Phase 2 - Real Estate 101 (How to or one big idea)

Podcast - How Lenders View The Current Market

Tyler Stewert
September 13, 2021
Podcast - How Lenders View The Current Market

Jamie Woodwell, Vice President of Research and Economics at Mortgage Bankers Association (MBA), joined us on the podcast to discuss their most recent research on how lenders view the current market.

Jamie Woodwell is Vice President in the Research and Economics group at the Mortgage Bankers Association (MBA), where he oversees MBA's research on the commercial and multifamily real estate markets.  Jamie's work covers the macro-economy, commercial and multifamily property markets, real estate finance, servicing, mortgage banking benchmarking and more.

Jamie is an expert on the commercial real estate finance markets and he and his work are regularly cited in the media, on Capitol Hill and in regulatory settings.  He is a regular speaker at industry and corporate events; has appeared on CNBC, Bloomberg and in other popular and trade press; and testified before the Congressional Oversight Panel for TARP.

Jamie also oversees MBA's commercial peer business roundtables including CFOs, CTOs, HR and marketing heads, and leads special MBA projects, including its CREF Careers, Council to Shape Change and the Council on Ensuring Mortgage Liquidity.

Jamie joined MBA in 2004 from Fannie Mae's multifamily group, where he was responsible for multifamily data initiatives.  He has also served as senior director of business development at CapitalThinking in New York, research director at the WMF Group in Virginia, and research manager at the National League of Cities in Washington, D.C.

Jamie is a member of the Urban Land Institute, American Real Estate and Urban Economics Association, the Housing Statistics Users Group and the Real Estate Associations Research Directors.  He is the past president of the ELH Management Corp. which oversees the financing of charter school buildings in Washington DC.


MBA's Research and Economics - Covers the economy, commercial real estate fundamentals, and finance markets.

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RealCrowd - All opinions expressed by Adam, Tyler and podcast guests are solely their own opinions and do not reflect the opinion of RealCrowd. 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.

Tyler Stewart - Hey, listeners, Tyler here. Before we start today's episode, I wanted to quickly remind you to head to to enroll into our free six-week course on the fundamentals behind commercial real estate investing. That's Thanks.

Adam Hooper - Hey, Tyler.

Tyler Stewart - Hey, Adam. How are you today?

Adam Hooper - I'm excited to keep season three rolling along here.

Tyler Stewart - Yeah, we've had a lot of good guests so far.

Adam Hooper - We've got a lot more in the lineup. Who do we have today, though?

Tyler Stewart - We've got Jamie Woodwell, Vice President of Research and Economics at MBA.

Adam Hooper - The Mortgage Bankers Association, they do an annual survey. So this episode we're talking about the 2019 CREF Outlook survey. They basically ask all of their members, who are professionals in the mortgage industry, commercial mortgage industry, what they're looking forward to and kind of what their thoughts are on 2019.

Tyler Stewart - Anytime you get a researcher on your podcast, you know it's going to be a deep dive. This certainly was. After we talk about the survey, Jamie dove into the supply and demand of the four major property types within commercial real estate, which is a very interesting topic.

Adam Hooper - One of the themes that you'll hear probably throughout the episode is the concept of steady and strong. Nothing too crazy that lenders are expecting this year. But kind of more of the same and expecting it to be a fairly healthy lending environment.

Tyler Stewart - Sometimes not exciting can be the best thing to look forward to.

Adam Hooper - Travel and doctors, boring is good.

Tyler Stewart - That's right.

Adam Hooper - Also talked about changing expectations, where returns are coming from in terms of cash flow and appreciation. We'll get the lender's perspective there. But overall great episode. Really appreciate Jamie coming back on the show and giving us what the landscape is for the mortgage market here in 2019.

Tyler Stewart - We'll be sure to include a link to their survey. It's a pretty interesting read.

Adam Hooper - All right, Tyler, well, I think that's enough of us talking right now. As always, we appreciate your comments or feedback. Ratings are very helpful. Every rating gets us in front of a broader audience. If you have any questions, send us an email to With that, let's get to it.

RealCrowd - This podcast is brought to you by RealCrowd, the leader in online real estate investing. Visit to learn more a about how we provide our members with direct access to commercial real estate investments. Don't forget to subscribe to the podcast on iTunes, Google Music, or Soundcloud. RealCrowd, invest smarter.

Adam Hooper - Jamie, thanks for coming back on the show and joining us today here in early 2019. Excited to hear what the latest in your world is and talk about this survey that you guys recently have released.

Jamie Woodwell - Sounds great. It's always fun to sort of take a look at things at the beginning of the year based on the numbers that are coming in from the previous year and people's sort of outlooks for the year ahead. Looking forward to the conversation.

Adam Hooper - Perfect. As we said in the intro, listeners out there we'll have a link to the actual survey and the show notes. If you want to download that as you're listening to this episode. Highly recommend that as we'll be referencing some results from that survey throughout. But before we get into the survey, you just wrapped up a conference down in Southern California, maybe just spend a couple minutes, kind of how is the overall market looking? Maybe what's changed since we were last on and kind of how things are looking in the mortgage industry right now.

Jamie Woodwell - We got back from MBA's Commercial Real Estate Finance Convention out in San Diego, which is always a great way to start the year for us to talk to our members, hear what they're talking about, what their issues are, how they're viewing the market. In some ways this year what we heard was steady and strong, that people looking back at 2018 had seen the year really shape up, strong levels of originations, folks doing what they felt were good loans, lots of activity And we can talk a little bit about how that's spread across different property types and different capital sources. But then a lot of talk that 2019 is already shaping up to be kind of similar, that when you talk to people in terms of their appetites, in terms of what they're seeing in the market, again, maybe some of that momentum and strengths from 2018 really carrying through to this year as well.

Adam Hooper - Good, and that's something that, in a recent episode, we had Dr. Lynn Miller talk about the market cycles and similar sentiment. It's not going to be a massive slamming on the breaks. But it may be not going to be as a aggressive as it's been the last few years and still kind of overall positive sentiment out there, which is good to hear.

Jamie Woodwell - Yeah, it's funny. We tend to think of real estate as a very cyclical industry. I remember one of my favorite quotes was from someone a few years back who said, "Commercial real estate is incredibly cyclical, especially now." Which I don't whether that proves a point or not. But one of the things that we've sort of noticed is that we're used to these ups and downs on the market, either, sort of, if you look at a chart. The line either going up at a pretty good slope or down at a pretty good slope. Rhe last couple of years and what we're anticipating this year or next is more of a plateau, which is kind of different for us. We certainly haven't see that going back to the early 2000s, and even before that I think was kind of rare. It's a really interesting time right now in the market.

Adam Hooper - One of the things that's affecting that and I'd love to get your thoughts on the difference of maybe how an investor that's listening to this episode might differ from a lender or from someone who's looking to take out a loan. But we've heard a lot lately about volatility in the stock market, kind of overall uncertainty around, you know, are we near the end? Are we going to hit that plateau? Is there going to be a bit of a pullback? How much does that kind of current economic picture play into your forecasting or some of these surveys or results that you're seeing from a lender's perspective? Maybe contrast that with what you'd think an investor perspective might be.

Jamie Woodwell - It's a great point. When we talk about 2019 maybe being sort of kind of similar to 2018, you think about a lot of the key commercial real estate drivers. And they're pretty similar. So the economy remains pretty strong, interest rates remain low, property markets are steady, financing's remaining competitive. For maybe the one big change out there a change is a little bit more uncertainty probably this year than last, and a lot of that uncertainty coming from places outside of commercial real estate, whether that be global growth, maybe some trade questions, things like that. When you put that question before maybe a commercial real estate investor versus a lender, an investor is tending to look at more for the upside on properties and a lender is going to be more concerned about the downside. That foundational piece still makes people feel pretty good about the downsides or managing those. I think there are some questions on the upside about where upsides come from and maybe a little bit more focus today on incomes that properties are driving, more so than maybe upside in just market appreciation.

Adam Hooper - Okay, now, you're going to send me on a little tangent here of these kind of opposing forces, which I've always thought fascinating. You've got, as you said, investors and managers that are out buying these assets. You're there in it see what is that upside. You've got this opposing view of the lender that's figuring out how do we mitigate or prevent or limit our downside? Do the best real estate investors share that similar downside protection view, or are they more looking for the upside? Maybe we can just kind of pick that apart a little bit. Because I think that's always been fascinating to me of how these opposing views somehow come together and this whole system works when you've got such differing focuses or basis of opinions here.

Jamie Woodwell - Right, and it's one of the... Not to get too theoretical, but one of the beauties of the capital stack, that you can have investors putting money into a commercial real estate project at the level of risk and return that they both feel most comfortable with and that best matches their, either their investment objectives or asset liability matches or what not. It's really neat the way then that you do have those different places to play. Rather than them being on opposite sides, I think they're just, you can think of it as them taking different, holding different places in that capital stack, and one being more comfortable with one type of investment, say, a lower risk, lower yielding investment, and another being willing to take on a little bit more risk but with the potential for more upside as well. Does that make sense?

Adam Hooper - It does. Everybody in the ecosystem, there goal is to make money. Right? That's why we're investing in these deals is to have a good financial return. And that is interesting, right? That's all kind of on the same team, it's just like you said, maybe one is willing to accept a little different risk profile and they're more focused on mitigating those downsides. And a guy I used to work with, he said when he went through credit training school, if you originate a portfolio of 20 loans, and you have one loan take a loss, you can wipe out the other 19. And so from a lender's perspective, whether that still holds true from just a numerical perspective, but from a lender's perspective, mitigating that downside is their sole focus and getting an appropriate return for that, whereas, equity investors are more looking for what that upside is. I guess should equity investors take a more downside protection approach, given where we're heading into, given the stage of the cycle where things are maturing a little bit more. Are you starting to see more of that kind of downside mitigation view from equity investors or has that not changed much?

Jamie Woodwell - What you're seeing if you look at things like the Pension Real Estate Association survey, you're seeing changing expectations for where the returns on commercial real estate will be coming from. Again, more focus on the income side than on the appreciation side. That changes then maybe a little bit the types of deals you might be focused on or how you're looking at those deals. That would be the way I'd think of it is that investors are always adjusting to the market, looking at what opportunities are available, again, what the risks are versus the rewards there and making the decision about how comfortable they are or not about that trade-off.

Adam Hooper - And then when a lender or an equity investor, when they're looking at some of these trends, they're looking at some of these factors that impact these decisions, are they looking at similar datasets or are there datasets that are more important for a lender's perspective versus an equity investor's perspective?

Jamie Woodwell - I think there's probably a good Venn diagram there where the investor is certainly looking more granularly at the operations of the property and how to maximize the operations there. The lender's getting a lot of great information from that borrower, not just at originations but then generally ongoing. They might be getting regular property inspections to sort of check on the physical well-being of that asset. They'll be getting some income statements to look at how the property's cash flows are doing. They might be reviewing leases as those come up. A lot of good information going to the lenders to help them assess the ongoing health of the property. That's after a pretty rigorous underwriting up front where they're really getting into the nuts and bolts of that property. There's a great flow of information where the lender is getting a lot of that information that the investor has. And then the lender has got that folio look, too, of across a book of loans, what kind of mix do they have geographically, what kind of of a mix do they have by property type? What are their alternative investments, whether that be corporate bonds or something else. So there, I think the lender goes to a place that the property investor really isn't looking.

Adam Hooper - Then in terms of other, again, we talked about kind of stock market volatility and some of these other economic indicators, have you seen any changes in some of the indices or factors that you look at now. Or are you looking at any additional factors now, given where we're at in a cycle, and then heading into 2019 here, or does that remain fairly consistent?

Jamie Woodwell - There's a fair amount of consistency so the two sort of long-term keys for lenders to look at have been loan-to-value and debt service coverage ratio. The first being if you look at how much money you're lending, how does that compare to the value of the asset? So is there value in that asset? If it needs to go be claimed to support the loan, do you have the value there? So that's a pretty steady one that folks have looked at. And there you're looking at property value appreciation and we've seen very strong appreciation over recent years. That PREA survey, I think that's expected to slow some. The other key measure, the debt service coverage ratio of the cash flow from the property. How does that relate to the mortgage payments that are required for that loan? And there, again, the lender wanting to make sure that the property throws off sufficient income that the loan can continue to be paid. There, it's been interesting with a low interest rate environment that's not been as binding as it sometimes could be. That's one that I think probably in the coming years we'll be seeing a little bit more focus on if we didn't see interest rates rising.

Adam Hooper - And have the debt service coverage ratios, so that sounds like that's remained relatively consistent over the last little while?

Jamie Woodwell - Those--

Adam Hooper - Handful of years?

Jamie Woodwell - Yes, an actually when rates have been low, you've seen what would have been traditionally probably some pretty sturdy debt service coverage ratios out there, again, because of the lower interest rates. Lender may look at, when they're stressing a loan, may look at if rates rise, then what might the debt service coverage ratio look lik at payoffs.

Adam Hooper - And is 1.2 still kind of the barometer standard-ish level of a debt service coverage ratio? Or where has that kind of settled out?

Jamie Woodwell - That's certainly one that you hear a lot about. One of the really interesting things, I think, in the market today is the variety of different lenders out there. We were talking a little bit earlier about the ability for investors to be at different places in the capital stack, based on their risk-reward tolerances. You have different lenders who are willing to take different levels of risk. And some may be comfortable only with really conservative loans, so they would be looking for lower LTVs and higher debt service coverage ratios. And they would have a different set of thresholds than a lender who's maybe looking to try and take on a little bit higher return and willing to take on more risk associated with that. So they might have a lower DSCR and a higher LTV.

Adam Hooper - And just for listeners out there, just to put some actual numbers around this, again, debt service coverage ratio, that's that ratio of cashflow from the property that's available to pay mortgage payments, essentially. If you're property's throwing off a million two in cashflow and you've got a million of debt service, you're at 1.2 debt service coverage ratio. A million of cashflow, a million of debt service, that would be a 1.0, which would be inherently riskier than something that's a 2.0%.

Jamie Woodwell - Exactly right.

Adam Hooper - Yep. We kind of will see those, again, sounds like not much is going to change there. Kind of steady state.

Jamie Woodwell - That's right. One of the other interesting things we are seeing in the market right now is that if you think about a traditional capital source having a particular type of money, a bank having a particular type of money available, Life Company, the GSEs, CMBS, debt funds. As different lenders have gotten comfortable with their own lending and are then looking to try and put money to work, you are seeing a little bit more blurring of some of those lines. So you might see Life Companies, do some loans that aren't traditionally what you might think of as a Life Company loan. And similarly for banks and debt funds and others. So it's, again, a market where a lot of lenders really like what they've been doing in commercial real estate and want to do more and are trying to figure out the ways to go ahead and do that.

Adam Hooper - Yeah, and also we talked awhile ago on the show about a trend where we were seeing traditionally equity investors getting into the debt space. And so if they were feeling that the prices were maybe overheated from an equity perspective, they were going to come out with a debt fund and maybe they can get into these properties at a higher loan-to-value, 80, 85%. And then if they had to take it back, they like that basis of 85% much better than paying full market value today. Have you seen that continue? Has there been any shifts in that kind of typical equity player getting involved in the debt space?

Jamie Woodwell - Well, it's a great question. And we actually, to close out the opening general session at our CREF convention, Mike Fratantoni, our Chief Economist, and I closed with a bingo card. Of the key words that you would be hearing over the next number of days. And it wasn't quite right in the middle, but pretty close there was the word debt funds. It was a hot topic at our convention. And so without a doubt, we've been seeing a lot of activity from those groups. I think when you look back at 2016, we tracked about $32 billion of loans that were originated by intermediaries for debt funds, mortgage REITs and other investor-driven lenders. We saw that grow to 52 billion in 2017. And our early estimate for 2018 was about 67 billion.

Adam Hooper - Wow.

Jamie Woodwell - It's a sector that has continued to grow. As you mentioned, a lot of those loans might tend to be bridge loans or construction loans, some loans that some of those more traditional sources, like a life insurance company, a CMBS, a GSE, might be less likely to do. So a lot of growth there. Again, a lot of attention being paid to that sector.

Tyler Stewart - What do you see as the impact for borrowers if we have more lenders fighting for the same piece of the capital stack?

Jamie Woodwell - I heard a couple of times at the conference, it's a great time to be a borrower, that there are lot of different options and both in terms of the types of loans that are out there, short term, long-term, floating rate, adjustable, different levels of leverage all across the board. A lot of options and a lot to work through if you're a borrower to make that you're really finding the right loan for you and for your property.

Adam Hooper - Perfect, well, why don't we take a minute here and kind of switch gears into the survey, the outlook survey that you guys did. Can you tell us a little bit about the setup of that, who the participant are, where you collected this data, and then we can kind of dig into some of the goals of the survey and what you guys found?

Jamie Woodwell - Absolutely. This is something that we started back probably four years ago or so to get a read from MBAs members of what they're anticipating in the year ahead. We do our own forecast that we update a few times a year of what originations volumes will be, what mortgage debt outstanding level would be, that sort of a thing. But this is our chance to go out to the people who are actually doing the deals to get their read. And what we do is each December, we send a survey out to leaders of the top 60 mortgage origination firms, asking a series of questions about just their outlook on a variety of topics, not wanting to get too down into the weeds, but, again, assess what they think the following year will look like.

Adam Hooper - Perfect, and so what's the word on the street?

Jamie Woodwell - It mirrors a lot of what we've been talking about. Expectations are for steady and strong. If you look at what folks anticipate for originations activity, they're expecting a slightly up year. If you ask them about the appetite of lenders, they see a very strong appetite, the majority of them see a very strong appetite amongst lenders. If you ask them about borrowers appetites, the majority would say a strong appetite from borrowers. So slightly stronger appetite from lenders than from borrowers in this survey. And also a little bit of a downshift in 2019 from 18. Not major, but expecting that there was a little bit more appetite last year from lenders to lend and borrowers to borrow than what we might see in 2019.

Adam Hooper - Anything in the survey that jumped out or surprised you that was unexpected?

Jamie Woodwell - It probably doesn't quality as news, because I think was probably most interesting to me is the fact that a lot of things didn't really change dramatically, that a lot of that appetite, again, is expected to remain strong, that originations are, again, probably, if you take the midpoint of respondents up a little bit, but not dramatically. Some of the capital sources that you see folks focused on are the ones that we've been seeing the growth in, so those debt funds being a source that respondents expect to grow probably a little bit more quickly than other capital sources. And maybe the CMBS and banks where we saw a little bit of a drop-off in originations in 2018 from 2017. You know, folks with maybe a little bit lest of an expectation that those capital sources would increase their lending than other sources might.

Adam Hooper - And so overall, generally, the sentiment between borrowers and lenders was relatively aligned last year over the outlook for this year.

Jamie Woodwell - That's correct, and just to make sure we're clear on this. This is asking the loan originators, mortgage bankers, what their view of borrowers' appetites. Rather than going to borrowers and asking them how much they're going to borrow, we're asking the originators who are out there talking to borrowers day in and day out, what they're hearing from folks and what they're anticipating.

Adam Hooper - Got it. That would be interesting. So we've got David Bodemer with MREI and some of the surveys they've done. That would be an interesting collaboration to ask the actual borrowers a similar set of questions and see how well the originator's view of those borrowers lines up, maybe we've got a little collabo in the works here.

Jamie Woodwell - That sounds great. That'd be fun.

Adam Hooper - Good, so if the overall trend, again, not a dramatic pull back from desire to borrow or willingness to lend, but a softening in that over what we saw in 2018, what sort of impact do you think that might have for the overall kind of real estate market here in 2019 going forward?

RealCrowd - Right, great question. That brings us back to that word plateau a little bit. When we look at the numbers from our quarterly originations index, and we'll get more precise numbers in about three weeks or so on what 2018 as a whole shaped up as, but when we look at our quarterly numbers, it looks like 2018 was pretty much flat to 2017. And then we look ahead, I think we see that again, and that being born out. What that means is that we are at near record levels of originations activities. We're not plateauing at a low level,

Jamie Woodwell - we're plateauing at a very high level. And similarly when you look at how that matches up with property sales activity, the mortgage originations and property sales activity tend to be joined at the hip. So that would say, again, probably another strong year for sales, but not necessarily some of the dramatic increases that we saw back before 2015. So probably not dramatic decreases that we saw back in 2008, 09, 10. It's back to steady and strong would probably be the indicator.

Adam Hooper - There's another interesting interplay or question here of what will the impact on pricing be? You've got a lot more players in the space, a lot of fresh capital coming into the space that wants to loan money. Maybe they're not as willing to loan money as they were previously. Will the mass of new capital make up for that slightly reduced willingness to loan? What will the impact be? Do you think, again, obviously crystal balling here, but what kind of an impact might that have on overall pricing of loans out there?

Jamie Woodwell - Right and if you look at whether it be loan pricing or cap rates, or spreads on other securities or products, we have seen the overall low interest rate environment, the fact that those rates are staying lower longer, competition in the market have compressed all of those. So we're at that, for instance, on the cap rate side, we're at places where the cap rates have been getting tighter, even in the face of rising long-term interest rates. So I think we have seen the impact of that competition from investors of all walks to get money out the door and into investible assets, and that having an impact on pricing, absolutely.

Adam Hooper - We even talked in our last episode, we've been saying for probably eight years now, interest rates have to go up. Maybe even 15 years we've been saying interest rates have to go up. Are interest rates going to go up?

Jamie Woodwell - We've got our forecast if you want to go to, you can download it. Every month we update it. And our current interest rate path is upward. We do anticipate rates are going to increase over the next year. If you were to compare the path today versus the anticipated path back a year, or two years, or three years ago, it is both lower and flatter than what it would've been previously. And I think that's pretty much the case for any economic forecast you would look at out there. So if you take that and apply that same view to investors, and if economists aren't alone in this expectation and the changes in those expectations, to the degree investors have been anticipating rates to go up, and for them to be higher than they are and rising more quickly, if those attitudes change, strikes me that then can bring those cap rates spreads and other spreads in tighter than they otherwise would've been. So you don't have that built in to the base rate, that higher rate going forward. So I think it's all part of an interconnected web there that does sort of rationalize where we're seeing some of the cap rates today and other rates.

Adam Hooper - That was going to be next question was how much of that potential for rate increases is priced into today? Or will there be a bigger reaction if we start to see some of these indices or longer-term rates pick up? Do you think that's going to have a pretty big price movement in terms of values or is that already sort of priced in to where the market is today, do you think?

Jamie Woodwell - My own take would be that there is an expectation out there of rising rates and that that would be built in. If we saw numbers coming in that were leading people to change their expectations in a material way, either up or down, one would assume that would flow through to rates. The one thing I'll throw out that's kind of interesting, if you look at cap rates and cap rates changes over time, they don't necessarily perform or behave the way a lot of us talk about them performing. So the general thinking is base interest rates rise then cap rates would rise in sympathy. If you look over time to the degree we've had bullish periods and interest rates were increasing because of a general bullishness about the economy. That same bullishness generally bled over to pricing of commercial real estate and other assets, which would then push the cap rates down. So oftentimes you'll see base interest rates, long-term interest rates rising, but cap rates actually declining over that same period. So I think a lot matters on, a lot depends on what's driving those base interest rates in a particular direction and how that changes investors' sentiment about commercial real estate.

Adam Hooper - Perfect. We want to spend some time, too, here and talk about... Just do kind of a quick hit on some of the different asset classes. But before we get to that, was there anything else from the survey? And, again, we'll have links in the show notes for listeners to be able to go get a copy of that. Anything else that you discovered or learned in the survey that you want to touch before we kind of go into the property type outlooks?

Jamie Woodwell - Lots of great information. I love looking through it. So glad your listeners will be able to take a look. Overall, the theme, as I mentioned, is steady and strong. It is interesting. One thing we've talked about a little bit in the past is that the last number of years we've had an awful lot of tail winds and not a whole lot of headwinds. You do see in some of the responses that there is an expectation that will start to feel some headwinds. Nothing too dramatic, even with them, again, the sentiment was steady and strong. But there are a couple of questions where you can see folks thinking about rising interest rates, impacts on cap rates, what we might be seeing in terms of the economy or trade issues, that sort of thing.

Adam Hooper - We'll have to check back in here, maybe end of the year, and see if any of those are materializing and what's going on again.

Jamie Woodwell - Sounds good.

Adam Hooper - Perfect, well, let's spend a little bit of time on some of the different property sectors. In your survey, did you guys ask specific about property sectors? Or do we want to just kind of generally speak about kind of what you're seeing in the industry.

Jamie Woodwell - We got one or two data points that maybe I can pull in, but probably worth having a more broad conversation.

Adam Hooper - Broad, okay. We'll start with multifamily. We see a lot of multifamily on RealCrowd and that's been one of the more I think kind of voluminous asset classes out there in terms of trades in our industry for sure. I'll credit Tyler to his research here on these show notes. But apparently you recently said multifamily is like the Energizer bunny. What were you getting to there?

Jamie Woodwell - Sometimes it's horrible when things live on after you say stuff like that. It really is remarkable. With multifamily, it just keeps going and going and going. But this is a property type that has had a very long, very strong run and continues to, so I think property values are up about 9% over the last year. That's down a bit from the 12% or so that it was up. Property values for multifamily were up a little bit earlier in the year. But still strong growth there. We continue to see a lot of demand, that millennials, the growth continuing in the 19 to 24-year-old cohort is continuing to demand rental properties. So you got that going. And at the same time, we've got 600,000 multifamily units under construction right now. A strong level of new development, too. All of that means that we're seeing vacancy rates tick up just a little bit, but they remain under 5%. We've seen asking rents continue to grow and NOIs picking up as well. So the multifamily market, sort of on the fundamental side, has continued strong on the lending side. It continues to grow as a share of total mortgage originations. So most likely when we come out with our numbers in next month, we'll see that multifamily was the largest share of mortgage bankers originations that it's ever been. So the industry in the sales side, in the origination side, and elsewhere, just relying more and more on multifamily as the key assets.

Tyler Stewart - I got a question on that. If we have increased interest from lenders and multifamily, what does that do the price of multifamily?

Jamie Woodwell - Great question, and I think we've seen the prices rising, as I mentioned, at a good strong clip. The financing of it has been a part of that. So one can get a great loan for a multifamily property. But I don't think it's really driving the overall pricing. If you look at the declines in cap rates for different property types, they've really been sort of declining almost in lock step. It's not as if multifamily is out of step in terms of the cap rate declines from other property types. That would seem to say that investors are not being swayed to multifamily or swayed on pricing for multifamily in any way that they're not being swayed for other property types because of financing. But if you look at what's been driving the property prices in multifamily, you've had this long run where both cap rate compression and NOI growth have both been really driving that value game. The NOI growth has been really pretty phenomenal there for a good, probably, almost decade at this point.

Adam Hooper - Are you seeing that fairly consistent across either geographies or asset classes or product, you know, class A, B, C, or are there discrepancies between some are growing faster than others? Or is that pretty consistent across the board with multifamily?

Jamie Woodwell - Great question and what's interesting there is you can really see some of the impacts of supply. A lot of the supply that's been coming online has been sort of higher quality properties in larger, more liquid, markets. That's actually where you're seeing some of the rent growth slowing, and some of them have values slowing. You're seeing actually bigger pickups in, say, class B and C properties, secondary tertiary markets to some degree. One of the things that's really interesting There's some great data from CBRE from their cap rates survey that lays out by different markets what cap rates are for different property types. One of the things you can see in that data is that they, multifamily investors, there's much less differentiation by market in terms of the cap rates than there is, say, for office properties. If you think about what's driving that differentiation, a multifamily investor is more likely to view a property in a secondary or tertiary market more like a primary market property than an office property investor would. One really interesting takeaway on the multifamily market that I think is probably a pretty stabilizing factor compared to some other property types.

Adam Hooper - It's very interesting. We'll link down to that cap rate survey in the show notes as well for listeners out there. But kind of echoing steady and strong for 2019 in multifamily it sounds like.

Jamie Woodwell - That's certainly the way it's looking.

Adam Hooper - Okay, since you just mentioned office, let's take a look at office. How is the general office sector seen? We've talked a lot on the show of this urban versus suburban office, maybe long term there's going to be more of a desire to move back out to suburban offices after we've seen this kind of core urbanization recently. What is kind of general trend on the office space right now?

Jamie Woodwell - Right, one thing that I think sort of crosses all the different property types but is seen more in office lately than in maybe some of the others is more of a focus on the space as a service and less as just the four walls and the floor within. So as tenants are looking for space, they're looking for space that will attract their employees, that will serve as sort of a definition of who they are that will have good amenities in the property and hopefully in the community. All of that's having some changes in the space that's being demanded and to the degree companies are looking to use their space more efficiently. That also is sort of promoting certain properties, more likely, more recently, build properties. A lot going on there in the way the space is being used. That overall efficiency being something that means that despite the fact that we've added 19, 20 million jobs over the last decade or so we haven't seen the commensurate pickup in demand for space because companies are being so much more efficient in the space. All of that is continuing to get work through on the office side. But, again, it's sort of, I think one of the things we saw in our numbers for 2018 and we'll see how this plays out in 2019 was that multifamily and industrial were a little bit on one side as investor darlings and property types that investors were more focused on and we saw a great lending activity to office a little bit on the other side and then retail a little bit more so.

Adam Hooper - I'm curious, I don't know if there's been any ways or research that's quantified this, but as you mentioned 20 million plus or minus jobs in the last, what, eight, nine years within much higher utilization rate of that space. Historically you would think 200 plus or minus square feet per employee. We're seeing 100 in some of these coworking spaces, maybe even less. Has anybody quantified what that soak up in demand is with this higher utilization rate? Are we at a spot where we're reaching peak supply or peak demand for the supply of built space? Or kind of where we at in terms of the available space with this higher utilization relative to the current inventory of space?

Jamie Woodwell - Yeah, great question. I haven't seen any numbers on that. And I think that's a great question of when you think about the employees being added that if you think about, say, 150,000 employees being added a month, how does that balance off? That increase in demand, how does that balance off with the decrease in demand from companies being more efficient? And then the other piece of that that I think you're driving at, too, is how far through that efficiency are we?

Adam Hooper - Right.

Jamie Woodwell - Are we at square? Most of the companies that will go through that efficiency have already done so or not. One other piece that I don't have any numbers on, but I'll throw out there as well. I think a lot of those trends that we've been seeing really kicked off or got their legs under them during the recession. And what you've had during the recession was you had companies looking to cut costs in just about any way they could and employees not having a whole lot of ability to drive office space usage or design. An employee was more happy to have their job and the space around it was less of a concern. Kind of interesting now where companies might have a little bit more cash in hand and they're also working very hard to try and motivate and keep their employees. And does that change that calculation of how companies are thinking about their space and that usage? I'll be curious if we see some trends there, too, driven by that.

Adam Hooper - Yeah, I know you mentioned retail. Multifamily, industrial, were kind of the darlings of the investor world. Office and retail kind of got a little pushed aside. Retail, we did an episode awhile back on the retail market, there's going to be a couple coming up here also on the kind of state of the retail world, sales, retail sales, drives so much of the a lot of percentage rents, and just the health of the retail economy. Any trends that you're seeing within retail sales that would indicate kind of the health of the retail industry one way or the other?

Jamie Woodwell - Right, unfortunately, with the government shutdown, some of the data that's coming out of the federal government has either been delayed or the most recent retail sales numbers actually drew a fair amount of skepticism, because they were a little bit darker than I think many people had anticipated and also didn't necessarily match up with what some of the other indicators are that are out there. So I think we'll see in another month or two on those headline retail sales numbers sort of what's to come from that. I think two key trends there. One, just the ecommerce and the bricks and mortar as one key theme. And there were up to about 9.8% of retail sales are coming through ecommerce based on third-quarter census numbers. That's been growing at about 80 basis points a year. Sort of a slow steady uptick in how much is coming through ecommerce. That still leaves a lot of room for growth in both ecommerce and in bricks and mortars. So we'll get about what that means. Through the third quarter it meant that over the previous year ecommerce had grown by 14-and-a-half percent and bricks and mortar had grown by 5%. So still good steady growth in the bricks and mortar side. So as long as that consumer continues to be out there spending, you can see both the ecommerce and bricks and mortar rising and of course then the dual strategies of more of the internet-only companies starting to open up bricks and mortar presence. And bricks and mortar also had delve in more into ecommerce. The one other key theme I'd say is the services versus goods.

Jamie Woodwell - And if you think about the types of retail that are out there, the fact that services continue to rise and goods are facing more challenges. If you think about the number of nail salons per capita growing over the last decade or so and the number of, say, hardware stores declining. A lot of different trends going on within the retail space. But, again, I think that ecommerce and focus on services being probably the two key themes.

Adam Hooper - What I think, too, one of the things that we've been watching and I've talked about and will continue to monitor is similar to the office space equation that's change and use towards more experiential showroom space versus having to stock shelves an shelves of inventory. I just saw there's, not to plug a product, but there's a Casper, the mattress store that is online only. They're opening up a store in the mall here in Portland, which is kind of bizarre. You've got this internet-based company that's opening up a physical location for a showroom, which is a very different use of that space than what you would typically think of, you know, the kind of traditional retail experience. So I think that'll be an interesting one to watch and how the shift of that more experiential focus of these showrooms changes from the need to stock inventory in that same space. That'll be an interesting shift as well.

Jamie Woodwell - Yeah, and I think that's a great point. And building on that a little bit. If you think about the traditional running of a retail center, probably one of the things you wanted was a long-term lease. To the degree we've got changing retail trends and demands. If we're moving to a place where tenants are going to be more fluid, that changes the way you might think of a successful retail center. And back to the lender perspective, it's hard to get away from the fact that it's really comforting if you're making a loan to see a long-term lease in place. But is that actually what's best for the property? I think those are some of the challenges that lenders are having in trying to get their arms around sort of this new world of retail.

Adam Hooper - And now growing ecommerce obviously means more tailwinds for industrial?

Jamie Woodwell - Yeah, exactly. There's been just surge and demand for industrial space, for all different kinds of industrial space. And not just in terms of location and wanting to be closer to the end delivery, that last mile, but then also what that means for the space itself, so the unheard of having multiple floors of industrial. If you're in a close end location and can work the logistics out, that's suddenly making that land much more productive. A lot of really neat things going on industrial. And as I mentioned, what we're seeing in our lending activity from the mortgage originators is that that's where we've really seen some strong growth. Looks like originations of industrial were up about 12% in 2018 compared to 2017.

Adam Hooper - And then similar to the question with multifamily space, are you seeing that uptick in all the different flavors of industrial? Were they looking at more kind of last mile fulfillment? Or if you're looking at more kind of bulk distribution warehouse, is it pretty well across the board?

Jamie Woodwell - Yeah, great question. We don't have the details on that, unfortunately. So can't really say where the lending activity is going. But I think it's probably fair to say that it's moving in lock step with the investor demand.

Adam Hooper - Interesting. Yeah, industrial's been, you know, again, I think the fundamentals are there. You got to have a spot to store their stuff, and if they're not storing it in the retail locations, and if that shift to the experiential goes, it's got to be housed somewhere. So I think from what we're hearing, too, again, investors sentiment, I think there will be a continued desire for industrial just as that shift to the whole buying experience continues to grow and evolve.

Jamie Woodwell - Makes sense.

Adam Hooper - That's a pretty good overview. That's a lot of really good information. Is there anything that we didn't touch on or that you wanted to discuss or maybe any kind of final thoughts from the conference or what you're seeing out there?

Jamie Woodwell - We've covered a lot of ground. In the end, I think some of the key points from the lenders perspective that we're still at a place where rates are pretty low by historical standards, values are strong. Incomes are in a good place. So while the survey that we did expected strong but not very strong appetite from borrowers, it's really hard to imagine better times than today to be in the market if one's got a property and is looking to finance. And that's also then driving a lot of the lenders to look at their loans. And their loans have been performing extremely well, which is why I think they're looking to try and get even more of them on their books.

Adam Hooper - Perfect. If listeners out there want to hear more about what you guys are up to at MBA, why don't you give us the website again where they can get some of this info and research and we'll put that back in the show notes.

Jamie Woodwell - Sounds great. So if you go to you get to our overall website. And if you want to get straight to some of the research I've been talking about today, we are at

Adam Hooper - Perfect. Anything upcoming in the next six to eight months from you guys that we should be keeping an eye out for or listeners can be looking out for?

Jamie Woodwell - We'll continue to be doing our releases every quarter at the end of the quarter. We release our quarterly data book that's sort of a summary of where the markets are and bring together a lot of our research, some data from other folks. We have a Technology Solutions Conference coming up next month where we'll have folks in the commercial real estate finance world talking about the technology that's going on, our Servicing and Tech Conference the following month. And then in July something we just started last year, our MBA's CREF Market Intelligence Symposium. It's a little bit deeper dive. We bring some of the researchers together to really dig into and present on numbers, on a whole bunch of topics, whether it be property markets, whether it be modeling portfolio performance, discuss CSIL, just a whole host of things where if you like numbers, it's a pretty interesting thing. If you don't, it might still be interesting, but a little less so.

Adam Hooper - That's a great overview. And, Jamie, we really, really appreciate your time again today. Thanks for coming on the show and we look forward to the next time we can have some more interesting research to talk about.

Jamie Woodwell - Absolutely, my pleasure. And thanks so much for having me.

Adam Hooper - Absolutely. Well, listeners, as always, if you have any comments, questions, feedback, if there's anything you want us to pass along to Jamie for further questions, please send us a note to With that, we'll catch you on the next one.

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