Nick Halaris: Commercial Real Estate Hanging In There Despite ”Crushing” Interest Rate Shock

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Nick Halaris, President of Metros Capital, returns to Forward Guidance to update viewers on real estate situation in the U.S. Though the rapid rise in interest rates has rendered many commercial real estate (CRE) deals uneconomic, the fundamentals in multi-family (i.e. apartments) remain strong, notes Halaris, in part due to high levels of immigration. Nonetheless, many new deals are being done at “negative leverage” - that is to say, the cost of debt exceeds the cap rate on the deal and the property’s cash flows are less than the interest expense. Halaris thinks the sell-off in office might be so bad that the asset class might have bottomed out. He remains very bullish on the single-family housing market. Filmed on March 12, 2024.

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Timestamps:

(00:00) Introduction

(00:47) Overview of Commercial Real Estate

(04:24) Multifamily (Apartment Buildings) Have Been Stronger Than Expected

(06:49) Immigration As A Tailwind For Housing & Multifamily Demand

(08:43) Projects Are Being Cancelled Because Of High Rates

(11:09) Interest Rate Shock Has Rendered Many Deals Uneconomic

(18:58) Potential Value In Office Sector Of Commercial Real Estate (CRE)?

(22:22) Nick's Long-Term Bull Thesis For Real Estate

(26:25) VanEck Ad

(27:11) CRE's Impact On The U.S. Banking System

(29:31) Interestingly, Private Credit Funding Has Not Gotten More Expensive

(31:28) Nick Is Flipping A House To Stay Busy (Do Not Do This At Home)

(34:12) Housing Bull Market Is Fundamentally Different From 2003-2006... Not Speculative Bubble (I.E. Buying To Flip)

(38:18) New York Community Bank (NYCB)

(59:03) Final Thoughts On Valuation Difference Between Public and Private Real Estate Markets

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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.