Walker Webcast: NMHC’s Sharon Wilson Géno and Real Estate Roundtable’s Jeff DeBoer on Politics, Financing and Regulations

Commercial real estate discussions today seem to involve two concerns: Politics and liquidity. The April 5, 2023 Walker Webcast edition hosted two guests with in-depth knowledge of both. During the hour-long presentation, Walker & Dunlop Chairman and CEO Willy Walker discussed politics, the debt ceiling and capital concerns with National Multifamily Housing Council (NMHC) President Sharon Wilson Géno and Jeffrey D. DeBoer, founding president and CEO, Real Estate Roundtable.

The first issue focused on the Silicon Valley Bank and Signature Bank failures and how this might impact commercial real estate. “Interest rates go up 475 basis points in 12 months, so something’s going to break,” DeBoer observed. “We saw it break in Silicon Valley Bank, and to a certain extent, Signature.”

Both he and Géno believed that Congress will likely reinitiate some of the banking provisions that had been rolled back in the wake of the collapses. But Géno indicated her concerns about too much regulation, especially when it comes to the regional banks.

“I think the lawmakers have said they’re going to have a thoughtful review before they make any precipitous changes,” Géno said. “But regional banks have been such an important part of the multifamily sector, especially in recent years.” Regional banks have especially jumped in to underwrite construction loans, she went on to say. And that construction is necessary to build the housing supply. “Any regulatory changes might cause those institutions to take a step back or reevaluate their role,” Géno added. “It’s already starting to happen.”

The discussion also focused on the likelihood of readapting office space to multifamily uses. In his response, DeBoer noted that the office space situation is still changing. He discussed the Stopping Home Work’s Unproductive Problems Act – SHOW UP. This bill, which would require federal workers to return to the office, was passed by the House, but is still being mulled over in the Senate.

Passage of the bill would get many people back to the physical office, at least in Washington DC, DeBoer said. “If they’re not downtown, the small businesses suffer. The parking garages suffer. Transportation suffers, safety issues suffer and the tax base suffers,” he said. “This is why we’re focused on getting people back to the office as much as possible.

Géno agreed, adding that while the federal workforce is likely to return to work in a hybrid fashion, office consolidation might take place across the country. “There could be opportunities to use federal land for housing, especially affordable housing,” she said.

Then again, both Géno and DeBoer noted that not all office space is suitable for renovation into residential use. “Our estimates right now are that maybe between 10% and 15% of the office environment could be easily or readily adapted for multifamily use,” Géno said.

But when it came to both politics and commercial real estate, DeBoer suggested that things should calm down before major undertakings. Those in the real estate industry are used to risk. “But I don’t think anybody assumed a 12-year period of basically zero interest rates, followed by a steep 500 bps jack-up in financing costs, in the midst of a pandemic that shut everything down and changed a lot of the ways  . . . (in which) . . . the built environment would be used,” DeBoer said. “I think all of this has to be allowed to settle through.”

On-demand replays of the April 4, 2023 webcast are available here or through Walker & Dunlop’s Driven by Insight podcast series.