CREFC Recap: No Fat Pitches

I’ve been going to CREFC for around ten years and, during the bumper years of growth and relative stability before COVID, the constant trope was to ask what “inning” we were in at that particular moment. Some rambunctious speakers even suggested we were in extra innings after such a long, positive run. Based on the content and feel at the Marriott Marquis last week, I’d say the players are out on the field trying to finish the game…but they’ve brought in the left fielder to pitch and the coach, GM, and bat boy are peeling away from the stadium in the team bus.

The word I can best use to summarize the vibe of the conference was “eerie.” Nobody seemed to have a real read on when and if inflation would subside and the whole world seems to be talking itself into a recession, the only question being how soon.

Contradictions abound. Attendance was at all-time highs but there was no hot lunch. Unemployment is low but the markets are tanking. Originations and issuance are on pause but there are trillions on the sidelines waiting to be deployed. Loan coupons are only back to where they were in 2012 but nobody other than the septuagenarians in the room have lived through an economic scenario like this (cue all of our collective parents and grandparents telling us about their 15% mortgages in the 80s while conveniently leaving out the purchase price at 1/10^th of today’s prices). We’re still open for business…as long as you’re multifamily or industrial. Capital market spreads are out 200 bps but balance sheet lenders will take three months to catch up.

Here are a few snippets and themes from the conference:

• Investment sales in parts of the middle market are “grinding to a halt”
• Class B commodity office buildings are “the new malls” (One Vanderbilt and Hudson Yards are the new Short Hills Mall and Ala Moana Center, while commodity office buildings East of Park Ave are the new “Town Center at [Insert Over-Mall’d Tertiary Market Here]”)
• You would have been winning big if you had “negative leverage” on your bingo card
• Cap rates aren’t moving up as fast as interest rates but the rent growth assumptions needed to make a deal work these days are getting less and less believable
• Inflation, inflation, inflation…anybody building inflation into their operating expense, TI, or capex projections?
• Barely a bid for refinancing anything but trophies in the mall and office space
• Still “huge pockets of capital” floating around the market, although I’m not sure that means much when the markets are getting clobbered every day and rates are moving 25 or 50 bps a day
• Multiple instances of “My golf game is going to get pretty good this summer” or “working on my tan this summer” from the originators and lawyers

I realize that this is coming across as quite negative. There were indications that the strong asset classes will continue to thrive, that much of the COVID distress has been worked through, and that bank balance sheets are stronger and more capitalized than ever…but none of that makes us feel much better when we’re filling up our tanks for over $100 or quoting loans at 5+ handles…

On a personal note, CREFC was a bit of a reunion for me, as someone who’s spent their entire career in and around CMBS/CREFC and who missed the Miami conference in January. It’s amazing how many names and faces you get to know through the years and how people tend to stick around in this funky CRE world. Here’s to hoping we’re through the hard part and back to serious positivity in Miami next January.

Until next time,

Joe