Walker Webcast: Ivy Zelman, Kris Mikkelsen and Aaron Appel on the 2024 Outlook

A “disappointing” CPI print on Tuesday, which led to a sell-off in the stock market and a big jump in the 10-year Treasury Rate, hasn’t changed the thesis for 2024, Ivy Zelman said on this week’s Walker Webcast. “I think that the CPI print and the reaction were overdone,” Zelman told Walker & Dunlop CEO Willy Walker. “Our real-time surveys support decelerating rent growth.” 

Moreover, Zelman said, new move-in rent growth for both multifamily and single-family rental dipped into negative territory during the fourth quarter of 2023. “This is not reflected in CPI,” said Zelman, EVP, research and securities at Walker & Dunlop. “I think eventually it shows up. And I think that the Fed is not really looking at real-time data.”  

She suggested that with shelter costs comprising 40% of CPI, the Federal Reserve’s modeling of those costs is “very backward-looking” because the central bank is “not talking to owners and operators like we are.” 

Zelman was joined on the Feb. 14 webcast by two other in-house experts at Walker & Dunlop: Kris Mikkelsen, EVP of investment sales, and Aaron Appel, senior managing director, capital markets. Mikkelsen concurred with Zelman’s assessment. 

“I don’t think the last two or three days have really changed our outlook for the year at all,” he said. “I think if anything, our message to clients at the beginning of the year has been pretty consistent, and that’s that if there is something that you need to do in terms of a capital transaction over the course of the next 18 months, then we feel like sooner is better than later.” 

He added that the market consensus “was so one-sided as we got a Fed pivot in November and we got rate relief in December. I think everybody forgot that the pathway to normalcy could be potentially paved with a few speed bumps. And I think what we got yesterday was a speed bump.” 

Mikkelsen pointed out that one result of the late-2023 rate relief was a widening of the bid/ask spread. “There were a lot of sellers that like to think that we’re returning back and reverting to the mean as quickly as possible,” he said. “The reality is the equity that is being deployed today still recognizes that there is some scarcity in the market, but they want to get a risk premium paid for transacting in an environment that has really a number of question marks around it.” 

One of those question marks is the amount of commercial real estate debt coming due in 2024—about $929 billion, according to the latest Mortgage Bankers Association estimates. Asked whether the capital available from banks, CMBS, debt funds and life insurance companies will be enough to refinance all that debt, Appel said no. 

“There’s a lot of capital in the marketplace,” said Appel. “The problem is that capital all wants certain types of assets and transactions and loan-to-value covenants and debt service coverage ratios and debt yields. And then those covenants really don’t work for the majority of credit.” 

The hour-long conversation delved further into the state of CRE financing, covered the question of whether we’ll see another wave of regional banks going under and the current options for investors to play in either the multifamily or build-for-rent/single-family rental arenas. 

On-demand replays of the Feb. 14 Walker Webcast are available through the Walker Webcast channels on YouTube, Spotify and Apple.