#91 - Interest Rates, Submarkets, and CRE's Future with Spencer Levy

[00:00:00] Welcome back to another very special week of Passive Income Pilots. Ryan, how you doing man?

[00:00:06] I'm doing great. We're wrapping up the year and we're screaming into two years almost to Passive Income Pilots.

[00:00:13] That's so fun.

[00:00:14] Yeah, yeah.

[00:00:14] That's right. Everybody asked me how long you've been doing your podcast and I just look at the episode number and I say that number of weeks.

[00:00:20] Yeah, that number of weeks. Yeah, exactly. Yeah, we're well over, we're gonna be over 90 episodes.

[00:00:26] Very soon.

[00:00:27] Which is fantastic. So thanks to our listeners and if you're listening, join our Facebook group, Passive Income Pilots.

[00:00:32] Send us questions that you have. Ask at PassiveIncomePilots.com.

[00:00:36] And we'd love to have a pilot on the show. You know, hey, if you're out there doing a deal or if you're out there investing in real estate or you had something that you learned on the show and you're actually applying it and using it, we'd love to have you on the show.

[00:00:49] It'd be a lot of fun. So just don't be shy. Come on on. And you know, you can tell the listeners how you've taken effective action with the education you've learned.

[00:00:57] On Passive Income Pilots. So I'd like to know how much tax dollars we've saved.

[00:01:02] We should do that. We should do like a little thermometer.

[00:01:04] That's an idea for the conference. I think when we when we have our conference in 2025, we're going to put a board on the back wall.

[00:01:11] You're going to be able to write on it like I saved X amount in taxes.

[00:01:14] I love it. We're saving taxes all across this land.

[00:01:17] That's right.

[00:01:18] Every day.

[00:01:20] That's right.

[00:01:21] Well, you know, the person that we're bringing on today, I heard him speak about five years ago.

[00:01:25] He's actually come into our Spartan headquarters and spoke to our team about the economy and strategy and the storage asset class.

[00:01:32] But Spencer Levy is an amazing CBRE vice president.

[00:01:37] And I'll let Tate give the whole bio so I don't screw that up.

[00:01:40] But he knows everything about the economy, commercial real estate.

[00:01:43] He's got a podcast.

[00:01:44] He travels.

[00:01:46] He did over 130 speaking engagements in 2024.

[00:01:50] This guy is like the guy from CBRE that knows what's going on in real estate.

[00:01:54] So that's who we're interviewing today.

[00:01:56] Tate. Yeah, let's go into the background of this guy.

[00:01:57] Unbelievable.

[00:01:58] We're honored to have him.

[00:02:00] Spencer Levy is the global client strategist and senior economic advisor for CBRE.

[00:02:05] And if you don't know what CBRE is, I'm sure you've seen the science places.

[00:02:08] They have over 500 offices in over 100 countries, 130,000 people that work for them.

[00:02:16] And about 90 of the Fortune 100 companies in the world are clients of theirs.

[00:02:22] They are one of the largest commercial real estate brokerage houses in the world.

[00:02:28] And Spencer is just an unbelievable individual.

[00:02:32] He focuses on client engagement, public facing activities, economics,

[00:02:37] deeply entrenched in the commercial real estate world.

[00:02:40] So we had an amazing conversation with him.

[00:02:42] I'm excited to get into it.

[00:02:43] Yeah.

[00:02:44] And we went into some things like cap rate and we talked a lot about the capital markets.

[00:02:49] And that might be something that you might want to Google or research just so you can follow along.

[00:02:54] But Tate, do you want to add anything on that before we jump into the show?

[00:02:56] Yeah.

[00:02:57] You know, for anybody that isn't familiar with how cap rates work, just so that we're a little primer here so that you're not,

[00:03:02] it's not going over your head during the show.

[00:03:05] So the cap rate is the multiple at which commercial real estate is trading.

[00:03:10] So if you were to buy a building for a million dollars, 100% cash, no debt, and you strip out your expenses and you were to make a net annual income, net annual profit on that building of, let's say, $100,000.

[00:03:26] That is one-tenth of the $1 million value.

[00:03:30] That would be a 10% cap rate.

[00:03:33] That could also be expressed as a 10X multiple, which is how businesses trade.

[00:03:37] Businesses trade on a multiple of income.

[00:03:39] And it's expressed the exact same way in commercial real estate, except that it's a percentage.

[00:03:44] You're talking about the percentage of income versus the value.

[00:03:48] So if you made $50,000 over the year on that million dollar building, that would be a 5% cap rate or a 20X multiple.

[00:03:56] So just keep that math in your head going forward so that you understand what a cap rate is.

[00:04:01] We'll get into the show.

[00:04:03] Let's get into it.

[00:04:07] Welcome to Passive Income Pilots, where pilots upgrade their money.

[00:04:12] This is the definitive source for personal finance and investment tactics for aviators.

[00:04:18] We interview world-renowned experts and share these lessons with the flying community.

[00:04:23] So if you're ready for practical knowledge and insights, let's roll.

[00:04:27] Spencer Levy, welcome to the show.

[00:04:30] Thank you for having me.

[00:04:31] Well, Spencer, you have done quite a bit.

[00:04:34] You travel a lot all over the place.

[00:04:35] And you see a lot in the real estate space, especially with your involvement in CBRE.

[00:04:41] Why don't you just give a little bit about your background and what you do and your focuses right now?

[00:04:46] Sure.

[00:04:46] So what I do, title is Global Client Strategist, Senior Economic Advisor.

[00:04:51] It's a fancy title that says, I meet with every client I can on both the occupier and the investor side.

[00:04:58] All over the world, try to understand what's going on in their world.

[00:05:01] And I try to advise them on what might make their world better.

[00:05:05] Whether investor, where they can get the best return.

[00:05:08] For occupiers, where they can get the best pool of labor.

[00:05:12] But otherwise, using various mediums to do that.

[00:05:15] And the medium I like to do the best is good old-fashioned face-to-face meetings in an office.

[00:05:20] But I also do a tremendous amount of stage work.

[00:05:23] I just checked with my team a minute ago.

[00:05:26] How many presentations did I give this year?

[00:05:28] It was 120.

[00:05:29] Oh my gosh.

[00:05:30] And that doesn't count the number of weekly take episodes we taped this year, which is over 50 or 50-ish, which is our podcast.

[00:05:39] And then I'm very active on social media, LinkedIn, and a variety of other forums, including but not limited to teaching public speaking and other things.

[00:05:49] So very active, but primarily meeting with the biggest owner-occupier clients in the world.

[00:05:54] So that's amazing.

[00:05:55] In the last year, as we wrap up 2024, and all those engagements and speaking events and things that you've gone to and cities you've visited,

[00:06:04] what's been your top few takeaways with where we kind of stand with commercial real estate right now?

[00:06:09] Well, let me start with a quote from a famous political advisor.

[00:06:14] James Carville, who used to advise Bill Clinton.

[00:06:17] He was his political advisor when he became president.

[00:06:20] He was at an event I was at, and he said this a couple times in the press as well.

[00:06:24] He said, he was asked, if you could be anybody, who would you be?

[00:06:27] Would you be a professional ballplayer?

[00:06:29] Would you be the president?

[00:06:31] Would you be the king?

[00:06:32] He said, no.

[00:06:34] I would be the bond market because then I would be the most powerful force in the universe.

[00:06:39] And I think if I were to make any one overriding observation about real estate, it would be that.

[00:06:46] Everything we do, and I can go into all of the trends, macro, micro, really boil down to the bond market has really altered the state of play, spoiled the party, so to speak.

[00:06:57] Because the bond market, in terms of how fast the rates went up from 2022 to today, even though they're softening a bit, has really chilled the market.

[00:07:09] The sales volume is still very low.

[00:07:11] Debt and structured finance volume is improving, but it's choppy because the 10-year keeps rearing its ugly head up more often than not.

[00:07:19] But that is the biggest macro trend.

[00:07:21] And then we can talk about the other macro trends that matter too, longer term.

[00:07:25] Now, this interest rate trend, I'd like to say it's short term, but this short term seems to last a lot longer, and our forecast is for it to last a lot longer.

[00:07:33] But the other mega trends that I talk about from a pure nuts and bolts or bricks and mortar standpoint are the reshoring of manufacturing,

[00:07:42] which I think is bringing real estate back into secondary markets that need multifamily retail and other uses.

[00:07:50] The other is the shift of the nexus of economic activity within cities from what we used to call, we still call, I guess, CBD, central business districts,

[00:07:59] into these live-work-play neighborhoods, and very often outside of the cities into suburban environments that create virtual live-work-play neighborhoods,

[00:08:07] because it's easier to build there.

[00:08:08] So I would say those are the three mega trends, interest rates being number one, two, and three,

[00:08:15] and number four being the reshoring of manufacturing,

[00:08:18] number five, the movement of economic activity to these live-work-play neighborhoods.

[00:08:23] Spencer, can I jump in for the audience?

[00:08:25] You know, we have a lot of newer listeners who may be new to the commercial real estate space,

[00:08:29] and they've seen the stock market go on a tear since COVID and may not be as familiar with the bloodbath that it's really been in commercial real estate

[00:08:39] that's been quite a dichotomy from the way that the public markets have performed in public securities, right?

[00:08:46] So can you explain the interplay between interest rates and commercial real estate,

[00:08:50] sort of where we are here today versus where we were in, say, 2008,

[00:08:54] and how different the environments are, sort of how we got here,

[00:08:58] and then I'd love to talk about the macro before we jump into some of those mega trends.

[00:09:03] Sure. So the basic math of real estate isn't that different than the basic math of bonds.

[00:09:09] And in a bond, you're looking to get a yield.

[00:09:12] The yield you're looking to get in a bond, today you can get a high-quality municipal bond,

[00:09:17] which is tax-free at 5% or 6%.

[00:09:19] You can get a high-quality AAA bond at probably 7% or 8% today.

[00:09:22] And then the question you have to ask yourself if you're going to invest in real estate,

[00:09:27] should I get a yield that's higher than that or lower than that to buy something that is going to have different characteristics?

[00:09:38] So, for instance, if you're going to buy a top-tier apartment building today,

[00:09:42] you're probably going to pay around a 6% cap rate.

[00:09:46] At the peak of the market, back in 2021-2, you're probably paying 375, right?

[00:09:53] So a 225 basis point move.

[00:09:54] You say, well, that's not that much.

[00:09:56] Well, it's enormous because the way these things work is when you buy a building at a,

[00:10:02] say, a 10-cap, which is like an old-fashioned concept,

[00:10:05] you don't see a whole lot of them anymore except in a distressed office now.

[00:10:08] But if you were to buy a building at a 10-cap, you're basically paying 10 times the income from the building for your purchase price.

[00:10:15] If you're buying it at a 5-cap, you're paying it 20 times multiple on the same cash flow.

[00:10:22] So the basic math behind commercial real estate is a function of the yield you're getting versus fixed income securities.

[00:10:31] But there is another wrinkle here, and the other wrinkle is you're getting that up front,

[00:10:36] but then over time, you get other things.

[00:10:38] So first of all, your yield can go up over time.

[00:10:41] It could also go down, of course, if you improve the operations of the building.

[00:10:45] And the second thing you can get over time is in a favorable capital markets environment,

[00:10:50] the cap rates can decline.

[00:10:52] So you can sell it for more than you went in even if the income never changes.

[00:10:55] So you get a bond-like instrument with the growth element of income over time

[00:11:01] and then the capital markets benefit of a potentially better cap rate environment on the back end.

[00:11:08] Excellent.

[00:11:08] So where does that put us today?

[00:11:10] Interest rates rose at their fastest rate in history in 21 and 22.

[00:11:15] What did that do to the commercial real estate markets?

[00:11:18] And as a function of that, where are we today?

[00:11:21] And I think it's important to define fastest rate in history

[00:11:25] fastest rate is the percentage rise, not the absolute rise,

[00:11:29] because you saw a bigger absolute rise coming out of the inflationary environment of the late 70s

[00:11:36] where interest rates went from 7% or 8% to 18% when they tried to break,

[00:11:41] or Paul Volcker tried to break the back of inflation.

[00:11:44] This time, we saw interest rates go from zero in the short end of the curve to around 5.5%.

[00:11:50] And on the long end of the curve, they went from under 1% to where they sit

[00:11:54] as we take this today, a little over 4.4%.

[00:11:56] So the percentage rise is enormous.

[00:12:01] And that's what shocked the market.

[00:12:03] The shocking rapidness of the change, high percentage of the change, chilled sales volume.

[00:12:11] And to your point, I don't like to use the word bloodbath, but it was,

[00:12:15] that's probably an apt term for certain segments of the market, notably class B office,

[00:12:19] where values have collapsed.

[00:12:21] But in other segments of the market, we did see values declines in some cases significantly,

[00:12:26] but not to that level.

[00:12:27] We think that the overall value declines in some of the better assets in the market,

[00:12:31] the industrial asset probably peaked, declined with 25%.

[00:12:35] Now it's probably less than that.

[00:12:37] Multifamily probably about the same, now probably a little bit less than that.

[00:12:41] And then data centers actually went up in value.

[00:12:43] So there are some segments of the market that are more popular where values went up.

[00:12:48] And again, we're going back to good old fashioned supply and demand.

[00:12:51] The reason why data centers are going up in value, tremendous demand for the space due

[00:12:56] to technological changes, AI, crypto, and otherwise.

[00:13:00] But as importantly, from a capital markets perspective, there's a lot of liquidity out

[00:13:04] there, both from an equity perspective, or many of my most conservative investors are now

[00:13:08] putting a lot of money into data centers.

[00:13:10] But you also have banks that are willing to lend with big checks.

[00:13:14] And what's big check?

[00:13:15] These data centers are really, really expensive and really, really expensive to build.

[00:13:20] So you need somebody who's going to write a several hundred million dollar check so you

[00:13:24] can do it.

[00:13:24] And there are people out there led by foreign banks.

[00:13:27] That's excellent.

[00:13:28] Our listeners are mostly airline pilots, and they want to know what is going to happen

[00:13:33] with commercial real estate over the next five years.

[00:13:35] As I mentioned, I think in our pre-call on my show, the weekly date, we had the points

[00:13:39] guy, I think they'd like to hear about what that guy has to say too.

[00:13:42] But nevertheless, what I think is going to happen in commercial real estate over the next

[00:13:46] five years is, and you have to look at this from a perspective of somebody who's going to

[00:13:52] buy a piece of commercial real estate, buy a stock, that sort of thing.

[00:13:55] I'm not going to recommend any stocks or any individual pieces of real estate, but I'll

[00:13:59] just give you the broader trends.

[00:14:00] So the broader trends are these.

[00:14:02] The mega trends are what matters most over any length of time, because over any length

[00:14:08] of time, and I presume most pilots are going to have 20, 30, 40, 50 years of investing

[00:14:12] in front of them.

[00:14:13] And over that length of time, commercial real estate has outperformed the market over the

[00:14:18] long term.

[00:14:19] In short term periods, it has underperformed in the last couple of years, as noted by

[00:14:23] data at the very beginning of today's show.

[00:14:25] But the areas of outperformance will be both by sector and by market.

[00:14:32] And so the sectors that we believe will outperform over the next couple of years will be some

[00:14:37] of the most popular sectors, as we talked about before, multifamily, industrial data centers.

[00:14:44] Retail is also expected to outperform, even though it was an underperformer, if you look

[00:14:47] at the last 15 years.

[00:14:49] And believe it or not, and I'm going to say this, even though this is probably going to

[00:14:52] be tossed from the show, office may outperform over the next couple of years.

[00:14:55] For two basic reasons.

[00:14:57] Reason number one, when people are afraid, be greedy, Warren Buffett.

[00:15:04] People are afraid right now of office, and it is oversold.

[00:15:08] And they're putting the baby in the bathwater into the same bucket.

[00:15:11] And there's great office that has never been more valuable.

[00:15:14] And we're seeing record rents in New York City for the best buildings, record rents in Dallas

[00:15:18] for the best buildings, best buildings in Los Angeles and Century City.

[00:15:22] So a lot of the cities that you think are getting thrown under the bus, which

[00:15:25] they are from a macro perspective.

[00:15:27] Micro, there's some terrific real estate in these markets.

[00:15:30] But you have to be able to separate the wheat from the chaff and know how exactly to invest

[00:15:35] in it.

[00:15:35] Because many of the publicly traded vehicles have both the good and the bad within those

[00:15:40] vehicles.

[00:15:40] You can't say, well, I'm just going to buy the best buildings from this street.

[00:15:43] Not the bad ones.

[00:15:44] But nevertheless, you should be taking a look at real estate as any other asset class where

[00:15:52] some things that look great may be overvalued because it's too popular.

[00:15:57] But things that are undervalued because people are afraid of it.

[00:16:01] And by the way, people were afraid of retail for a decade.

[00:16:04] But retail now is one of our best asset types in part because they didn't build any more of it.

[00:16:11] And I would say that as an investor, don't just say we're going to buy the most popular

[00:16:18] asset class because technology is changing everything.

[00:16:21] You heard it here first.

[00:16:23] Office is coming back.

[00:16:25] Well, and Yahoo Finance here.

[00:16:26] Nancy Pelosi's husband bets big on San Francisco office real estate is a turnaround coming.

[00:16:32] It's very interesting.

[00:16:34] Let me just say one more.

[00:16:35] I hate to shamelessly.

[00:16:36] Since I'm very fortunate to be a guest on this terrific show.

[00:16:39] I hate to shamelessly plug my own.

[00:16:42] We had a guest on my show recently, Glenn Gilmore, who's the CEO of Bricks and Timber

[00:16:49] Real Estate in San Francisco.

[00:16:51] Where do they own office buildings?

[00:16:53] In San Francisco.

[00:16:54] And you're like, oh no.

[00:16:55] Well, guess what?

[00:16:56] Glenn Gilmore owns most of the stuff in Jackson Square, which is a terrific sub market.

[00:17:00] And his product is 100% leased or close to it.

[00:17:03] And where is he buying now?

[00:17:05] He's buying in Wynwood in Miami, which is a market which is very similar to what Jackson

[00:17:12] Square is.

[00:17:13] A very live, work, play market happens to be where they have the Art Basel Festival.

[00:17:17] So it's got a lot of great cultural elements to it.

[00:17:19] So I fully support the strategy of hitting it where they ain't, particularly in markets

[00:17:26] as dynamic as San Francisco.

[00:17:28] San Francisco has historically been a very volatile market because the tech market is,

[00:17:34] by definition, very volatile because tech changes a lot.

[00:17:37] But it's always come back better than ever because they have things that you cannot replicate,

[00:17:42] starting with by far the most highly educated, highly skilled workforce in the country, according

[00:17:47] to our tech talent survey.

[00:17:49] And it's not just a lot, it's buy a lot.

[00:17:52] The number two, I think, is Seattle.

[00:17:53] And there's a huge gap.

[00:17:55] Well, so, okay.

[00:17:56] We talked about the things that you like and where you would go.

[00:17:59] What are your kind of bottom two or three commercial office or commercial investment types

[00:18:06] that maybe people might put a pause on right now?

[00:18:08] Well, I'll give you one that a lot of people are looking at right now, which is the conversion

[00:18:14] of some of these bad buildings, older buildings into multifamily.

[00:18:18] It sounds like a great idea.

[00:18:19] It is a great idea.

[00:18:21] If you can pull it off, I will support you every which way from Sunday.

[00:18:26] I will try to get you tax incentives because I'm the chairman of the Real Estate Roundtable

[00:18:29] Research Committee.

[00:18:30] So I talk to people about these sorts of things.

[00:18:32] I'm going to try to improve the permitting environment.

[00:18:34] So I'm going to try to create a runway here.

[00:18:36] So that's possible.

[00:18:38] Now that I've given you the good news, it is one of the most difficult things to possibly

[00:18:43] do.

[00:18:43] And it is not for the faint of heart.

[00:18:45] It is not for amateurs.

[00:18:46] If you think you're going to go buy an older building and just convert it because it sounds

[00:18:50] like a good idea, don't do it because you will get crushed from a capital perspective.

[00:18:57] You have no idea what's behind those walls.

[00:18:59] I was just in a building in Columbus, Ohio that was converted.

[00:19:01] Thank God it was bought by a billionaire because they realized that after they bought it, the

[00:19:06] elevators weren't wide enough.

[00:19:07] And they had to put 13 million bucks into that that they didn't anticipate to make the elevators

[00:19:13] wider.

[00:19:14] Stuff like that happens every day.

[00:19:16] So I'm not saying I don't like the conversion of older buildings into multifamily or a different

[00:19:22] use, but you better be an expert.

[00:19:24] You better have deep pockets and you better have a long time horizon because it is much

[00:19:29] more difficult than it looks in a PowerPoint presentation.

[00:19:33] Yeah, I bet.

[00:19:34] We talked a bit about how sensitive commercial real estate is to interest rate fluctuations.

[00:19:40] Let's talk about interest rates.

[00:19:42] What's your crystal ball saying on interest rates?

[00:19:45] Where are we going?

[00:19:47] So I am not shy about telling folks where I get it right.

[00:19:50] Okay.

[00:19:51] I got it right.

[00:19:51] I called retail a few years ago saying it was right.

[00:19:54] I said that life sciences was overbought a few years ago and I was right.

[00:19:57] I was dead wrong on interest rates.

[00:19:59] So I'm going to just stand right there.

[00:20:01] See, I thought interest rates were going to be lower forever because the demographic

[00:20:07] profile of Europe, the United States, China, Japan is an aging population and that's deflationary.

[00:20:14] Deflationary because older folks buy less stuff and two thirds of the U.S. economy is the

[00:20:18] consumer.

[00:20:18] So that's just a modest example of that.

[00:20:21] It was wrong.

[00:20:21] COVID came and just upended everything.

[00:20:24] And I would also say that in the short term, after my prediction didn't exactly go right,

[00:20:29] our predictions have been continually changing.

[00:20:32] So if we had this very podcast two years ago, I would have said that the terminal rate for

[00:20:38] short-term interest rates would be about one and a half percent.

[00:20:42] Okay.

[00:20:42] Right now they're about four and a half percent just so everybody knows.

[00:20:46] Now our terminal rate is closer to three.

[00:20:48] I would have also told you that the long end of the curve, the 10-year treasury would have

[00:20:51] had a terminal rate around three.

[00:20:53] Now it's around four.

[00:20:55] Those are enormous differences because that means that yields are not going to go down nearly as

[00:21:00] quickly and it means that you need to change your real estate strategy.

[00:21:03] You have to change your strategy from one that was focused on cap rate compression or yield

[00:21:08] improvement on the back end to one that is focused on operations and current income.

[00:21:15] So one of the things that I've counseled our clients to do is to change their mindset from a

[00:21:21] capital markets appreciation mindset to an income appreciation mindset.

[00:21:26] And then by the way, we're not alone in this.

[00:21:27] Nate Kreef has, which is the industry organization that measures these types of things that would

[00:21:33] agree with this basic statement.

[00:21:35] But also it means that you can move into secondary markets where your yields are better.

[00:21:39] And the reason why people don't typically move into a secondary market is because they're

[00:21:43] afraid they can't sell the building on the back end.

[00:21:46] But nevertheless, you can get to pure yields on the front end.

[00:21:49] That's excellent.

[00:21:50] Yeah, that's interesting.

[00:21:51] I mean, not counting on essentially long-term appreciation and looking at in-place cash.

[00:21:55] I mean, we've seen a lot of more stabilized facilities trade for higher and have more bidding on it.

[00:22:02] What does that do to the outlook for returns, do you think?

[00:22:05] I mean, are you just seeing lower projections on a five or 10-year hold on an asset?

[00:22:10] And maybe longer term, they might go up.

[00:22:12] But how are you sort of seeing operators and dealmakers underwrite those opportunities?

[00:22:17] Well, I guess it all depends on what you pay for it, right?

[00:22:20] If you get a low enough price, your returns can be exactly the same.

[00:22:24] And that's been actually a challenge for many of my, what I call my institutional clients.

[00:22:29] Because there's a real split of behavior today between what my institutional clients and my,

[00:22:36] what I call my high net worth clients.

[00:22:38] And meaning that a lot of my high net worth clients today are buying some of these more

[00:22:43] distressed office buildings.

[00:22:44] They're also building today where the institutions are not doing either one of those things.

[00:22:50] And the reason is because institutions, number one, have a higher cost of capital

[00:22:54] and a shorter time horizon.

[00:22:56] But if you have a long time horizon and a lower cost of capital, you can do certain things that

[00:23:03] others can't.

[00:23:04] And so I would suggest to you that the average investor out there has a longer term time horizon.

[00:23:12] And so they may be able to go into places that others can't or that an institution might not

[00:23:18] want to go if their time horizon is 10, 20, 30, 40 years.

[00:23:23] Yeah, that's really interesting.

[00:23:24] For the first time, we're actually putting on a deal that has a longer time horizon on it.

[00:23:28] And for that reason, because we kind of believe in the market long term, but you can't really

[00:23:33] bank on that real big appreciation pot per se in a cap rate compression.

[00:23:37] So that's interesting to take on that.

[00:23:39] Well, let me address that point for a second.

[00:23:41] So this is what I say on air when I do something like this.

[00:23:45] Here comes the math warning.

[00:23:47] The way that things work when you're dealing with institutional capital is you have a split

[00:23:53] of the institutional capital and the operator's capital.

[00:23:56] And a typical split is say 90% of the equity is institutional, 10% of the operator, which

[00:24:01] means that the operator is looking to get a disproportionate amount of the return from

[00:24:05] a promoted interest.

[00:24:07] Basically, as the returns go up, they get a higher percentage of the profit.

[00:24:14] IRR is ruthless.

[00:24:16] Okay.

[00:24:16] IRR, internal rate of return, which is the basic metric that people use.

[00:24:20] It's ruthless.

[00:24:21] If you miss your time horizon by six months, God forbid, a year or two, it can completely

[00:24:29] eviscerate your return.

[00:24:32] So the challenge you have here by doing a longer time horizon, and by the way, makes all the

[00:24:38] sense in the world to me.

[00:24:39] But if you're an operator or even an institution that wants to make money on these promoted

[00:24:44] interests, it's not so easy because your cost of capital hasn't changed unless you change

[00:24:49] your cost of capital and you can't do that.

[00:24:54] Yeah, that makes sense.

[00:24:55] Yeah.

[00:24:55] Because as you extend out the timeline, it's all based on timing coming back.

[00:24:59] So it makes a lot of sense.

[00:25:01] What's your thoughts?

[00:25:02] I believe I saw a presentation from you and this was at Best Ever Conference, I think back

[00:25:07] in 20...

[00:25:08] Oh, man, it must have been 2020 or 2021.

[00:25:11] And you had a picture of a boat for one of your slides and it was like a big waterfall

[00:25:16] going down.

[00:25:17] And I think it basically said that in 2025, you suggested that maybe there might be a lot

[00:25:22] of turmoil in the market.

[00:25:24] Do I have that right, number one?

[00:25:27] Well, I am a master of almost nothing except for putting funny pictures of my frizos.

[00:25:33] So I'm quite sure I put that in there right after I put my Price is Right tape in there

[00:25:38] running down the aisle where I was a contestant and probably before I put a picture of my

[00:25:43] dearly departed grandma Best.

[00:25:45] So I do all kinds of stuff like that.

[00:25:46] So I'm sure that's there.

[00:25:47] And you had some good movie references too, if I recall.

[00:25:50] Yeah.

[00:25:50] Oh, we can keep going.

[00:25:51] This is an airline pilot show.

[00:25:54] Yeah.

[00:25:54] I can tell you every line from a lot of movies about planes.

[00:25:59] So we could warm that one up anytime you're ready.

[00:26:02] But yeah, I was mostly just kind of getting to, I think you had predicted pretty specifically

[00:26:07] a year in which the markets were going to really be in a hurt.

[00:26:12] And I think it was 2025.

[00:26:14] Do you kind of still stand by that?

[00:26:15] Do you think we're going to have more disruption in 2025?

[00:26:17] Or do you think we're kind of getting through it?

[00:26:19] We're more of the same.

[00:26:20] Five years ago might as well have been a million years ago because five years ago, and if that

[00:26:27] was pre-COVID, all bets are off.

[00:26:31] I don't recall exactly when I spoke at the Best Ever conference.

[00:26:33] I enjoyed doing it.

[00:26:35] But nevertheless, our predictions have been changing like a ping pong ball in the last two

[00:26:40] years, let alone the last five.

[00:26:42] And we think that to quote my good friend Richard Barkham, our global chief economist

[00:26:46] who I spoke to about this very issue yesterday.

[00:26:49] He said that real estate's already gone through a, quote, end of cycle event.

[00:26:54] And the end of cycle event is the most notable in the collapse of the class B office market,

[00:27:01] but devaluation of other asset classes as well.

[00:27:04] So I think it's fair to say that our view is that real estate has bottomed and is going

[00:27:09] up now rather than 25 being the moment of truth, which it very well might have been in 2020 had

[00:27:15] we not run into this cataclysm called COVID.

[00:27:19] Yeah, we wholeheartedly agree with that.

[00:27:21] We always say that we don't try to time the market.

[00:27:24] We believe in time in the market, but it's hard to ignore where we are in the cycle and

[00:27:30] the tailwinds that are shaping up for the next half decade.

[00:27:34] With the interest rate environment, I firmly believe that interest rates are going to be

[00:27:39] higher for longer at this point because of the slowdown in China and the pullback on how

[00:27:45] many treasury bonds they're buying, which pushes yields down.

[00:27:49] Do you agree with that?

[00:27:50] I think that interest rates are on the decline, but we're not going to go back to 2%, 3%,

[00:27:56] but that real estate is generally recovering.

[00:27:59] I'd love to hear your rebuttal.

[00:28:01] I'm trying to recall if it was a tale of two cities that had the famous line,

[00:28:08] how did you go bankrupt?

[00:28:10] And it was like slowly and then suddenly.

[00:28:13] That would quote.

[00:28:15] And that's exactly how interest rates move.

[00:28:18] They move slowly and then something happens and then they move suddenly.

[00:28:23] And so while I'm agreeing with you that our house model is for interest rates to stay higher for

[00:28:28] longer, for some of the reasons that you just laid out, if something happens, there's a cataclysm

[00:28:32] in terms of a macroeconomic event, it will drop like a stone very quickly as well.

[00:28:39] If you take a look at actually the historic charts on interest rates movement, they very

[00:28:43] rarely move like this.

[00:28:44] They move like this and boom and up and then boom.

[00:28:48] So interest rates tend to be very volatile in short bursts.

[00:28:52] So while I'm agreeing with your point of view that our base model is for higher for longer,

[00:28:58] and I should note that today the Fed is coming out with its latest dot plot interest rate projections,

[00:29:04] everybody should take a look at that to see what the Fed is thinking because they're,

[00:29:07] you know, generally pretty accurate.

[00:29:09] Not perfectly accurate.

[00:29:11] They made plenty of mistakes, but they're generally pretty good.

[00:29:13] But nevertheless, my point of view is exactly that interest rates are higher for longer.

[00:29:17] And because of that, you need to change your investing behavior.

[00:29:20] Well, and what a wonderful way to play counter cyclical to the stock market, right?

[00:29:25] Because if the Fed were to cut rates really fast, it would be in response to some massive

[00:29:32] recession that hit.

[00:29:34] Some event where the stock market crashes.

[00:29:37] We tailspin into a recession.

[00:29:39] They go, we got to cut rates back to zero.

[00:29:42] And that is healthy for real estate values, right?

[00:29:45] So it's a wonderful counterbalance to your traditional stock portfolio, in my opinion,

[00:29:52] not giving any financial advice, but...

[00:29:54] It is.

[00:29:54] And in fact, on stage, I often say I'm wearing two hats up here.

[00:29:57] I'm the economist type guy.

[00:30:00] Talks about the economy.

[00:30:01] You know, I'm not technically an economist.

[00:30:03] I'm a lawyer, just like Jerome Powell, by the way.

[00:30:06] So there's hope for us all.

[00:30:08] And then I'm the real estate person.

[00:30:10] And as the person who looks at the broader economy, I'm actually pretty happy with where

[00:30:14] we are, where jobs have been much stronger.

[00:30:16] Wage growth has been much stronger.

[00:30:18] But as a real estate professional, I want actually a little bit more of the other way,

[00:30:22] because you're entirely correct.

[00:30:24] Interest rate going down is exactly what our industry needs.

[00:30:29] You mentioned the Fed website.

[00:30:32] Where can people find that?

[00:30:34] Well, the best site of all is the FRED, F-R-E-D.

[00:30:39] It's the St. Louis Fed has by far the best data in the business.

[00:30:45] Now, a lot of these feds, New York Fed got good data too, but the FRED is easy to surf.

[00:30:50] So if you look up the St. Louis Fed, the FRED, F-R-E-D, and you can find all the data

[00:30:55] you need.

[00:30:56] But today, I think the Fed's announcement comes out at 2.15 or so, whether or not they're

[00:31:00] going to drop rates, but also their dot plot, I believe, comes out today too.

[00:31:04] I would just Google it and say, what is the Fed's latest dot plot?

[00:31:08] You'll get to it very quickly.

[00:31:09] The St. Louis Fed is my go-to source for all Federal Reserve data.

[00:31:14] Excellent.

[00:31:16] Let's shift to markets.

[00:31:17] We talked about specific types of real estate, asset classes that might be on the rise or

[00:31:22] on the decline or to look out for.

[00:31:24] But what about markets?

[00:31:25] What about where in the world or where in the country are you seeing some of the most

[00:31:29] best trends in real estate?

[00:31:31] People often ask me that question, what market do you like the most?

[00:31:35] And I always answer it like this.

[00:31:37] It's like, I don't like any market.

[00:31:39] What I like are sub-markets.

[00:31:42] And what I particularly like are sub-markets and cities that people don't like.

[00:31:46] And because what you get there is tremendous dynamics within that sub-market at a better

[00:31:52] price.

[00:31:52] Because you take San Francisco right now, which everybody is thrown under the bus.

[00:31:59] I'm not.

[00:32:00] Because I know what San Francisco has been like historically.

[00:32:02] I know it's going to come back.

[00:32:04] I know there are tremendous sub-markets within San Francisco.

[00:32:07] Chicago, a lot of people throw it under the bus.

[00:32:09] But Fulton Market, great sub-market.

[00:32:12] They have great industrial there.

[00:32:14] They have a lot of great things going for it.

[00:32:17] And so I've been a Chicago advocate for a long time, but not for the whole market, for

[00:32:22] certain sub-markets within Chicago.

[00:32:24] Miami, Wynwood, LA.

[00:32:27] LA is being thrown under the bus too.

[00:32:30] Century City in LA is one of the best sub-markets in America.

[00:32:34] All right?

[00:32:35] And markets that people say, oh, this is the best.

[00:32:36] Dallas, Dallas has tremendous sub-markets.

[00:32:41] Uptown, Frisco, downtown Dallas is soft.

[00:32:46] So even in markets that you see the headline is great, you've got to be selective about

[00:32:51] where you're going to invest.

[00:32:53] That's a great point.

[00:32:54] How do you find those sub-markets?

[00:32:57] What resources do you use to kind of identify those?

[00:33:00] Funny you should mention that, Ryan.

[00:33:01] So CBRE has a tremendous research department.

[00:33:06] And the report I would ask everybody to read, and I can give you 10 recommendations.

[00:33:11] I'll give you one.

[00:33:12] It's the recent report called the CBRE Tech 30 Report written by my good friend, Colin

[00:33:18] Yassipochi, who I just had dinner with in San Fran a few weeks ago.

[00:33:22] And what the report lists are the top 30, not markets, sub-markets.

[00:33:27] And what you need is to look at those sub-markets and say, well, what about these sub-markets?

[00:33:31] Well, they all have the fastest population growth.

[00:33:33] They all have the fastest rent growth.

[00:33:35] They all have infrastructure, live, work, play.

[00:33:37] Basically, the joke is, Ryan, is that each one of these sub-markets, you could probably

[00:33:42] lift it up and drop it into the other sub-market and it would look the same.

[00:33:45] They all have the same basic characteristic.

[00:33:48] But that's a good place to start.

[00:33:49] That's great.

[00:33:51] We're just about to change administrations here.

[00:33:55] What changes in real estate might be impacted by the new administration?

[00:33:59] Well, I think there's a few headline issues that we're talking about, and they come down

[00:34:04] to tariff, taxation, and immigration.

[00:34:07] And each one of them, if you go to the extreme positions that were given on the campaign trail,

[00:34:16] would be highly inflationary if you were to maximize tariffs, minimize taxes, and cut immigration

[00:34:23] and deport a disproportionate number of people.

[00:34:25] But we don't believe any of those are likely to occur.

[00:34:30] We think that they're all, particularly in the case of tariffs and immigration, they look

[00:34:36] like separate issues, but they're actually being used in kind of like one negotiating

[00:34:39] package when the incoming president talked to the leaders of Canada or Mexico or China,

[00:34:46] things like that.

[00:34:47] And so I think that the most likely outcome is going to be modestly higher tariffs, modestly

[00:34:55] lower taxes, modestly less immigration.

[00:34:57] There will be more deportation, but not much more than we saw under prior administrations.

[00:35:02] And so the bottom line is the most likely scenario is modestly stimulative to the economy, but

[00:35:12] not to the point of sending inflation off the cliff.

[00:35:16] I think one of the things that gives me, and I think gives the market some comfort is that

[00:35:21] his incoming or his likely treasury secretary coming in has what he calls a 3-3-3 plan.

[00:35:27] And the 3-3-3 plan is he's trying to get 3% GDP growth, 3% deficits, and increase the

[00:35:35] output of U.S. oil by 3 million barrels a day.

[00:35:38] And each one of those, the 3 million barrels a day, that would be deflationary because it

[00:35:43] would reduce the price of oil.

[00:35:45] And if he would grow faster, our deficit doesn't grow as quickly.

[00:35:49] And the deficit, both on an annual and an overall basis, is a big problem because right

[00:35:54] now the deficit is running at about 7% of GDP.

[00:35:59] It's about 24% of all federal spending is of GDP, which is the highest it's been since World

[00:36:06] War II and COVID.

[00:36:07] And so those numbers have to come down.

[00:36:09] And by bringing those numbers down, you can reallocate those resources to more productive

[00:36:14] uses.

[00:36:15] You also start to bend the curve on what is really unproductive, is paying interest, debt

[00:36:22] service on our interest, on our debt, rather.

[00:36:24] And so I would say that the 3-3-3 plan gives me probably the most comfort that the least,

[00:36:35] that the most extreme things that could happen with tariffs, taxation, and immigration are

[00:36:41] unlikely to occur.

[00:36:42] Yeah, that makes a lot of sense.

[00:36:44] What are some curveballs that you see that could come up and punch you in the face, punch

[00:36:52] us in the face?

[00:36:54] Punch me in the face.

[00:36:55] That's a line from the movie Cars.

[00:36:57] I thought this was a movie about, or a podcast about planes, guys.

[00:37:01] You got the wrong movie.

[00:37:02] But I got a million movie, liar.

[00:37:04] Sweet.

[00:37:05] We got to go back to Sniffin' Glue.

[00:37:07] It was a bad day to start, stop Sniffin' Glue.

[00:37:09] Yes.

[00:37:11] And that was actually Lloyd Bridges who gave that line, who was Jeff Bridges, Academy Award

[00:37:17] winning actor's father.

[00:37:18] Most people don't know that.

[00:37:19] Ah, I didn't know that.

[00:37:21] See that?

[00:37:21] You get into airplane, you get into these weird trivia things.

[00:37:25] In any event, what could punch us in the face from an economic perspective?

[00:37:29] I think the biggest thing is we get it wrong on inflation.

[00:37:31] I'm going to go back to the basics.

[00:37:32] We get it wrong on inflation.

[00:37:33] The Fed's going to raise rates.

[00:37:34] It's going to tank the market.

[00:37:36] That would be really, really bad.

[00:37:38] That is the worst case scenario.

[00:37:39] Let me rephrase that.

[00:37:40] That is the most likely worst case scenario.

[00:37:43] Right, right.

[00:37:44] I think that a lot of the other things that could occur, some geopolitical conflagration

[00:37:50] in China, Taiwan, that sort of thing, unlikely to occur.

[00:37:55] And if anything, I think that some of the challenges we're seeing from a geopolitical standpoint

[00:37:59] in Europe and the Middle East seem to be, again, he's been going on much longer than we anticipated.

[00:38:05] I'm not predicting an end to anything, but hopefully going in the right direction at the moment.

[00:38:10] So I do think that getting inflation wrong is what could punch us in the face the most.

[00:38:14] Excellent.

[00:38:14] What about tailwinds?

[00:38:16] What about things that are coming up that you're thinking, man, if this just keeps going on its course,

[00:38:21] we're going to be in a really good spot and we'll see CRE values go up?

[00:38:25] Well, putting aside the capital markets thing, we are so severely undersupplied in housing right now.

[00:38:32] There's, by some estimates, 7 million units short that we need, if there's bipartisan agreement

[00:38:41] to anything, hopefully it's in housing.

[00:38:43] If it's not there, I mean, I don't know what would be the number two.

[00:38:46] And so I would hope that there would be some type of federal, state, and local stimulus

[00:38:51] to more housing units, both, and not just the luxury, I'm talking about affordable,

[00:38:58] capital A affordable units.

[00:38:59] And if we see some kind of political compromise on that issue,

[00:39:03] I think that could be a very good thing for our industry, very good thing for America too,

[00:39:08] I might add.

[00:39:09] I would say other tailwinds I would look for have to do with other local market,

[00:39:17] the loosening of the reins, so to speak, so that it would be easier to operate.

[00:39:22] I'll give you one that's a little bit off the beaten path, but I'll give it to you anyways.

[00:39:26] So we talked earlier about what one thing you can't do or very difficult to do,

[00:39:31] which is to convert buildings, multifamily or office into multifamily.

[00:39:35] Well, the challenge there is math.

[00:39:38] It's just too expensive to do it.

[00:39:40] And one of the things that makes it too expensive to do is that in many of these jurisdictions,

[00:39:44] you've got sustainability laws that are all written around emissions,

[00:39:48] how much electricity you use, how much water you use, how much waste you produce.

[00:39:52] None of them are written around what's known as embedded carbon.

[00:39:55] And embedded carbon is basically how much carbon was used to create the bricks in the walls that exist today.

[00:40:02] I think these older buildings need a break.

[00:40:05] They should be getting some credit for that embedded carbon because the greenest thing you can do

[00:40:08] is to reuse an existing structure because you don't use as much carbon to build as it wants.

[00:40:14] But nevertheless, I would say tailwinds would be related to interest rates.

[00:40:20] It's staying on its glide path right now.

[00:40:22] No surprises there.

[00:40:24] Some bipartisan agreement on more housing.

[00:40:28] Local jurisdictions loosening up permitting laws, which is a big hope,

[00:40:33] because that to me is another bugaboo of mine when I talk about what do we need?

[00:40:36] More tax release?

[00:40:38] And I'm like, no.

[00:40:39] I don't want your money.

[00:40:40] I want my time.

[00:40:42] If you give me my time, you can keep your money.

[00:40:43] Because as we talk about the time value of money is everything.

[00:40:46] But nevertheless, those are a couple of things.

[00:40:48] And then from a big picture perspective, I certainly hope that the AI crypto drive towards

[00:40:54] more data, more power continues because that will drive data centers forward.

[00:40:59] But I do hope we have some type of energy solution here that can service it because we simply

[00:41:06] don't have enough energy and or distribution to keep up with the growth that's possible.

[00:41:13] You talked about megatrends earlier.

[00:41:14] If I'm an airline pilot, why should I care about these investable megatrends that you're

[00:41:21] seeing and what are they?

[00:41:22] Well, if I'm an airline pilot or any investor that's not in the industry, you should care

[00:41:29] about what gets you the best long-term return on your money, right?

[00:41:34] Whether it's your 401k account or your kid's college fund.

[00:41:38] And you should care about that because there's an old-fashioned, it's called the rule of seven.

[00:41:44] Anything that gets a 7% cumulative and compounding return doubles in value in seven years, right?

[00:41:52] So even a modest, steady-eddy return over a long period of time really, really increases

[00:41:59] the value of your money.

[00:42:00] So that's why you should care macro.

[00:42:02] You know, big picture, you should get reasonable risk-adjusted returns.

[00:42:06] Micro is like, well, where am I going to find it?

[00:42:09] You could put all of your money today into bonds and actually get a very good return today because

[00:42:13] five years ago, the return on bonds was zero.

[00:42:16] Now, on a municipal bond, you can get a good muni for 5%, 6%, a good AAA bond for 7%.

[00:42:24] And those are returns you never saw before.

[00:42:26] But if you want to get higher returns, you have to go out on the risk spectrum and you

[00:42:31] go to the place that has the best risk-adjusted return.

[00:42:35] And the best risk-adjusted return comes down to who is following the megatrend.

[00:42:39] So part of the reason why you're seeing data centers so well is that they erode the wave

[00:42:44] of megatrends, crypto, AI, tech.

[00:42:46] That's why it's doing well.

[00:42:48] It's not doing well because data centers are particularly interesting real estate.

[00:42:51] And I would argue it might not even be real estate at all.

[00:42:54] It's really a power and water play.

[00:42:55] But nevertheless, that's why they're doing well.

[00:42:59] Multifamily is a mixed bag right now.

[00:43:01] Apartments, even though I made the comment that we need 7 million more units, well, they

[00:43:06] overbuilt them in certain markets.

[00:43:07] And if there's an overbuilt market, supply and demand in the short term is going to hurt

[00:43:12] the performance in that market.

[00:43:14] So I would say to you, you should care about these megatrends because doing what is the

[00:43:21] cool thing or what everybody else is doing is typically not the place to go.

[00:43:26] Absolutely.

[00:43:27] Yeah.

[00:43:28] Can you talk a little bit more about the reshoring?

[00:43:30] Because I think this is a really interesting megatrend that I've been paying attention to.

[00:43:34] Supply chains coming back home, manufacturing coming back to the US.

[00:43:39] What are you seeing in that?

[00:43:40] If we had this discussion in 2008, I would have said to our listeners, there is one construction

[00:43:47] job in the United States right now that is over $1 billion in value.

[00:43:52] And for people who like Vegas, and if you're in the airline business, you've been there.

[00:43:56] It was the Aria, Mandarin Oriental job done by MGM right on the strip.

[00:44:03] That was the $1 billion job that was being done in the US.

[00:44:05] Today, by our estimates, there's over $30 billion construction projects under shovel as

[00:44:11] we speak.

[00:44:12] And that's due to a lot of things.

[00:44:14] Some of it's due to the geopolitical tensions that make people want to bring manufacturing back.

[00:44:19] The other has to do with federal incentives.

[00:44:21] The CHIPS Act is the reason why you saw Intel put its plant into New Albany just outside of

[00:44:27] Columbus.

[00:44:28] The Inflation Reduction Act has a lot of incentives in there to build as well.

[00:44:33] And it's a big deal.

[00:44:35] Now, because a lot of these manufacturing sites are in secondary locations, but they need

[00:44:41] other real estate.

[00:44:42] They need multifamily.

[00:44:43] They need retail.

[00:44:44] They need office.

[00:44:45] And you're going to see some of these markets really improve.

[00:44:50] So Columbus is a market I talk about a lot where I would say 10 years ago, it was a secondary

[00:44:56] or maybe even a tertiary market for most investors.

[00:44:59] Today, when I meet with many institutional investors, they call it a primary market because

[00:45:03] of the rapid increase in economic activity, largely not totally, but largely related to

[00:45:11] the activities in New Albany, in Dublin, the Ohio State University.

[00:45:17] There's a lot of good things going on in Columbus, but they have to do with it.

[00:45:21] I think it starts with the mega trend of reshoring.

[00:45:24] Interesting.

[00:45:25] Yeah, that's a market that I've had my eye on for quite some time for storage and just

[00:45:29] haven't had a chance to line up a deal there yet.

[00:45:31] But I love that market.

[00:45:33] Well, we're just about top of the hour here and we wanted to wrap things up.

[00:45:38] Spencer, is there anything, any resources?

[00:45:41] I mean, because there's a lot of people that listen to our podcast that are just getting

[00:45:45] their feet wet in commercial.

[00:45:46] And a lot of the stuff that we talked about maybe was right in line or maybe a little over

[00:45:51] their head.

[00:45:51] But for those that are kind of just looking into getting into real estate or getting into

[00:45:56] commercial real estate, what advice would you give that person with all the wisdom and

[00:45:59] years of experience that you have?

[00:46:01] Well, shameless plug, in addition to passive income pilots who you should listen to first,

[00:46:06] maybe second, you listen to the Weekly Take podcast, which is we do weekly topics on every

[00:46:12] topic you just heard we talk about and more.

[00:46:14] We try to cover every market, every asset type and emerging trends.

[00:46:18] That's an easy one while you're on the treadmill.

[00:46:21] The other thing is CBRE has tremendous research.

[00:46:25] I quoted one of our reports at Tech 30, where we have hundreds of reports about individual

[00:46:31] markets, individual asset types.

[00:46:33] But then I'm just going to cut to the chase.

[00:46:36] This is the advice I give to students when I teach.

[00:46:39] I'm like, look, I read and I've been doing this since I was very young, three or four newspapers

[00:46:43] a day.

[00:46:44] And obviously, I focus on the real estate section of many of these papers.

[00:46:48] But the Wall Street Journal does a nice job once a week.

[00:46:51] I think Peter Grant is the author who does a weekly column.

[00:46:55] He has an excellent column once a week on real estate.

[00:46:58] So if you're going to read one thing once a week, read his.

[00:47:00] But if you're going to do something more detailed, I'll just read the business sections of these

[00:47:05] papers, which are rife with real estate information.

[00:47:08] And then as you want to really get into the weeds, listen to the weekly take and look at

[00:47:12] CBRE's research.

[00:47:14] That's excellent.

[00:47:15] Leave us with one thing that you're most excited about in the commercial real estate market,

[00:47:21] just to put a cap on things today.

[00:47:23] I am most excited about affordable, capital A affordable housing.

[00:47:28] And I'll tell you why.

[00:47:29] Not just because I like it, not just because it's the right thing to do, it's a good thing

[00:47:33] to do.

[00:47:33] There's been a huge shift in that market in the last five years where institutions who

[00:47:37] wouldn't touch it are now backing up the truck and doing as much as they can.

[00:47:43] And I'm really encouraged by this because we got a problem out there.

[00:47:49] And I think that we're going to solve it.

[00:47:52] And there's ways as an individual investor, you can get involved.

[00:47:55] You can read about the multifamily REITs that are getting involved in that sector and other

[00:47:59] investors.

[00:47:59] So that sounds like a, well, it's one thing that excites me.

[00:48:04] The other thing that excites me to go on completely the other end of the spectrum is pent up demand.

[00:48:11] The economist John Maynard Cain said, in bad times, unleash the animal spirits.

[00:48:17] Well, people in commercial real estate have been sitting on their hands largely for the

[00:48:22] last couple of years.

[00:48:24] And they're just dying to get back in.

[00:48:26] So there's a lot of money on the sidelines ready to roar once the coast is clear.

[00:48:30] And I think the coast is clear when you start to see a continued downward trend in interest

[00:48:35] rates.

[00:48:36] You continue to see growth exceeding expectations.

[00:48:41] So I think 2025, 2026, as opposed to my prediction five years ago, Ryan, will be excellent years

[00:48:47] for the commercial real estate business.

[00:48:49] Amazing.

[00:48:50] Spencer, thank you so much for your wisdom.

[00:48:52] This has been incredible.

[00:48:53] Thank you for coming on the show.

[00:48:54] We can make that happen.

[00:48:56] Jefferson Airplane.

[00:48:57] I mean, you know, Rocketman.

[00:48:59] I can come up with those songs too.

[00:49:02] I love it.

[00:49:03] It's been a blast.

[00:49:04] Thank you, Spencer.

[00:49:05] Thank you.

[00:49:05] Yeah.

[00:49:06] Thank you, Spencer.

[00:49:07] Thank you.

[00:49:09] Thank you, Spencer.

[00:49:11] Thank you.