Phase 3 - Advanced (more than one main point to the post, ebooks)

Podcast - A Lender's Take On The Real Estate Market

Marcia Cuenca
April 5, 2022
Podcast - A Lender's Take On The Real Estate Market
"The strength of the economy continues to be a really strong sign for commercial real estate."

- Jamie Woodwell, Vice President of Research and Economics at Mortgage Bankers Association (MBA)

Jamie Woodwell joined us on the podcast to discuss MBA’s Q3 Report, the macro factors he is watching, and what factors are driving today's real estate market.

About The Mortgage Bankers Association (MBA) 
The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. 


Q3 Report, click here
Learn more about The Mortgage Bankers Association (MBA), click here
Learn more about CREF Research, click here

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Adam Hooper (00:03) Hello and welcome, I’m RealCrowd CEO Adam Hooper, and this is the Real Estate Investing For Your Future podcast. Here we explore the latest in commercial real estate trends, insights, and investment strategies that passive investors can use to build real estate portfolios that last.

Disclaimer (00:21) All opinions expressed by Adam, Tyler and podcast guests are solely their own opinions and do not reflect the opinion of real crowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions to gain a better understanding of the risks associated with commercial real estate investing. Please consult your advisors.

Adam Hooper (00:41) Our guest today is Jamie Woodwell. Vice president of Research and Economics at the Mortgage Bankers Association. At the MBA, he oversees their research and related activities, covering the commercial and multifamily real estate markets. In today's conversation, we walked through MBAs, Q3 Originations report. The macro factors that Jamie's watching most closely and the factors that he's following for each property type. We hope you enjoyed today's conversation with Jamie. And please check the show notes for a link to the full Q3 Report from the Mortgage Bankers Association.

Adam Hooper (01:15) Well, Jamie, thank you so much for coming back on the show. It's been a while since we spoke, but we really appreciate you coming and spending some time with us today and talking about what you guys are up to with the Mortgage Bankers Association.

Jamie Woodwell (01:27) Yeah, thanks for having me seems like there's plenty going on. So, plenty to talk about.

Adam Hooper (01:31) It certainly is. So, before we jump in for listeners that maybe haven't caught your prior episodes tell us a little bit about the MBA and what you do specifically there, and some of the research that you all put out on a regular basis.

Jamie Woodwell (01:43) Sure. So, the Mortgage Bankers Association is a sort of trade group representing the entire real estate finance industry. So the single family side, as well as the commercial and multifamily side, everything from loan originations to servicing, to end investors. Within that, I'm in our research and economics group with a particular focus on the commercial and multifamily market. We do an awful lot of original research where we go out to our members, collect information on what's going on with loan production, with loan servicing loan performance as well as then tracking information from other sources, just to make sure that our members are up to date about what's happening.

Adam Hooper (02:23) Perfect. And so, we're recording this now here in the fourth quarter of 2021. Obviously, it's been a very interesting time to say the least of the last 18 to 20 months here in the commercial real estate space. From a macro level, I guess let's maybe start there from a macro level. What are you seeing in the lending space and maybe what are some of the latter part of this year? Again, seems like some of the heat has been continuing to pick up in some asset classes and we'll talk a little bit later about individual asset for different property types, but just generally from a macro perspective, how is the health of what you're seeing in the lending environment?

Jamie Woodwell (02:56) I'd say it's hard to imagine a stronger market that when you look at different capital sources, when you look at the interest from lenders to put money into commercial real estate mortgages it's just fantastic that it runs across different capital sources. So everyone from banks to the GSEs, to life companies to the CMBS market all of them have very strong appetites to put money to work. And as the pandemic has matured, I guess hopefully a positive way there's less uncertainty about where one can and can't put that money to work.

Jamie Woodwell (03:31) So all of that has led to a market where right now we see strong borrower interest a lot of capital out there on the equity side to be put to work, and then lenders really match that.

Adam Hooper (03:44) And then when you look at the desire for real estate, as an asset class, relative to some other investment categories from, like you said, institutional investors private investors, and in the like. Is real estate receiving a disproportionate share of the total investible interest right now. And again, as a real estate show, right? We're real estate folks. You, what do you think is driving that? Is it the volatility in other asset classes, is it the kind of relative safety of real estate? What do you think is driving a lot of that interest? There's so much capital coming into real estate right now.

Jamie Woodwell (04:16) Right, and I wouldn't say it's an inordinate amount of interest. It's a strong amount of interest. I do think if you look across asset classes, writ large, you're seeing. Lots of investor demand and that pushing up valuations. And you see the talk about that in federal reserve reports and other things where that all that capital looking to be put to work means that you've got competition, particularly for the for the strongest investment alternatives, commercial real. Kind of interesting because it's got such a long track record that investors can really know what they're getting, and you've got the benefits. They're both the income side and the collateral side supporting any loans that you're making. So that's on the debt side and on the equity side.

Jamie Woodwell (05:04) People are again, seeing more clarity sort of post pandemic of, or later stage pandemic about the health of different investment options or early on in the pandemic. We said there were two fundamental questions. One was how were different properties or property types going to get through the pandemic? and then the other was what would be waiting them for them on the other side. And those were the two things that were going to drive someone's interest in investing or putting money to work in commercial real estate. The first one has largely been answered. Even though we've got the Delta variant and other continuing impacts from the COVID pandemic. When you look at what's been going on at the property level you've got a pretty clear picture of a property and its ability to get through the pandemic at this point.

Jamie Woodwell (05:56) So that just leaves that other question of what's waiting on the other side. And there, I think, it's very property type specific, but again, investors are feeling more and more comfortable that they're able to see what that might be.

Adam Hooper (06:10) Yeah. And not to put you on the spot and have you get to predictive on what is looking on the other side, but is there a sense that. The other side will look like it did pre pandemic, or are there any areas that you've seen that are maybe not necessarily unforeseen, but are going to be a big change from what we knew of the property markets prior to the pandemic?

Jamie Woodwell (06:34) Yeah, it's a good one. We've identified sort of four buckets to put property types or even specific properties in. The first was counter signal. And those are the property types that got a little bit of a tailwind or maybe a lot of a tailwind from the pandemic. And you've got industrial there, you've got self-storage some single-family rental, all of which really got a boost. You then have a whole group of property types where investors really see the pandemic having accelerated changes that were already in place. And there, if you look at some parts of retail and maybe some of the malls in particular, I think those would probably be the poster children there. You've then got somewhere there's this question about, did it fundamentally change our relationships with the property types? And we continue to have the debate about office, and I think we'll dive into all of these a little bit later on, in more detail. And then the last one would be property types where there was the idea that things were chugging along before the pandemic hit. And then post pandemic things would get back to where they were before and the pandemic would just be a speed bump and maybe a multifamily or a hotel in there.

Jamie Woodwell (07:41) And so I think what you're seeing is people figuring out which particular. Either property types or properties fit into which of those categories and therefore how they want to think about where the cash flows are or where the valuations might be.

Adam Hooper (07:59) Yeah. And then I guess, as you look at the overall health of the economy and kind of recovery that we're seeing, how does that fit into the real estate picture? Are there any factors that you're looking at more closely maybe than you were this time, last year, any new factors that you were watching? You're paying attention to.

Jamie Woodwell (08:17) Yeah. I think that the macro economy, the commercial real estate is always joined at the hip to where the macro economy is going. At different times, maybe it's one hip versus the other that it's joined at. But right now I think the macro economy. Is a really interesting question and you see the fed grappling with it. You see others grappling with it and where exactly we are. I think it's probably instructive there to look at the dot plots of the fed to use a sort of very particular reference, but that tells you what the fed is focused on as their indicators of really what's driving the economy and where it is.

Jamie Woodwell (08:57) And some of the things they focus on, they're just GDP and where overall production of the economy is. And we've been running very strong, after the big declines. In the depths of the pandemic, the economy has been growing very strong. It's had a slow Q3, but expectations are that we're going to be back to five-ish percent growth, the next few quarters, and the Fed's sort of long-term outlook for GDP growth is 1.8%.

Jamie Woodwell (09:26) So pretty strong growth there. Another place they look, which is getting a lot of attention is inflation. The feds sort of long-term outlook, there is 2% and new numbers came out on CPI today. You've got a growing at about a 6% annual pace. Between GDP and and inflation signs of a really strong hot economy the unemployment rate, the part that they're playing defense on there we've come down to a 4.6% unemployment rate from the 14.8%. It was at the depths of the pandemic. Really rapid and strong improvement there. And the Fed's target for unemployment is about 4%. So that's now within so I think all of those economic variables are lining up to show a good, strong, rapidly growing economy that, there's less concern, I think, on the downside there than there is maybe on the upside.

Adam Hooper (10:23) Yeah. And we talked a lot about, so we recently recorded a show with Brian Bailey of the Atlanta fed he's a commercial real estate expert at the Atlanta fed and talked a lot about the same things, right? Supply chain issues, labor issues, inflation interest rates. And you mentioned CPI. My wife just sent me a photo yesterday when she's out shopping, it was $28 for a pack of toilet paper, which is just crazy to think that's the thing. But so of those different factors, right? There's a lot of these that go into the general economy and also the health, the real estate, you said those are very highly joined at the hip there. Are any of those factors that you're looking at more closely, or that listeners should be maybe paying more attention to as either an indicator or if there's a change in some of those factors that might be some concerns or warning signs, what should they be paying attention to the most of all those issues that we just went through there.

Jamie Woodwell (11:13) I think it started for a particular property or property type or market. You're going to look at the specific elements of that. So if you're looking at a retail property, obviously, retail sales what's happening with the particular tenants of that property for apartments, you're going to look at the unemployment rate and the strength of the of the tenant household balance sheets for office. You're going to look at sort of the comeback to work, I think at the macro level, Probably the place I would focus the most attention is to the rates, the rates both in terms of their impact on, in my world borrowing costs. But even more than that as a way of understanding valuation, and how investors are demanding different types of assets.

Jamie Woodwell (12:01) And the concern that has been expressed that if we saw rates long-term rates rise rapidly, does that have an impact on capitalization rates and valuations? Still a lot of a lot of uncertainty. In the academic literature about any direct relationships between those. But I think the conventional belief is that if you saw a rates going up, that would put some upward pressure on cap rates.

Jamie Woodwell (12:28) So I don't know if there's one particular item to track in this, but rather it's the way all the different puzzle pieces fit together. Does that make some sense?

Adam Hooper (12:40) Yeah, it does. Keeping it high level. It's hard to paint such a broad brush. And I know we're asking you a broad brush to be painted with. And we'll talk more about the individual asset classes and a little bit, but I think before we get to that you, you do MBA puts out a quarterly survey of the originations. When you guys just recently put out the third quarter 21 report you tell us a little bit about that report and then we can talk about some of the highlights and anything that was maybe surprising or any interesting results from that report.

Jamie Woodwell (13:10) Yeah, sure. So, we do a whole variety of surveys of our membership and we try to. Occasionally we'll do the sort of attitudinal questions about, do you feel things are getting better or worse, but we also try and get a lot of hard numbers. And this particular survey is done quarterly of mortgage banking firms tracking their origination, their lending activity over the previous quarter. So it's a great index that shows ups and downs. In lending across different property types, across different capital sources and lets us track really each quarter what's happening in the markets. And this last quarter, as you mentioned the third quarter numbers, my colleague Reggie Booker just recently put out and interesting results, right off the top. The third quarter of this year was the largest quarter on record for mortgage origination. So, more borrowing and lending taking place than we've ever seen in a particular quarter. Some of that is probably some pent-up demand, but then some of that is just a natural flow that, that really follows on the heels of property, price appreciation. And growth in incomes. When we start digging into it, you get more interesting results. Among certain capital sources like life insurance companies really saw the strongest third quarter they've ever seen in terms of lending activity but property types. You see that industrial and multifamily, which one keeps hearing about. We're now on record paces for annual originations for both of those property types, that if you look at the first three quarters of this year there was more lending activity than any other previous three first three quarters of the year and other property types. If you look at office or retail, you saw. Good healthy increases from 2020 and the first three quarters of 2020. But we're not quite up to the 2019 pace in 2019 for total commercial multifamily lending was a record year for activity. So, you do have those important distinctions still coming through by property tax. Yeah. And

Adam Hooper (15:20) We'll put a link in the show notes. So the report I'm curious some of these, if we can maybe pick them out a little bit more the first one that stands out to me is investor driven lenders, right up 319% year over year in third quarter up 234% year to date over last year. We've talked about that again on the show there's a very big push from these non-bank lenders out there at some point though, 300% up in, in that. And you look at hotel lending right quarter over quarter, year over year for Q3 was up 866%. Comparing that to Q3 of 2020 was I think the lowest volume in this report pretty much across the board for almost all of these categories. So how much of that is. On a nominal basis. We're seeing more activity now, but that's somewhat outsized in the year, over year comparisons back to what was the dip of the dip in terms of originations perspective, is that accurate?

Jamie Woodwell (16:15) It's a great point and super important. And I'd say that for this, there's a little bit of, it depends that some of what you're seeing in these percentage increases. Like with hotels that an increase from zero is going to be off the charts, but there was very little hotel lending taking place a year ago. So, any lending taking place now would be a big increase. If you look at the levels of the hotel lending, we're down. The third quarter was less than half of the level from the third quarter of 2018. So that even though there was at 866% increase for hotel lending, we're still at sub typical levels. I juxtapose that with the investor driven lenders, that the investor driven lenders, similarly, a big drop-off in the teeth of the pandemic last year. But when you look at the activity this year, we're really running at record pace that just a number of stars are aligned with the investor driven lenders in terms of their offerings on the one hand and then the types of loans that many property owners and investors are looking for. Are really matching up well. So, I'm an investor driven lender might be more likely to be doing bridge financing to help a, an owner reposition a property shorter term in nature. And that there's just a ton of that activity going on right now. So, the demand for those loans is really strong.

Adam Hooper (17:46) Yeah. Then you mentioned industrial too, right? If we look back at Q3 numbers from 2018 and 19, this year 2021 was up almost roughly 2X over 2019 and almost 3X over 2018. So that's just, that is a phenomenal amount of lending activity in that space. I think, similar to the sentiment that we're seeing of industrial being no signs of that asset class slowing from an investor interest perspective.

Jamie Woodwell (18:12) Right on one of the things we found when we go to do some of our economist geek economist modeling is that originations activity and property sales activity are very heavily influenced by property values. And that when you see property values, go up, transaction sales transactions and lending activity pick up. And when you see values go down, you see that fall off. And I think that's part of what we've seen, the fundamental strength of industrial and multifamily flowing through to on the one hand, the cash flows and the properties doing extremely well, just fundamentally, and then investor interest, meaning that you've got record low cap rates being placed on top of those cash flows. Those valuations are very strong, which means then that all of that transaction and lending activity flows from it.

Adam Hooper (19:01) Is it as easy as a one-to-one between lending activity and investor interest or just general interest or attractiveness of those asset classes you look across multi-family office and the others.

Jamie Woodwell (19:13) It's a great question. I think they're driven by many of the same influences how it comes through. Can be a little bit wonky engineering but without a doubt, I think you see that when interest, when investor interest in a property type picks up you see the financings, whether that be acquisition or refinancing pick up as well.

Adam Hooper (19:40) And we just saw another deal package yesterday from a group. It was a multi-family acquisition in Southern California major Metro, pretty core property. 3% interest only full 10 year term is what they were being quoted. That's just seems absurd. That's that seems absurd. And I think we've been seeing that now since quite frankly for multi-family since the end of last year, we were seeing similar quotes and we haven't really seen too much movement in those rates and in the loan markets. Any commentary on, is that too good to be true? How long is that going to last? Is that something that's should be a concern for people that are underwriting new deals right now? If you're buying something with just outrageous debt and you're trying to underwrite an exit in four to five years, how much of a different rate environment do we need to be thinking about when we're looking at some of these exit projections?

Jamie Woodwell (20:29) And I think that's the importance of underwriting, is to make sure that when someone is making a loan, that they're comfortable with what the risks and opportunities are of that loan. And you've got lenders really working hard on that. I think the challenge has been that the 10-year treasuries at one and a half. When you look at that and you are looking to place money as a lender and this goes for corporate bonds and other investment opportunities too. There aren't a lot of opportunities out there. I don't have you making some tough decisions about your return that you're going to get on the one hand or the risks you're going to take on. And folks trade off between those. I think one of the things on the multifamily cost of funds side, whether it be cap rates or mortgage rates or other things, is that that people feel very comfortable with the asset risk. And therefore, are willing to accept a lower yield, a lower return on that what's perceived as the low-risk investment then they're happier doing that than putting their money into something that might be a higher risk investment.

Adam Hooper (21:35) And do you think, and I guess maybe this is a little bit of a segue into maybe we can talk about some of the specific asset classes and maybe sticking with multifamily. Are there any factors out there that might change that calculus? It seems like multi-family has held up exceptionally well through the pandemic rental rates, occupancy. Stayed very high. We saw rent growth in a lot of markets, after that first wave of the major Metro saw some pretty big downturns, but we've seen some pretty robust rent growth throughout the balance of this year. Are there any factors, either from a demographics perspective, a supply demand issue or anything out there that would be indicative of that dynamic, taking a different turn and multifamily are still pretty bullish on those trends continuing.

Jamie Woodwell (22:20) I think one's always looking at the supply and demand and on the multifamily side right now in the supply. Piece of it. We've got more multi-family units under construction right now than we have at any time since the mid-seventies, I believe it is. So just a lot of multifamily product being built. That's been the case for the last number of years. So, we've been seeing a lot of new products coming out and it's been being consumed and then some that you look at some of the data from. A different data provider and we're at a record, low vacancy rates, actually census numbers right now are that we've got the lowest multi-family vacancy rates since the mid-eighties. And you're seeing strong rent growth, double digit asking rent growth. So that's supply has being eaten up always worth keeping an eye out on particular markets to see if the if they can support new projects. But certainly, what we're seeing there so far is that the demand has been meeting and then some the supply.

Adam Hooper (23:25) And are there any new factors? Given where we're at in the recovery, both economic and health wise that are on the radar or anything interesting, maybe that you weren't looking at before the pandemic that maybe you're paying a little bit more attention now.

Jamie Woodwell (23:41) Yeah. I think that the demographics are things that we'll continue to learn more about over the next year. And some of the changes that we've been seeing, how many of them are temporary? How many are permanent? Did this really change in any ways? The way people are going to consume apartments. And then there the demographics. Shifts just with the millennials being such a big cohort and the gen Z coming behind them being a bit smaller that can have some impacts as well. I don't know if there's one particular piece that that one should look out, but the overall picture in the apartment market has been so dynamic. That one can expect continued change. There would be my hunch.

Adam Hooper (24:26) Yeah. And then how about switching to industrial? That seems, everything seems sunshine and roses in the industrial space, right? It, can you talk about supply demand significantly underbuilt for what the demand projections are right now? Again, I don't foresee any less reliance on. Shipping and logistics and e-commerce as everything continues. And obviously we've got some supply chain issues and support issues. But anything in the industrial sector that's interesting, or maybe a thing to look out for listeners.

Jamie Woodwell (24:56) I think you ran through sort of some of the major pieces there. The one thing I'd throw out is that industrial as well. We're in a really dynamic period in terms of changes in the types of space that are demanded. And whether it be the last mile or other elements of it, just now, increased demand for certain types of space near the ports that are overloaded that those changes in demand seem to be creating more opportunities in industrial. Rather than just sticking with the old standard, that property that's already in place at a major intersection. So that's a space where, as you said, I think the demands likely to be there for a long time. And then the question going to be where supply is constrained because there's more need in places that already are built up. Multi-family or office or other things because they're close to the people that industrial wants to get to or because we just start doing things a little bit differently. But I think industrial is a fascinating space right now.

Adam Hooper (25:59) And so what are some of those drivers? And this is maybe getting a little bit into the weeds from industrial use perspective, but what are some of those factors that you're seeing that are driving that change in demand? Is it more of the proximity to population centers where historically industrial was more on the outskirts? We've talked about clear height on the show. Maybe you can talk a little bit for the listeners. What some of those factors are there impacting that industrial demand?

Jamie Woodwell (26:25) Yeah, I guess it's that that in some ways we are the supply chain. No, one's read about supply chain lately. You're probably a lucky person but the supply chain continues to morph and that as it more X, that means that the nodes along the chain are morphing too which means some new types of space. I think the most interesting piece is that consumers used to be the last leg on the supply chain, where we would go to store and do that last mile delivery ourselves by going and picking up our items and bringing them home. And as we've outsourced that role to others that's created a whole new set of demands for how that can efficiently be stored and then delivered. And so if you think about the way that would traditionally work, when we're the last stage that us being the driver, getting in our car, going to a parking lot, going into the store, which was a warehouse designed for lots of individual consumers going in and picking out their items. And then going back out to your car and driving home there's a lot of efficiency to be gained by eliminating us as the last stage. Both from the driver perspective and the warehouse space. So, if you can design the space, not to try to appeal to us consumers by having lots of things in the middle aisle or at the end of aisles but make it more efficient for people to go through and quickly get the items. That's a significant change in how we use that space.

Adam Hooper (28:04) Yeah. It's interesting. As you're mentioning that I'm recounting my last trips to Costco and yea we are effectively our own delivery service and to be able to, again, shift that burden of effort, more to the suppliers, more to the, shifting that further down the supply chain. I don't know if that speaks, not to throw us all under the bus, but our laziness as consumers, or if that's just more efficient. That's just an interesting shift, like you said of, where that burden of effort really falls in the supply chain, right?

Jamie Woodwell (28:34) Yeah, I think that's right. And that one of the beauties of the whole market is that it reacts. And if you tried to engineer this yourself and put it all in place it would probably be nearly impossible, but with each of us just acting in these ways and having the companies want to get our business it all evolves.

Adam Hooper (28:57) And so that's it in a good dovetail into retail. And I think that is one of the more interesting longer-term trends that we've seen again, already underway pre pandemic, but it was significantly accelerated by the health crisis was the interplay between industrial e-commerce and more traditional brick and mortar retail. Yeah, we've had a couple of guests on recently. They were talking about the kind of sticking power of more of the service-oriented retail versus more of the power centers and bigger box retail, which you, I think we'll start, we'll continue to see more repurposing around that, but maybe take us through some of the different subcategories of retail and what factors you're looking at through more of a lending lens of protecting that downside risk. As you look at the retail asset class.

Jamie Woodwell (29:45) Yeah. And I started each property type that you've asked about. I've said, oh, it's one of my favorites. And I think retail's got some of the most interesting things going on. With going in one direction, pre pandemic, the pandemic sort of shifting it around 180 degrees. And now starting to come out of the pandemic, a question of how much of each of those directions we keep. And to me, the most telling piece of that is one of the buzzwords related to what you were just describing of experiential retail, that pre pandemic, the discussion of lots of lenders was that the focus was more on experiential retail, where you go into a store and you don't come out with a bag with an item in it. You come out as having been changed in some way. Then you had an experience or you had your teeth whitened, or you had your nails done or something else that was in that store that now you're taking home with you again not in a bag. And so that was a lot of the focus pre pandemic, where you had, large, sophisticated lenders looking at nail salons and liking the fact that a retail space at a nail salon in it, because that was something that people were going to continue to need to go to. And couldn't just order online. The pandemic came and we shifted that 180 degrees where because of the health concerns, folks couldn't really go do the experiential retail and we had relatively full pocket books. And so we went out to buy goods and you were more likely to either drop in on a store and get a good to take home with you or go do pick up at the curb. Now that we're getting back, I think we're seeing the service sector of the economy picked back up. So more of those activities happening as there are fewer or we're getting better at dealing with some of the health concerns. And so, I think it'll be interesting to see how much, some of that rejuvenation on the good side sticks around. And if it's then complimented with some of the experiential elements coming back.

Adam Hooper (31:59) Yeah, that was definitely a big trend right before was, thinking of Casper the mattress store, Bonobos, where you have the showroom effectively where you don't actually go there to buy the thing, you go there to order the thing, and then it's delivered to you. We've cut that, going there to order the thing out in the pandemic and how much that will come back, I think is interesting. And definitely one of the trends that we've seen too. And we've talked about before in the show is. The necessity based, right? We've seen more medical going into these traditional retail locations where you would go there for a product you're not going there for a service.

Adam Hooper  (32:30) I'm assuming that once we get through the health end of this crisis, that seems like that's a trend that will continue, that there's the nature of how we use that space. And again, we'll talk about, what my favorite and people again that have listened to the show enough are probably tired of me hearing talk about is office, right? Th the nature of how we're using that space, right? Are there any interesting trends or things that you're seeing where we're at right now at the end of 2021 with the health crisis that you're seeing some indicators of maybe how the use of retail space will be changed going forward.

Jamie Woodwell (33:00) I don't know if I'm seeing them directly just given where I sit. I guess the one observation there would be the reason retail tends to be where retail is because it's accessible to good large population centers and consumers, and in some ways, regardless of what happens. Being near a large consumer population is going to be helpful.

Adam Hooper (33:24) Yeah. Okay. Let's talk about office. I think that is still one of the most interesting areas of what that looks like post pandemic. You talked about there's two risks of what does it look like getting through this and what's it look like on the other side? I still have no idea what it looks like on the other side. And we're, and maybe this is close to my heart, cause we're going through this right now and trying to figure out, as our company, what are we doing for office space and how do we provide the collaboration environment, the culture that we want to maintain as a company, the respect for the health side of the crisis, the respect for the ability to just focus and do work independently. I have no idea. It's again, I think to me, office is one of the most interesting asset classes in terms of what that looks like six months, 12 months, 24 months, five years from now, right?

Jamie Woodwell (34:13) Yeah totally agree. And I think it's in some ways outlook on office right now is an experience of faith that one needs to just trust your faith in which way you think it's going to go, because they really aren’t any strong indicators that I've seen. If you look at data to say, yup, it's going this way, or, Nope, it's gone this way. And that's neither to be positive nor negative about this space. It's interesting.

Adam Hooper (34:42)  And really call it a contrarian view right now. It's there's really no way to take a position on that yet. Is there?

Jamie Woodwell (34:48) If you look at REIT returns that if you look back, May of 2020 in the depths of the early stages of the pandemic, and you look at what investors were saying about re equity REIT stocks. The most. downtrodden of the REITs stocks were hotel and retail, the property types that were most immediately and dramatically impacted by the pandemic. And they were the ones where that sort of first question of, are they going to make it, how are they going to make it through the pandemic was the key question and office and apartment were middle of the pack and then single family rental and self-storage and industrial we're the leaders. If you look more recently office is really the laggard that just about every other property type has regained where they were before the pandemic in those returns. But office is there still, is that uncertainty about what's ahead? So, I think all of that goes to some of the continuing questions that being said people have been congregating, aggregating and offices for hundreds and hundreds of years. So, it's hard to imagine that was yeah, it was either all unnecessary or that technology just suddenly replaced that. I think there are definitely ways in which. We were getting better and better at being more collaborative while not in the same room. On calls with business leaders and others, there is still a very strong desire for folks to be in a common space and to be able to share and collaborate and build a culture.

Adam Hooper (36:26) Yeah. And then I want to ask a question about, again from the lender's perspective. One of the things that we've, we're all anticipating would happen with some certain amount of distress in some of these different asset classes. That, again, I don't think we necessarily saw materialize and I'd like to get your lender's perspective from that. But before we get to that, we can round out the product categories by talking a little bit about hospitality. As you said, just crushed early, early stages of the pandemic. We've seen some resurgence come back. Your business travel is still not quite a thing as much yet. What's the outlook for hospitality? What are you looking at there?

Jamie Woodwell (37:00) Yeah. And, let me do one segue slash go back, which is interesting that, hospitality, you've got the nightly leases and so it can respond. Instantaneously to changes in the economy with office you've got the long-term leases. And that tends to really protect office during downturns. Because if those companies, those tenants are still in place, then they have that lease obligation and they have to continue to pay that rent. And so, we've seen office performing extremely well during this downturn, despite the fact that many offices don't have a full compliment of people in them and they're also, I think we can get down into different markets performing differently and all that sort of thing. On hospitality you saw just the opposite, where with the onset of the pandemic travel was reduced so much that there were no continuing obligations there and revenue really dried up. But now what you're seeing is that's able to turn on a dime as well. So particularly starting with the economy properties and working up from there. You see them with rev par and other conditions that are pre pandemic levels or better. So, from a lender's perspective, you look at that and you feel pretty confident that if a property A was able to get through the pandemic and B is now cash flowing that gives you confidence that a loan that can probably, that's a property that can probably support the loan you're going to put on it. So, I think lenders are reopening their eyes to the hotel and retail and other properties that maybe had big uncertainty clouds over them during the earlier parts of the pandemic.

Adam Hooper (38:47)  To tie in that question about distress and pulling back also to the report originations report Q3. 2021 relative to Q3 2019 is about 30%, 34%. I think of the volume that we saw in 2019. So still substantially less, two thirds less than what we saw pre pandemic for hospitality, originations. Interesting opportunities there. Does that indicate that there is a potentially a pricing dislocation or something there that might be an interesting opportunity again, to maybe take more of a contrarian view in that asset class. And because that's the way it backing into that prior question of, I think there was a lot of assumption that there would be a significant amount of distress, and there was a lot of opportunistic capital raised and opportunistic funds raised anticipating that there would be much more of a downturn in some of these asset classes to go to pick up some of these buying opportunities. I don't think we ever really saw. Materialize through most of the asset classes. What are your thoughts from a lender's perspective? Obviously, we've talked about how this was different, right? This wasn't a financially driven event from for most purposes in the real estate space, but from a lender's perspective, how do you look at that? That the distress didn't really materialize? Are we through that or is there opportunity still for some of those assets? Maybe six questions that I just asked you there. So, I apologize for throwing that all together.

Jamie Woodwell (40:08) No it's great. And you're right. An awful lot of capital raised for distressed opportunities. And one of the challenges is that a lot of the distress that was anticipated didn't come. But then also that given the way the system works sometimes it takes time for that distress to work its way through the system and become an opportunity to invest. And there are lots of reasons for that, but if you look there are still elevated delinquencies and hotel and retail property. Significant shares of the balances of outstanding hotel and retail loans are delinquent, and lenders and servicers are working through those trying to figure out the best resolution. So, some of those might come to the market as loan sales, some as foreclosures, some as other opportunities for distressed investors. The interesting thing about that is that means that they're coming to the market when the market is in a much healthier place. And when people aren't as concerned about the capital. That means that it's also super competitive to put your money to work in those. I guess that's one overall thought is it's pretty darn efficient market. And if one is looking for opportunities to invest generally higher rewards come with higher risk, or, and I think this gets back to your comment on invest in investor driven lenders or you've got an investor who feels like they can reposition a property. And it's not just that it's selling for a discount. But that I'm putting effort into it and making changes to it. We'll put that property in a new place. And I think that's where we're seeing a fair amount of action right now in terms of bridge loans, new construction activity to try and take advantage of that.

Adam Hooper (42:08) And is that a fair characterization of investor driven lenders, as their motivation to make a loan is maybe different than. Some of the life insurance companies or GSEs right? Are they okay taking properties back at the basis that they're lending at? Is that a fair distinction?

Jamie Woodwell (42:25) That's an interesting one. I think, one might generalize that any lender out there. They're lending the money and they've put themselves in a position where they're comfortable if they need to take the property back some wood, some structure the loan, so that there's very little chance that they will be put in that position with very conservative underwriting some less so I might think of it less that way and more that there are different capital sources. So, the money for a life company, is the life company investing the premiums and other fees that have been paid to it that it really wants to make sure it has down the road. And they'd like to get a return on that. So that's a different motivation maybe than an investor driven lender, which has taken an equity investments from a whole series of investors who think that commercial mortgages are a great place to get a return right now. It probably all comes out in the wash to be pretty similar, but there are some slight differences there.

Adam Hooper (43:29) Yeah. So maybe I've been painting with a too cynical brush on investor driven lenders. And again, just going back to some of the traditional equity players that were starting loan origination platforms and trying to get into that space because maybe they were feeling the pricing was getting a little bit overheated and being in the basis as a loan felt more comfortable. So maybe that's just a bias that I have, that I need to let go.

Jamie Woodwell (43:52) I think if you look at the money that goes into commercial mortgages, banks are the largest capital source followed by Fannie Mae, Freddie Mac, FHA then life insurance companies, and all of those are dedicated pots of money that you or I, as a mere mortal, or as a person who's looking to invest money, we can't really invest through those in commercial mortgages through those vehicles. So that leaves really the CMBS market and investor driven lenders as the two places where those with capital looking to put it to work in the commercial debt markets can do so it's really not too surprising to me that there’s more and more interest in that. And that as a result, that investor driven lender market in particular is attracting more and more attention.

Adam Hooper (44:45) Okay my apologies to investor driven lenders out there for maybe mis-characterizing those mentally. I think that is a fantastic overview of everything. Thank you for touching on different property types and also the report. So, as we wrap it up here, we always like to ask the guests what's keeping up at night. And what has you most optimistic right now about the real estate space?

Jamie Woodwell (45:06) On the, keeping me up at night I think it would probably be something in the personal as opposed to the professional life. So maybe I won't share that now. But no, not really a whole lot. It's a fascinating market. It's super dynamic right now. As always there's a lot to follow and a lot to look at if one is looking at commercial real estate so on that side really nothing on the optimistic side, I think the strength of the economy continues to be a really strong sign for commercial real estate. And so that's definitely on the positive piece.

Adam Hooper (45:42) Okay that's I think that's it. That's a good outlook. So how can listeners learn more about all the work that you guys are doing at the mortgage bankers?

Jamie Woodwell (45:49) Anyone who's interested should feel free to go over to And if you want to get particularly straight to our commercial real estate, if you do research, C R E F research, all one word you can take a look at our blog out or our different research releases and then always happy to have folks reach out directly to me and contact information is up there on the website.

Adam Hooper (46:18) Perfect. And we'll have links to all of that in the show notes for listeners out there. Again, highly recommend you go check out all the great information that the is putting out. So, Jamie, again really appreciate your time. Thank you so much for coming on the show today and sharing us your thoughts.

Jamie Woodwell (46:30) Absolute pleasure. Thanks for having me.

Adam Hooper (46:33) Perfect. Listeners, that's all we've got for today. As always. If you have any comments or feedback, please send us a note to And with that, we'll catch you on the next one.

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