Before introducing the two real estate company executives, luck Speaking at Thursday's Future of Finance conference, senior editor Sean Tully described how the housing sector continues to “defy gravity”. He said there are many reasons why house prices should go down, but they just refuse to do so.
He then led lively and wide-ranging discussions, moving back and forth from residential to commercial real estate. Sean Dobson, Chairman, CEO and Chief Investment Officer of Amherst Group; and Julie Ingersoll, Chief Investment Officer of Americas Direct Real Estate Strategies at CBRE Investment Management. dug deeper into why this space persists in most places.
Commercial real estate is particularly susceptible to rising interest rates after a long period of low interest rates prior to quantitative tightening. Offices have become a symbol of distress, as they face not only rising borrowing costs but also a significant drop in demand. “I'm here to tell you that this headline rings true for the office,” Ingersoll said. So that's a bad headline.
Ingersoll stressed that office vacancy rates are up to 18% and could soon reach 20%. “We've never had anything like this before,” she says, but these numbers also don't include sublease vacancies, which are twice as high historically. Offices may only represent 20% of all commercial real estate, but this will be a “century-long phenomenon” as offices feel the economic pull, she said.
As Tully moved back and forth between commercial and residential use, the topic shifted to how the former could be converted to the latter to address the sector's historic inventory crisis. Look at the mall, Ingersoll said. “I drove to Rhinebeck the other day,” she said of this scenic but rural corner of New York's upstate Hudson Valley. They have not yet been demolished and reused. ” This taught her something important about the fundamental value of this type of real estate. She says, “Many of these commodity office buildings have only land value and must be demolished and redeveloped,” and conversion to multifamily housing doesn't always happen because of the cost.
As Mr. Talley seeks answers on how to solve “America's new housing shortage,” Mr. Dobson argues that the “lock-in” effect of many long-time homeowners locking in their mortgages has caused I mentioned how home sales are frozen. Rates lower than those offered by the current market. He added that it's going to be really hard to unpack because of the 30-year mortgage, which is “really unique to America.” (No other developed country does mortgage financing exactly like Americans do, since President Franklin Roosevelt's Great Depression-era firefighting efforts gave rise to this unique invention.)
Ingersoll cited another uniquely American factor as a cause of the inventory shortage: the country's federal nature. Housing provision is a “municipal-by-municipal affair,” she said, and zoning controls built into the autonomy of cities and states have been in place since the American Revolution. “And, unfortunately, what NIMBY-ism is really preventing us from providing enough housing stock, as an industry, as a nation, and certainly from providing enough affordable housing stock, is there.”
NIMBY-ism, of course, is an industry-famous acronym that means “not in my backyard,” a phrase that applies to all the obstacles that plague and impede housing development. She described California as something of a homeland for NIMBYs, but the truth is that after years of policy failures and infamous NIMBY episodes, California has become a kind of ground zero for the housing crisis. California recently passed a law that removes obstacles to housing construction. It's not always enough.
“As Julie said, the city can pass laws, but it's more than that,” Dobson said. “There are still neighborhood associations, there are other barriers, and they don't want their neighborhoods to be as dense. The tension between landowners and landowners trying to protect them is the real source of friction.”
Dobson then touched on another feature that hovers above the gravity of housing economics: remote work, which is having a huge impact on the world of real estate. While this partially fueled the ongoing pandemic housing boom through soaring home prices, it triggered an office shake-up that led to the slow demise of Class C buildings. Dobson said he doesn't think remote work will go away completely. “I think working from home is effective,” he said. “And I think his two days a week or his three days a week in the office is something that's been going on for us for a long time.”
He cited the absurdity of commuting culture. At his company's headquarters in Austin, Texas, “some people were working in very important, non-creative jobs, but they were in critical positions…They could drive within an hour.” , working alone or in teams sitting at a desk,” he said. We both ran some non-time sensitive errands and then drove the hour home. Why would you let them do that? ”
