm not sure what I mentioned.

CMBS delinquency rate, 9%. 9% delinquency rate. CNBs being commercial mortgage-backed security, so, you know, securitized commercial real estate loans, 9%. I didn't, you know, I was in preparation for my conversation with you because I wanted to stump you with a statistic. I was looking at this. Is this the highest delinquency rate since the GFC, the global financial crisis, on the wake of the GFC. Did you know that? Yeah. I mean, it's, well, look, I mean, the two biggest sectors of CNBS by far are office and

office and retail. And so you, so in both of those sectors, you know, you got office dragging it up very most obviously, but then in retail, you still have some like lingering mall like properties that have issues. So it's, we're going to get into this a little bit, but, you know, that's another example of pretty, it's a pretty extreme fragmentation of the market. So that nine percent, kind of doesn't really mean anything because everything else is doing quite well and delinquency rates are actually going the other direction. So it's a confusing market that you can't paint with a broad brush right now. I'd argue, though, really quick here that multifamily's delinquency rate above 5% is pretty disturbing.

Even though it's stabilized and maybe is starting to come down a little bit, I think there's trouble there. Well, let's come back to that. Let's come back to that. And before we get to the CNBS delinquency and other delinquency rates and credit quality in general, I thought we could look at the CRA market through the prism of CRE prices, commercial estate values and prices. Because we've been doing a lot of work in that area and estimating a price indices at a very granular regional level and a property type level. And I don't know if we want to get into the wheat here in terms of the methodology, but it's pretty cool methodology. But the thing that has struck me from a macroeconomic perspective is prices are down a lot.

You know, they peaked back in 2022, early 2022 before the Fed started to jack up interest rates. The Fed jacked up interest rates, long-term rates jumped. And since then, prices have, they fell very sharply in the wake of that. And since then, they've been basically flat to down. And even today, if you look at all commercial real estate across all the property types, office, industrial, retail, multi-family, I think we're down somewhere between 15, 20 percent from the peak. And that feels like a very serious correction in an asset price. And by the way, it's the only until this recent, you know, risk-off environment because of the war in Iran. This is the only asset class that I guess maybe Bitcoin would be the other where you've seen a correction in price.

Do I have that right, Kevin? Did I, are the prices down? I mean, you've observed that too, that kind of price declines? At the composite of all different segments of real estate, I don't actually know if it's 15%. I mean, I'll tell you precisely. I'll tell you precisely. I mean, how did you do the weighted average, though? Like, how did you?

Well, I get the evaluated index, total commercial real estate, from the peak back in 2022 to now we're probably down 15% in aggregate across all property types. Just straight average. I'm even surprising you. That's what it feels like. Well, it's just not typical for real estate people to kind of like lump real estate all into one big, you know, asset. class because it's it's it's I mean I've said this before before I think but you know commercial real

estate is the physical manifestation of the entire economy okay you know so like it's kind of like saying the economy is down by 15 percent so I guess you could do that with like sort of a GDP measure but it doesn't really it doesn't really exist in in CRE you know but I think that number would kind of make sense if you straight average between it but you know I mean on one hand you have Like at the bottom of the stack, you have institutional office, which would be like big, you know, $50 million plus trades of office. And the peak to trough there was 50%. You know, I mean, that was extreme. It's since come up about 4% off of that. And actually, and over the last year, it's been, you know, it has almost 4% of growth over the last year. You know, so there's some movement positive there coming as it finds a floor, you know. And then institutional apartment was, one of the big segments that took a big hit too. It's down 25% piqued the trough and really hasn't come back at all. And as a matter of fact, it's kind of heading back the wrong direction for a number of reasons.

But then, you know, you kind of have the other end of it where a significant, you know, portion of these markets had no decline whatsoever. All they did was just continue to go up, especially among the kind of the small cap end of the market. And again, there's a lot of reasons for that. know when you want to go into some weeds here, but when you have that kind of range, you know, there's a completely different reality existing for investors and lenders in different segments of the market, you know. But to your point, yes, there was certainly some significant downward pressure from what happened with the Fed to the degree that the markets actually, in terms of

price return, became more correlated, just in terms of whether they decelerated their price growth or whether they actually went negative, they became more correlated than they ever have since we've been able to measure it in the last three decades. So, you know, CRE is a very, you know, leverage dependent asset class. If you think of other investments, like you buy stocks, you can't get a 70 LTV, and that's not just par for the course, you know. So just a 70% LTV loan to value ratio. So it's highly levered.

So what your, my interpretation of what you're saying, just to make sure. or I've got it right. And so the listener can digest what you're saying is you're saying, yes, prices are down. And actually, prices are down across the board. There's significant correlation across property types and markets. But the other thing you're saying is that there's a, when you look under the hood, at more detail across markets regionally and across different aspects of the property types. You know, you mentioned small cap, you know, there's different ways of cutting the markets up.

You see this wide dispersion in price performance that some places are getting crushed, completely hammered, some places not so much, and some places are actually doing just fine. That's right. Do I have that roughly right? It's exactly right. It is, it's remarkable what's going on right now, actually. It's, it's the, it's the most correlation that we've ever seen in terms of prices, kind of either getting subdued and then more recently, you know, having some hopefulness except for the last 48 hours, I guess you would say we might be going back the other direction in terms of, you know, reference rates going up. But, you know, so on one hand, you have this correlation in price. prices. So if you were to do a modern portfolio theory portfolio and you put your correlations, then this asset class would still seem very correlated. Like you could, like in other words, it would suggest you can't pick points amongst all these segments of CRE and have a diversified basket of investments. But that's, you know, highly criticized measure, by the way.

But because it doesn't take into account price dispersion. And there's a really common saying of, in that world of you can't eat correlation. And it kind of comes into credit modeling as well. It's like this hypothetical thing, but it doesn't reflect reality in terms of wealth management. So my point is this dispersion of prices, you had like industrial. It did not have any decline during 2022, 2023,

none. All it had was recovery. And so it, went positive, but it just went less positive than it was before. So there's correlation there with Office that took a big hit because it moved together in the same direction. But the value reality is completely utterly different to the point that we've never seen this wide of price dispersion across all these different segments of CRE in history. We have not even close. So on one hand, we've seen the highest correlation by far, this, because of, you know, the kind of macro pressure

of interest rates that's explaining about half of the move of pricing when usually it's more like 25, 30 percent. So on one hand, you have that kind of record thing going on. And the other hand, you have this massive dispersion happening. So it's a really, really remarkable market right now. The fragmentation is a big story among market players. And the explanation for the high level of correlation, high degree of correlation is you're saying is interest rates. These are, again, highly levered investments. So if interest rates rise, which they did when the Fed jacked up rates back a few years ago, that puts downward pressure on, because now your cost of capital is higher, you have to pay more interest on the mortgage loan you're going to get to buy that property,

that therefore the price declines as a result of that. You see that. You see that. kind of, and that's across the board because properties are highly levered across the board. That's why you have that correlation. Correct. And another maybe just very slightly inside baseball way to put it is that when you're buying an asset, you don't think of it just as like your unlevered return. It's very important to think about your levered return. Right.

And so your levered return gets eaten up when your cost of capital goes up. Got it. And so that I get. So explain to me why you see this, this extraordinary, unprecedented, I think you called it, dispersion in prices across regions and across property type. Why is that going on? Yeah. So in part, it's triggered by the interest rate pressure. You know, so if like there's fragility, you know, you'll get that fragility amplified by rate. pressure. But really, there's just, we're in a, we're in this, we're in this almost like generational. I mean, I'm sure that, you know, in, you know, decades from now, we'll look back and have a name for this age that we're in. Because, you know, whether it's the AI age or whatever, you know, but there's, there's this shift in so many things. There's, you know, migration patterns across the

United States, immigration patterns into the United States. There's, obviously there's major workforce disruption, you know, how you work and the advent of hybrid working. We've kind of settled about retail a little bit, although during the pandemic, you know, e-commerce went way up, but now we've sort of settled into this getting closer to what you'd call Omnichannel. There's different, there's a lot of different capital providers in the market right now, so there's different players on the sort of capital market side. And in an industrial, you think about supply chains are completely different now and how those work. And you know, you get these random shifts like, okay, clear height doesn't matter. It's power to the building that really matters.

And that's a major driver of value delta. And so we're kind of shifting. We have all of these things that are pretty major big theme shifts all happening at once. And so you get a structural fragmentation on top of the amplification of the interest rate pressure. So that's what's causing the price dispersion, even though you have that kind of strong correlates, it's a little bit of a mind-bending kind of thing. You know, even though you have that correlation, you have this total fragmentation. It's like the big bang, you know. Everything got exploded, but they're all going different directions, you know.

I just want to sum something up that the way I think about this situation and why there's all this dispersion. I think about it from there's cyclical pressures. there's structural pressures, and then there's political pressures. On the cyclical side, multifamily and industrial, tremendous supply growth due to very low interest rates in the early pandemic days. It set off a tremendous amount of green lighting of projects, tons of supply growth. We still have a hangover there. So I think that's important.

We'll get back to that. Then structural, Kevin did a really good job describing it, right? So structurally, we do have shifts regarding e-commerce that are affecting retail and industrial. We have hybrid work and remote work affecting office. We have AI now causing displacement of workers affecting office. And I would say those are more from that structural perspective. And then politically, we have trade policy uncertainty. We also have longer trend trade policy changes, right?

We go back to Trump 1.0. and his approach to China at the time was to try to get us to be less reliant on Chinese trade. And it actually has worked, right? We look at China's share of imports and they're down dramatically. And while some of that has been matched by increases in Vietnam, Taiwan, et cetera, and Asia, so they still flow through the West Coast. We see an uptick in Mexican trade, Mexican imports. And that's causing changes to the trade flows in the U.S., which changes industrial warehousing optimal location choices.

And so you get that kind of cyclical, all the supply growth going on. You get that structural from more of just changing of society in a lot of ways and technology. And then you get politically driven, which goes in many ways all the way back to Trump 1.0. and now it's even being exacerbated now. So because I am an economist, a macro guy, I always try to, it always comes back to the economy for me. So if you told me five years ago that CRE prices in aggregate are going to be down 15%.

And this huge dispersion, which means we're going to see some massive price to clients peak the trough, you know, down 20, down 25, down 30, down 35. I just said, and I think a lot of economists were saying back a few years ago, we got a big problem. We got a macroeconomic problem because that decline in price is going to cause defaults on these loans. That's going to undermine the financial system more broadly. I mentioned CNBS, as, you know, as case in point, commercial mortgage-backed securities. That will then in turn impair the ability of these financial institutions to extend credit

more broadly and you got a broader macroeconomic problem. And in fact, I think it was dubbed a few years ago, the so-called doom loop. Remember the doom loop? You know, you get into this kind of doom loop. Never happened. It never happened. So why? Why didn't that happen? Tom, did you have a perspective on that? I think Kevin has a deeper perspective on that. I can talk about maybe an urban doom loop and why those didn't quite happen. I'm excited to get into that if we have time. But I think Kevin, and from the banking perspective, the lending perspective, you have a good take on this. Yeah, around the time, I think that you wrote about that, Mark, I did as well.

I don't know if you ever caught mine, but the headline was, you know, a Sierra Doom Loop or headline hype, you know, and I think that I kind of tried to make that. You're not saying that I was the hype. Are you, Kevin? No, not exactly, but, you know, I think we had divergent opinions, which is fine.

Did we? Didn't we? Okay. Yeah. Yeah. And like I, you know, look, that's one of the things I actually really appreciate about being your group. It's, it's fun to kind of talk mess to each other a little bit and nobody because your feelings hurt. But I was right about that. I don't know. I don't know. Tom's really good at, I'm Socrates to Tom. You know, so. Anyway, go ahead. So yeah. So what happened? What, you know, why didn't this become more of a macroeconomic issue, do you think? Yeah, it's interesting. I mean, if you think about it in a historical. context, the GFC really, well, first, well, yeah, to the GFC, I think really there was some interesting lessons learned about how you can navigate pretty extreme stress. And so a lot of servicers and lenders got some good practice in extending and pretending, which is kind of like the negative correlation. But the actual way to think about the extent to pretend is that, you know, you get to acknowledge the fact that there's these sort of structural lags and inelasticities

in commercial real estate that allow it to not whipsaw like a lot of markets do. You know, so you have long-term tenants and spaces that kind of smooth out revenues for the most part. You have the ability to extend. First of all, sellers don't have to sell if they don't want to unless they have a maturity coming up, which has been an issue. And if you you have maturities coming up, you can provide an extension, you know, but you get a lot of information about that property and the borrower at the time you do that extension and you're really kind of doing a put option, you know, like you're thinking about the value past what's happening right now. So what is happening right now? We have, once again, just a bizarre market.

You know, every single downturn in real estate has always been a fundamentals driven downturn, more or less. I mean, you could probably nitpick a couple things and say like the 87 thing was driven by tax policy. But like generally speaking, it's a fundamentals kind of driven thing. Too much supply and not enough demand. And just, yeah. And Kevin, just in quick sidebar. When you say fundamental, you mean absorption, economics, not enough.

You're losing jobs. People aren't spending money in retail stores, that kind of thing. That's what you're saying. That's exactly right. Yes. Yeah, right. And that kind of is where the issues for the sector stems from, and that's why it goes. And historically, every cycle looks like this, Mark.

You have demand starts to go up, prices start to go up. The rents justify new construction. Construction takes a little while. Developers are very rosy. And they're racing to get their product online. And then right as demand starts to go down, meaning like, the employment's going to go down. There's some kind of macroeconomic disruption.

They're delivering a glut of new supply. That's what every cycle has looked like for CRE. I mean, I guess you could set aside COVID, but every cycle but COVID and this last one with the Fed reichite. So you had interest rates come up, which depressed values to a big varying degree. And, you know, there's some existential questions like are these offices or in the in some cases, hotels or even apartments are they obsolete? You know, like, so there's this big kind of like dispersion going on. But like you can look through that if you're a lender.

You can look through that if you're an owner and wait and say, okay, I have good fundamentals basically right now. You know, you're seeing the delinquencies for the properties that don't have good fundamentals. But generally speaking, a lot of them are fine. you know, they're fine. They don't have to sell it at a giant discount right now. And so that provides stability to this market. That's why we don't see a big crash. It's because there's a bit of a weight going on right now. Now, that being said, if there was a major economic disruption right now

that did cause some demand pressure on top of, you know, the capital market side pressure, that would be pretty disastrous for the market. But it's been able to essentially go through this because it wasn't a fundamental driven downturn, which is very, very unique. Well, that gets us to the current point in time in the war in Iran. And that may be, that's a pretty, if I were in CRA, I might be a little nervous about that, right? Because it's, it's a negative supply shock that means weaker growth, going back to your fundamentals, meaning we could lose jobs, consumers can pull back on spending. And at the same time, it's driving up inflation and interest rates, the 10-year treasury bond,

has gone from, you know, south of Ford to last I looked was now four and a half percent moving up 50 basis points. So that is, that feels like an environment if it were to continue, that might be a problem. Tom, would you agree with that statement? Completely. I get this question a lot at a presentation or client event, you know, what keeps you up at night? And that stagflation and type environment keeps me up at night. We can't handle higher interest rates due to higher inflation at the same time that employment starts to deteriorate more than it is right now. You know, and you look at some of these property types. I was mentioning industrial earlier, so much explosive supply side growth. There's still a hangover there. And so if that demand dries up more than it does, you're going to be

stuck with 10, 12, 15 percent vacancy rates for quite a bit longer and absolutely no rent growth can come out of that. And so income dries up. At the same time, interest rates are high, and it makes refinancing a lot trickier. Multifamily is same way. Multifamily at the national level, we haven't seen rent growth in three years, right? Meaningful rent growth anyway in three years. And while there's great dispersion around that, and there are certain markets that have done reasonably well, reasonably well is still not keeping up with the pace of inflation, generally, when it comes to rent growth. And so you're going to have a significant problem. problem refinancing. And Kevin, correct me if I'm wrong, but I think 2026 we're projecting

just under 900 billion in terms of maturities and still significantly high numbers in 27, 28. And so I think that stankflation scenario should keep CRE people up at night. Yeah. And I guess that goes back to extend and pretend. I mean, if you've extended and pretended, And this feels like we were saying the banks, which are major sources of leverage to the CRA market, have pushed out these maturities and have been working with the lenders. Thinking fundamentals are fine, I can manage through the higher interest rates and get to the other side. At some point, that doesn't work, right? I mean, is that when we could, if this continues for very long, could that be the potential catalyst for more defaults and delinquencies in the banking system? Kevin, is that a concern or not? Are you still pretty saying one about that?

It's a huge concern. I mean, it's definitely, you know, I mean, so it's 875 billion. I think banks, if I remember correctly, are, so it's $5 trillion total outstanding of debt in CRA and banks are almost $4 trillion. I think. Five trillion. I think three. Well, I think I looked at the data this morning, so I got an advantage. So three trillion in CRA debt in the banking system, one trillion in multifamily. And then you got about $650,700 billion in CMBS. So that's the...

Oh, yeah, this is, I know what's happening here. This is a bit of a... This happens a lot. And back in the banking crisis, this happened as well. But like what gets counted as part of, you know, CRE? in the system is not what typical CRE people will do. Yeah, yeah, yeah, yeah, yeah. Right.

Some of it actually really isn't CRE, basically, like stabilized CRE. But anyway, the point is, yes, there's a lot of maturing debt out there. I think it's about, it's somewhere between 10 and 15% of outstanding loans for stabilized CRE loans for banks that are maturing in 2026. And that wall is not a wall. It's a movable partition. You know, it has been moving forward for a few years now. You know, but like one of the good things about it, actually, like really positive things,

is that you do get a lot of workouts over those years. And you can shed a lot of the kind of, you know, most obvious worst stuff as you go along. And so, you know, what's left is are things that you've assessed that still have a pulse. you know, and yes, the pulse is fading and could essentially flatline if we, you know, have some more disruption on the fundamental side for sure. And then that would cause a lot of issues. But I'm just trying to say a little bit of a silver lining here is that we have been able to have a lot of workouts, recapitalizations, some just straight up liquidations to get rid of the bad stuff. But there's a lot sitting out there right now that would be really problematic to have to deal with in a kind of a fundamentals and capital market,

to put it in Tom's parlance, the stagflation, that would be an extremely bad scenario for first ERE. And you know, look, it's kind of frustrating because we were coming out of this, the doldrums of this in 2024. Like, we had a really good kind of return towards normalcy with momentum. And then we came into 2025 and it was just kind of disarray. And, And I think there was a lot of hopefulness that 2026 would be different. You know, it was kind of like, okay, 2025 was a weird shock. Maybe we can kind of get past this in 2026. And there was a lot of expectations at the beginning of year, 50 basis points of rate cut.

And now there's a lot of queasiness about that seeming almost impossible at this point. We had our webinar a month ago. And we were much more bullish on the moment. market for 2026 a month ago at this time, right, both from those fundamentals perspective and the capital market perspective. So things can change quite quickly. Well, I want to, I know I want to keep this a little shorter, this particular podcast, but maybe we can bring it home on a kind of a more optimistic note. I mean, assuming, because what we just discussed was really kind of a risk to our baseline kind of worldview. And that is that,

that we're going to get this, this, what's going on in Iran will be resolved here relatively quickly. Oil prices will come back in. Things will settle. The economy should be okay. It's going to be diminished by what's happened, even if this were to end today or tomorrow, it's still going to be diminished, but we'll make our way through. And CRE will kind of navigate through and we'll start to see prices increase. I mean, but bring us, bring us home on a more optimistic note, because I know that's kind of where you're landing that you think that's the more likely scenario. Yeah, still the baseline is that more optimistic scenario where the supply side pressures are decreasing, right? New supply growth is decelerating and it will for the next couple of years.

And that will very much help multifamily and industrial where fundamentals of demand are still reasonably strong. Now, you guys tell me more, but from an employer, perspective, we're not expecting any significant deterioration in our baseline forecast. So as long as that holds up reasonably well, right? And as long as we still see economic growth, right? I don't know. What are your latest 26, 27 GDP growth numbers? Well, it's coming in. So we're going to do our April forecast. Probably for Q4, Q4 2026 is going to come in on the low two. So it's still pause, you know, still kind of sort of try and growth, you know. Yeah, we're close to potential, right? So if we're close to potential, an employment holds up reasonably well, then demand for multifamily, industrial, retail, and even office holds up reasonably well, right? We are over the office apocalypse. We can discontinue the use of that word from a sectoral perspective, which is a really good

positive. There are obsolete offices, so we got to work out maybe 15 to 20% of that stock that's probably obsolete and needs a new lease on life in some way. But overall, we know that we want offices for at least the near term. And so, you know, I think those types of even structural or evolutionary factors we're getting clarity on, which once we have that clarity, that's when leasing velocity can pick back up, right? It's when we were lacking that clarity on the economy or lacking that clarity in terms of the evolutionary factors, right? Think back to retail 10 years ago. We thought e-commerce was just going to completely decimate all of retail. And so now that we have clarity that we still need retail, experiential retail, grocery anchored retail, luxury retail,

still some dollar stores. And, you know, on that part of the, the scale. And so with that clarity, we can have leasing now that we know what's going on. And I think that's where still our baseline is, is from those evolutionary perspectives when it comes to CRE, how we actually use our buildings and our land. We have better knowledge on now than we did two years ago, which that's what gives me hope that we still have demand. We have leasing activity as long as the economy holds up reasonably well. Hey, Kevin, I know you and Tom have been working together a long time. Do you tend to be more optimistic or less optimistic than Tom? Or is it not important? You know, I'm a Libra and I am not into astrology at all. But man, if it isn't true for me, like I really enjoy balance. And I, you know, like when I had to write about, you know, office in 2020 on the, you know, to kind of develop a house view, I was way more on the positive side at that point, you know. So I think that like right now, you know, the negative side is really this kind of risk of rates definitely going up, you know.

But if you set that aside, what's happening in the market right now at the very bottom, the things that got hit the hardest is institutional office and institutional apartment. Now, institutional office is clearly seeing lots of green shoots. You know, you're seeing price floors in Manhattan of around 30-ish percent if they do take a hit. but a ton of them are trading at premiums right now. And you're actually seeing more and more competition on deals. They're trading tighter on the lending side. Like the sofa spread starts to get smaller and smaller as the deals get bid. Like that's a really positive sign for office that you're kind of finding your way in the dark. I've heard a lot of people say it feels like the days of, you know, when pricing started to happen on lifestyle centers for retail and everybody kind of realized, oh, there really is an apocalypse.

we know where the floor is. That's happening in office. Every one of our Manhattan submarkets in office had positive net absorption, positive rent growth in 2025. How about that? That's pretty cool. Every one of those submarkets in Manhattan, all seven of them. And I think that on the institutional apartment side, just to wrap it, Mark,

all you really have to do is just look at what Blackstone is doing. Blackstone is leaning hard into institutional. office and even though our apartment and even though it hasn't like come back yet. It's got a good fundamental story. It had to burn through burn off some things that happened in this downturn, like really low cap rates and adjusting to the new norms dealing with new supply of class A office. But bottom line is they see the longer term future there. An investment is going into that and the market generally follows Blackstone. Well, okay, on that note, I thought one would, I thought you'd be more or less optimistic, but you'd

both sound reasonably optimistic about the outlook. You're assuming rates don't keep going up. Assuming rates don't keep going up. Yeah. Yeah. We're going to push you on what the probabilities of some of these economic scenarios are, and that will dictate a lot of where our feelings go. Well, that's where the next podcast comes in.

So we're going to go on to the next podcast here and talk about what's going on with the war and what it might mean for the economy and interest rates and potential recession risks. But I want to thank you guys for coming on. It was really a pleasure. We've got to have you back on. And really do appreciate the Socrates thing. I feel pretty good about that. What was Chris again?

Who was he? Stoic. He was a stoic. Marcus Aurelius, though. Think about that. I mean, come on. It doesn't want to be Marcus Aurelius. You said Marissa was Hugh?

A balance between Hume, maybe Descartes. Yeah, I thought it was a little more, you know, Again, that rationalist coming out of the dark age is, you know, being able to really go back to thinking, thinking through fundamentals. Wasn't it the part who said, I think, therefore I am? Yes. Yeah, very good, Mark. Yes. You only, how, how did that come from?

What? You, you, you, you, you, because. Oh, gosh. No, no, wait, I suppose because you're seeing. No? No. That's so funny. Anyway, thanks, guys.

It was really a pleasure to have you on. We'll have you on back soon. And with that, dear, we are going to call this a podcast. Take care now.