State of CRE - Expert outlooks on debt, equity, and investment sales


There was a lot of information to absorb on this week's Walker Webcast! We brought together three Walker & Dunlop leaders to provide 360 views of the CRE markets. Kris Mikkelsen, Executive Vice President of Investment Sales, Aaron Appel, Senior Managing Director of Capital Markets, and Ivy Zelman, Executive Vice President of Research and Securities, all came prepared.


To begin the webcast, each panelist answered three commercial real estate related questions: What is mispriced today? What word best describes their feelings about the market in 2022? If you had $100 million to invest today, where would you put it? Then, the group touches on the transition of the market from large asset managers looking for 20% IRRs to those looking for a 5% yield. Kris elaborates on the reality of the efficiently priced market and the double-digit rate growth of the multifamily space. Return expectations have dramatically shifted. 

Ivy and her colleagues have been surprised to see new single-family move-in rent growth approaching 20% across the U.S. Developers are now focused predominantly on suburbia, and Ivy expects a new supply to be on the horizon. While eviction moratoriums are being lifted, there will be less pricing power to be held. During the pandemic, asset classes such as retail and hospitality took huge hits, but rescue capital is now becoming available. 

Speaking of the impact of the pandemic, data shows that post-Covid, many women and people aged 65+ older are not planning to return to the workforce. As a result, companies are raising wages up to 25%. To compensate for the wage growth, rent prices will also continue to increase. Well-located and newly renovated units will thrive in the rental market as we move forward, whereas older and poorly located buildings will struggle. By spring of next year, there is likely to be much more activity as we hopefully see Covid in the rearview. 

Then, Ivy discusses the impact that work-from-home has had on the housing market. When employees aren’t heading to the office, they are saving money on their daily commute expenses. Covid brought about the rush to leave densely populated markets and the second home market skyrocketed. Regarding build-for-rent products, many available today are simply unaffordable and sometimes even more expensive than the for-sale product. 

Touching on legal immigration, Ivy believes the cap for those allowed to enter the country should be raised substantially to solve the issues of demand the U.S. will be facing. The number of people between the ages of 20-39 was surprisingly larger from 2010 to 2020. Thus, more young people are living at their parents' house for longer. Numbers show Americans are shifting towards a multi-generation lifestyle. Similarly, Aaron says ownership is less of a value among upcoming generations than it used to be. In closing, they each identify where there is opportunity in the market today. 

Key Ideas:

0:48 - Willy introduces today’s guests Kris Mikkelsen, Aaron Appel, and Ivy Zelman. 
3:31 - Each colleague answers three rapid-fire questions about the current market. 
8:21 - The group discusses equity yields and expectations.
11:00 - Ivy elaborates on multifamily inflation, supply and demand. 
15:05 - Has capital begun to be redelegated to asset classes that have previously suffered? 
22:08 - Forgetting about cap rates. 
30:40 - Discussing the labor shortage and wage growth.  
31:30 - Which buildings will thrive in the upcoming rental market? 
33:48 - The impact of remote work on the single-family market. 
36:30 - The build for rent vs. for sale market.  
44:49 - Can legal immigration turn the demographic tables? 
50:10 - Are Americans less focused on ownership?
52:30 - Where is there an opportunity in the market today?


Learn more about Kris, Aaron, and Ivy
Check out Walter & Dunlop’s website

Webcast Transcript: 

Willy Walker: Thank you, Susan and good afternoon, everybody. It is great to have my three colleagues with me today on the Walker Webcast to talk about where the markets are and what we are seeing at W&D. This is the first time, Ivy has joined me twice before on the Walker Webcast, but I think we're doing number 75, something like that today and up until now, the focus has always been outside of W&D. I think a lot of our competitor firms have done webcasts where they brought in their own professionals and seem to have been, if you will, talking their own book. And so, Walker & Dunlop has on the Walker Webcast consistently looked outside, if you will, from our team to bring in perspectives from others. But last week I was on a call with a client, and I had Kris Mikkelsen who's joining me today and Aaron Appel was joining me today on that call. Typically, on a client call, I speak sometime within the first couple minutes of the call, and then we'll consistently talk throughout the call. On this call, I went 48 minutes without having to open up my mouth, because Kris and Aaron were so engaging on what both of them are seeing in the markets. And so, thinking back on that, I thought it would be great this week to have Aaron and Kris and Ivy talk about what the three of them are seeing in the markets, from the financing perspective with Aaron, from the investment sales perspective with Kris, and from the overall market perspective with Ivy. The three of them really don't need a lot of introduction.

But I will say Ivy Zelman runs Zelman Associates, now part of Walker & Dunlop. We are thrilled to have Ivy and her team at Walker & Dunlop. Their research is consistently viewed as the very best on the housing market, both single-family built for rent, single-family rental, as well as multifamily.

Kris Mikkelsen runs Walker & Dunlop investment sales business. He has done an incredible job over the last five years of scaling that business into truly the very best in multifamily investment sales platform in the country.
And Aaron Appel runs our New York financing group. Aaron and his team have done huge financings on all asset classes, both in the New York areas, as well as across the country. We will get into today what Aaron and his team are seeing not only in the multifamily asset class, but in office, retail, industrial, and other commercial asset classes.

So, with that, I want to start by first welcoming my three colleagues. I'm really looking forward to this conversation. I want to start with some questions that actually Kris put around to all of us yesterday and get you to just do a really quick answer on that. So here we go. Ivy I'm going to start with you. It's three questions. So, I can repeat them if I've gone to quickly or one answer bleed to the next. But first, what if anything is miss-priced today? Two, if you had one word to describe your feelings about the market in 2022, what would it be? Three, if you had a $100 billion to invest today where would you put it?

Ivy Zelman: So on the first question, anything mispriced today. I think there are a lot of deals being miss-priced in the build-for-rent segment of the market, given robust land inflation and values that I do think will come under pressure. So, it's sort of a blanket answer. Number two, 2022 is a year of moderation. Number three thinking about where to invest $100 million. I'm very bullish on any way to take advantage of the aging U.S. stock. So, the existing stock that is today approaching fifty years old, depending on what city you're in. But I'd be interested in the flip and fixed business where you can actually provide an upgrade to the current stock. And that's really more focused in the Northeast and the Midwest, where the stock is the oldest.

Willy Walker: Kris overpriced, 2022, and $100 million.

Kris Mikkelsen: So I put that question out to all of our investment sales team. And the best answer that I got back was from our team in Austin, Texas that was convinced that the most overpriced thing in the market is season tickets to University of Texas football.

So, outside the UT football, I think everything is very efficiently priced. I do get a little bit nervous, and it's almost an extension of kind of what Ivy's bullish about, get a little bit nervous of this deep value add product trading, a CAP rates inside of kind of core or core plus opportunities where you're going in and you're rehabbing a thirty-five, forty-year-old asset. And just thinking about just asset age at the residual that gives me a little bit of pause. The word that I would just use to describe 2022, we continue to be very bullish on fundamentals and liquidity. So, I think we're going to have another busy busy year next year on the transaction side.

And if I have $100 million, I would probably put it into de-risk age-targeted housing on the BFR and conventional space. And I would do as much ground up development with low density product as possible.

Willy Walker: If you saying the market is efficiently priced, boy do you ever sound like a broker?

Kris Mikkelsen: I was also going to say like that, you know, you were going to listen on that call last week, to not give me and Appel the microphone.

Willy Walker: So I'm very much looking forward to giving both you and Appel the microphone, so you can give us your perspectives. I just love the efficiently priced rather than overpriced.

Aaron to you, what's overpriced or out of whack 2022. And where do you put $100 million?

Aaron Appel: Certainly, I would say multifamily and industrial. I don't know if I would call them overpriced, but the growth expectations in rents that investors are looking to, or need to hit their targeted returns, are astronomical relative to historical patterns up until about eighteen months ago. So, I would certainly say that the bulk of the liquidity in the market continues to move into those asset classes.

I would say right now, overpriced probably would be lower quality, lower and multifamily would be my...if I had to guess where things were most overpriced, because you're seeing plays there and CAP rates on those assets trading, similar rates to where class A assets are trading. You know with the expectation and tension that you're going to continue to be able to ramp up rents and grow them, we've seen growth projections in certain markets, those asset classes as high as 15% year over year for the first couple of years.

I think that population that inhibits that asset class, there's a limit to what you can charge those people. I think that's a problematic spot in the marketplace. On the industrial side, everything is extremely expensive. Rents continue to move up. The urban infill industrial markets been dominated by Amazon. Their desire to lease everything new, in urban locations and to dominant the leasing markets, it's driven rents up. We've seen in New York 25% increases over the last two years roughly. Rents were call it $29, $30 a foot for new space. It's close to $40 now. So, I think that as a developer investor in that space, if you're looking to target those rents, it's market controlled by one tenant, right now. There are ancillary tenants in the market, but that's a pretty scary thought in our eyes.

Willy Walker: So 2022?

Aaron Appel: 2022, best place to invest...

Willy Walker: No, just one word to describe what you think you expect for 2022.

Aaron Appel: More of the same.

Willy Walker: And where would you put $100 million today?

Aaron Appel: Bitcoin.

Willy Walker: (laughter) All right. We'll loop back to that in a minute. We'll loop back to that in a minute. 

Kris, Aaron jumped right in on yield and yield expectations, particularly as it relates to suburban multi. Talk for a moment about, if you will, the equity yields that people are expecting and performing. And if you will, the transition of the market from large asset managers who had opportunity funds looking for 20% IRRs to now the non-traded rates looking for 5% yield.

Kris Mikkelsen: I think when I made the comment about the market is efficiently priced, it certainly seems expensive to folks that have been investing on a consistent basis over the course of the last fifteen years. But the reality is we are matching up buyers with private and institutional capital that have really repriced their total return expectations across the board. Aaron is right. We're seeing an operational environment throughout the summer and fall of 2021 that might be unlike any operational environment we ever see in the multifamily space with consistent double digit rent growth, certainly across the Sun Belt and in large part across all the markets across the country.

So, there's that first kind of mark to market that buyers have to get their arms around. But the reality is with the leverage that's in the market today, most of these groups are solving for upper single digit leveled IRRs at very responsible leverage levels, with that near term growth assumption that is bolstered by what's actually happening on the ground. And then a broader acknowledgement that we're going to be in a lower interest rate environment that's going to endure for a longer period of time. And so that's informed the exit CAP rate assumptions that they're putting into their model as well. Your comment Willy about these largest, the larger asset managers that have historically been very active in these closed end opportunistic vehicles that are targeting 20+% returns. To a T, almost all those groups have now recalibrated. Some of them are kind of democratizing the ownership of these institutional quality assets through non-traded rates. Some of them are raising lever core plus funds. The return expectations have dramatically shifted to where now, if you can look through to a stabilize kind of leverage 5 to 5.5% yield, that math works. And I think the underpinnings of the operational story are so positive for multi. That's why we're continuing to see the liquidity come to our space as that dollar gets invested to real estate, and more of that dollar continues to come to multifamily and industrial.

Willy Walker: So Ivy, Kris just said that rent growth in the multi space this summer has been unprecedented. We've seen it not only just on market surveys, but we've also seen it in the rent growth that the public multifamily operators got in Q3 and reported on. As you look at the single-family market, not only on fire. I mean there's an article last week in the Wall Street Journal about people having to...It feels very much like 2007 to be honest with you as far as people putting up deposits on homes they've never seen before. The housing market driving so hard. Does it surprise you that the multi-family fundamentals are as strong as they are right now?

Ivy Zelman: Frankly, it has surprised us to see new move in rent growth approaching 20%. We just had New York overall up 18%, albeit off of ‘19 it's only up slightly. So, coming from a plunging level, but really across the US, whether it be urban core with a few exceptions, like San Francisco and LA. I think you've got very, very, I think, shocking, frankly, levels of inflation. But I do think that you're getting the unwind of all the young people that left their parents or went home, because of Covid and are now coming back into cities. There is really not as much of the supply that's in backlog it has really been delivered. So, we're still looking in an environment where supply is relatively stable. So, you don't have the pressure yet. I think there's a lot of supply coming, and we could see it in the backlog that has been up until recently predominantly urban core. But that's shifted in ‘17 when it started moving to suburbia. And now, because of where all the developers are focused predominantly in suburbia, we're seeing that development backlog extending into suburbia.  So, you don't have the pipeline of supply yet to really challenge the rents that we currently are seeing. But yes, we have been surprised by the overall inflation.

But keep in mind, you also have a lot of physical occupancy that's taking away from or inflating the overall level of occupancy that today you're not getting an economic return on. So, when we start to see the eviction moratoriums now being lifted and you'll free up capacity that might start to impact the level of rent inflation we're getting, because that has been a benefit to the rent inflation.

Willy Walker: Your view as it relates to inflation, and whether we are now, where we're clearly seeing, the picture that you just played out in Q2 and Q3 of 2021, as it relates to not enough supply, rents are going up, but yet you're saying that there is, if you will, supply that's going to come online that should alleviate that. Take that view out broader to the economy. Do you believe that inflation abates here and that there is new supply and the supply chains free up and that we get some relief? Or is it your view that we continue to see this hyperinflation that we've seen in Q2 and Q3 of 2021?

Ivy Zelman: There's no reason why the inflation should abate right now, given the fact that the supply is not yet being delivered and the supply bottlenecks that we've seen with whatever port containers sitting, ocean freight out in LA, all of that has been the best friend of the industry, because you just can't deliver the product. So, it's the best regulator to mitigate over supplying market. So net right now, inflation should continue with the eviction moratoriums being lifted. We've talked to whether it be public rates or industry contacts, your clients, my industry contacts that are saying, we do believe that when we have to evict these people, we will not have as much pricing power. So even in Class B an even of modest amount of Class A, predominantly C&B, but you're going to see a freed-up occupancy that will reduce the level, at least today's sustainable level or is today's level sustainable with the occupancy, now being released? I think you'll see some maybe moderation of it, but still until the supply gets delivered… I mean all you have to do is look in the backlog of the number of multifamily units that are currently in backlog but have yet to be completed and it's at multi decade highs.

Willy Walker: So Aaron, we're going to kind of toggle back and forth between multi and other asset classes. But just for a moment as Kris and Ivy are talking about the tightness in the multi market, incredible rent growth, and also CAP rates compressing dramatically in single-family versus multi family. A lot of people are also looking for opportunity in other asset classes. And clearly in 2020, we saw the asset classes of retail and office and hospitality all suffer. Has capital started to move back into those asset classes? And what are you and your team seeing as it relates to seeing opportunities there?

Aaron Appel: I think capital has moved back into them. Those asset classes have suffered more so than any other than any other asset class, while industrial, multifamily have really thrived. For sale housing thrived through the middle of Covid to today. You’ve had significant distress in retail, certain hospitality assets, urban infill, hospitality, not resort hospitality, and then to a certain extent, office. So, those are where the distressed plays are taking place now, that's where a lot of the credit sales are taking place in the marketplace to the extent that there are credit sales. And that's where a lot of the rescue capitals going, and turnaround plays are. But I think that the capital is available, on a limited basis, and I think it's available for the best quality stuff. So, you know...

Willy Walker: I know you're working on a lot of different recaps. The distress that’s in the market, you just said there's capital for it. So, you're not seeing any foreclosures. What you're seeing is someone who had a project that was underway and you're coming in with fresh capital to re-equify it and then develop on the plan that was previously in place? Or are you seeing actual lenders foreclosing on stuff and people stepping in and taking it?
Aaron Appel: We're seeing very limited foreclosures. It's been mostly recaps, new capital coming in. There's just so much liquidity in the market. If there's any possibility that there's upside in the deal, the existing sponsor has still some control over the destiny of the asset. Then to recap it, get a hope note. We're seeing very, very little foreclosures. We've done some UCC sales. I mean they're taking place. They're certainly much more rampant foreclosures in UCC sales than they were twenty-four months ago. But we're not seeing the floodgates by any stretch of the imagination and certainly on the quality and the assets, there's capital chasing those transactions. So, deals are getting cut before foreclosure takes place.

Willy Walker: From an interest rate standpoint, if multi is being lent on, obviously depends on asset, depends on leverage level, but let's just swag it and say multi coupon rates right now are somewhere between sort of 3.10, 3.50. And with the tenure moving up some of the deals that we're right now putting on might be a little bit north of 3.50, but swag in the mid threes. On hospitality, retail, on those asset classes that were so out of favor a year ago where are you seeing pricing coming as it relates to all in coupon rates?

Aaron Appel: Yeah, I mean it depends on the nature. If it's a season operating hotel, that's had a lot of success, we're doing some resort style hotels in Florida now. We've seen EDITDA double since ‘19 or come close to it. We're going to finance off that new cash flow. You know, credit spreads on that stuff have gone from, you know, call it, LIBOR plus 600. We’re seeing spreads sub 400 over LIBOR right now in some of those assets. We've seen bids on urban infill hotel that are starting to ramp back up that are what I would deem to be relatively new or higher quality assets. That cost of funds is in the mid fours right now over LIBOR upper fours over LIBOR. That didn't have a bid 12 months ago. There was no liquidity, and if it was, it was high single digit money.

So, we've seen that, I think retails priced a little bit tighter than that. And people are still selective based on what the retail is. But it's a bit inside hospitality. Office is still garnered for blue chip Class A, high quality office. You know, rates are as inexpensive as they've ever been, we've seen. The issue being on, certainly in the public markets, on the balance sheet side, with insurance companies, commercial banks, they have exposure issues in a lot of the urban infill markets on office. They are selectively lending and certainly cherry-picking assets that they want to lend into.

Willy Walker: Does the prevalence of debt funds in the market, Aaron, concern you at all today? It feels a little bit like the debt funds are CMBS 3.0 in the sense that the CMBS market really drove the liquidity in the market back in the 2006, 2007 era. And we all know how that chapter ended if you will. Do you see debt funds acting in a similar way today? Or is there something fundamentally different that gives you more confidence that they aren't as transient capital as CMBS was pre-GFC.

Aaron Appel: Talking to a friend this morning that runs a credit business, and we were just talking about how so much of the talent that used to be in other places in the lending sphere, really now is on a credit side at credit funds, throughout the market. These groups are creative, they can move quickly. They have numerous different ways to manufacture leverage for themselves. Look, we've done deals with credit funds where they've given us 100% of cost financing. We've done deals with credit funds where we've bifurcated fees, sold fee positions, had them finance 100% of the lease hold position because the credit yield was so attractive. But based on creating some arbitrage in the market. The big difference between what you're referencing and where we are today with those groups is, all those groups have their own proprietary capital. They are all big boys; they are holding the bottoms of all these transactions themselves. They are not selling off the bottoms of the loans that they write. So, they are holding substantial risk positions. If one writes a $200 million loan, they're probably holding the bottom $60 million on their balance sheet. And that's where they're manufacturing their yield and then, they're leveraging the first $140 million with cheap proceeds. So that's a huge difference in the CMBS marketplace. Everything is distributed. Nobody's holding risk. That's originating credit. It's getting moved around the marketplace to different various buyers of paper that are looking to purchase for yield, not for ownership. These groups all know how to own and operate real estate. They know how to... they understand risk. They're taking substantial risk, but they're taking it with their own capital. And that's a big difference.

Willy Walker: Yeah, I have to say, I hear you say that. I concur with many of the things that you said. And at the same time, I do recall saying myself and completely wrong in hindsight that back in 2007, the CMBS market was going to survive whatever came along because it was a liquid market with full transparency and if somebody didn't like alone, they could go out and trade it in the market and somebody else would step in and buy it. And how wrong I was on that view?

Hey, Kris, as it relates to CAP rates, Peter Linneman back in April of 2020, which was a very different time than today. But he was looking forward and basically said, throughout this pandemic, you're going to have to basically forget about CAP rates. It feels from some of the prices that your clients are paying for assets, that they have completely forgotten about CAP rates, or why CAP rates matter, or how to compute a CAP rate. Give me your perspective on why this market is sort of forgetting about CAP rates and going in and basically saying it's not the CAP rate. It's the growth.

Kris Mikkelsen: Yeah, I think I remember very clearly listening to Linneman, and that was, I think the first time we had him on. It was April of 2020. And he made that comment that we're going to go through a period of time where CAP rates are really going to get thrown out the window, and they're going to be somewhat irrelevant. It's a prescient comment for the probably the first nine months that followed that webcast. I think the thing that Peter probably didn't see, I'm not sure any of us all was the operational environment that were in that I referenced earlier in the rent growth that we're seeing today.

So, if sellers love to tout the in-place CAP rate, that's a rear mirror trailing ninety-day number and trailing twelve expenses, adjusted for taxes, buyers love the kind of focusing on that year two or year three stabilized CAP rates. The truth is kind of somewhere in between. I do think that we're in this market, in multi in particular, where you're constantly marking your rent role to market and turning that rent tole over every year, feels like the majority of buyers that were working with are really not getting too hung up on what the CAP rate looks like on a trailing basis.

I would kind of speak in fifty basis point bands. Most groups are trying to find a pathway to stabilizing somewhere between a 3.5 to a four. That's obviously going to be a very subjective conversation market to market and asset by asset. But it's, you know, I've never been in an environment, I don’t think any of us have, where we spend more time talking about year two and year three CAP rates. It just tells you a little bit about the growth environment that were in and the level of underwriting aggression that frankly, equity needs to deploy if they want to be successful in buying assets.

Willy Walker: Does that feel to you a little bit like back in 2001, where everyone said, you don't need to actually have earnings you've got these revenues ten years from now that are going to materialize and you're going to trade at a hundred times revenue so go public.

Kris Mikkelsen: Look, I saw earlier that is going to pay $700 million to take the naming rights of the Stable Center. I should have texted to Appel, but I texted my crypto buddies and I said if anything feels toppy, this feels toppy. I don't know what earnings are, but maybe we're back there in certain asset classes. We're not there in multi. I mean, the reality is, we're not talking about a 3 or 4 lease sample set that you're trying to mark to market a 300-unit asset. At this point, here on November 17th, we've been at an environment where you had all of the strength from a leasing perspective that really kicked up and started in April and May. It's endured deeper into the normally slower, seasonal period than we would normally see I think. We saw all that from the Q3 earnings calls from all of the public REITs, is that they're maintaining that leasing strength deeper into the calendar. And so, at this point, when you're looking at multifamily asset, that's already turned a third of their rent tole to these kinds of new rents and you’re marking the last 2/3 of the property to market. That's not a big leap of faith. I mean frankly, that's acknowledging a reality that exists today. And you're going to need to do that to be competitive.

Aaron Appel: I would just add, I think assets that have inherent upside and meat on the bone still in them. Those assets are typically purchased a on a price per foot basis, on a price per door basis in the multi space. Assets that are stable. Certainly, in my strong opinion, are based on cash and cash return and CAP rate, on an exit and much less sensitive to the price for foot exit.

Kris Mikkelsen: And it's a great point Aaron. I mean, when we're valuing and selling 60% of what we sell, basically falls into what we would call a value-add bucket. And there reaches this point of inflection where if the basis, acquisition plus rehab capital, is still below what it would cost to replicate that asset, frankly, the CAP rate becomes an even more irrelevant metric at that point, the going in here.

Ivy Zelman: Aren’t you guys forgetting one thing? I mean when we think about rent roles and think about what the one- or two-year outlook is, do you think a blended 7-8% rent role is sustainable? Because the only way to underwrite the deals that these buyers in the market are forced to do even the buyers, you talk to industry executives, they're like none of this makes sense. Therefore, when you think about penciling the returns that they need to achieve for their investors in the capital that they've raised. They have to make some pretty bold assumptions in year one and two, not to mention now everybody's developing, because they can't make sense of buying in the existing transaction market, because you get at least the development yields more attractive versus the spread on current cap rate.

So, I think the question for you, as you're in the transaction market is, are more people interested in selling right now, according to our survey respondents than they are interested in buying? But if they're going to do anything, they're going to develop. Isn't that risk that we're going to have a lot of development?

Kris Mikkelsen: There’s a lot of impact there.

Willy Walker: So hang on a second. Clearly, the velocity in the sales market Ivy, would tell you that there are plenty of buyers to take, you got a buyer... So what we're seeing there, but one of the things that I would ask there, Ivy to you just real quick is, is it not the fact that it's so difficult right now to develop and to get a project underway and to get it not only entitled, but then to get labor and to get all the components that that is slowing it down and therefore giving people quite a lot of conviction that rents can stay at this elevated level, because you're not going to get the supply?

Or are you seeing starts tic up to a degree that makes you say, no, no, no, no, that's all great and good. There's a good line there, but actually there are more starts happening then you think.

Ivy Zelman: I mean starts-up more than 30, 40% year over year for multifamily.

Willy Walker: Yes, year over year, but that's back to 2020, go back to ’19. So, 2020 obviously year over year, we would expect that to happen. What about back to ‘19?

Ivy Zelman: We had a huge backlog even prior to ‘20 or prior to Covid. But I think one thing like, for example, in New York, I mentioned rents were up, new leases up 18%, which was slightly higher than the sort of two-year starting point of ‘19, but applications for new leases have tanked. So, what happens is there's actually an affordability discussion that needs to be at least a topic of concern. The way I feel is that many of the operators and developers are like making the assumptions that you could just raise like pricing is inelastic. Like you could just keep raising, raising, raising. And all these people that got great deals out of Covid are getting rents reset at current market. A lot of them can't afford it. So, we're seeing the impact of these rising rents starting to impact markets in terms of new applicants coming in.

And I think...

Kris Mikkelsen: And we’re also seeing Ivy, we made a deal when you came over, you could interrupt me whatever you want.

Ivy Zelman: Whatever go for it, come on, bring it on.

Kris Mikkelsen: So it's nothing but love here. But we're seeing that in liquidity, in the rotation of capital. The reality is the most expensive buildings in the Sun Belt has historically had the lowest rent to income ratios in the market. These are buildings that had, twenty-four months ago, $3,000 rents and average household incomes in these buildings were north of $200,000. You're talking about low- to mid-teens rent to income ratios, which is quite different then where Manhattan was in February of 2020.

So that's kind of the first point, I think, when you see the liquidity and the active market participants in the Sun Belt today, and otherwise, historically of more affordable markets, that's kind of an acknowledgement of, hey, not only am I keeping an eye on affordability, but there's also another just kind of regulatory risk conversation that we can probably schedule another webcast to cover those talking points.

The other thing that I would just say to that is, and we gotten some comments and some questions about affordability. The reality is for a lot of the country outside of the gateway markets, you can underwrite this mark to market that we're seeing right now, which is comfortable double-digit growth. And then you can underwrite something in the outer years that isn't Pollyanna, but it's above historical inflationary growth. I'm looking at assumptions in the 3.5 to 5% range, kind of post mark to market. And you look at that model and a that's a really aggressive revenue CAGR over a five- or seven-year hold. But the reality is a lot of these assets you're taking a rent to income ratio, and these more historically affordable markets that's going somewhere from the mid-20s to the mid to upper 30s.

And so, we typically in the multifamily world kind of qualified on three times rent, we might be moving into a space where we're spending more of our wallet share on shelter and housing going forward. Maybe that ratio moves to 1 to 2.5. But these people aren’t spending 75%...

Aaron Appel: But you're not... The one thing that we're not accounting for in this discussion that I think groups are underwriting to is wage growth, because there's a huge shortage of workers and specifically high caliber workers in the country. but really all workers. There's been a huge subset of the 65 and older age group that is not going back to work post Covid. Data shown that a lot of women are not going back to work post Covid. And there's just an overall shortage of labor talent. We see it trying to higher support staff on our team, lack of candidates. And then you're going to see wage growth because of it. And companies are raising wages 10, 15, 20%. Where is that additional capital going to go? Part of it's going to be able to raise rents to follow wage growth.

Kris Mikkelsen: Aaron, your earlier point about Amazon, the industrial space, look at the average hourly wage of a warehouse worker today versus three years ago, you know, it's up 25%.

Willy Walker: So Aaron, yesterday, when you and I were together in New York, one of our larger clients who owns a ton of office in Manhattan, surprisingly said to the two of us that their leasing velocity in Q3 was fantastic, which I looked at you, and both of us were sort of like, wow. If you look at some of our big competitors who have large leasing operations, we don't, as you well know. They had a great Q3 as it relates to leases. That seems to be completely counter intuitive right now as it relates to people trying to get back to the office but you're clearly financing office buildings in major MSAs that have a lot of vibrancy to them right now. What's the story that's happening there that we're not seeing?

Aaron Appel: New products, well located, just renovated older assets that feel new are going to thrive going forward. They'll see substantial rent growth, in our opinion. Older assets, tired buildings, poorly located buildings. They're going to really struggle. And I think there's going to be a lack of liquidity for them, or a lack of leasing for them. And it's going to be a tough slack, and there's going to be substantial rent reductions. And accommodations are going to have to be made to get tenants into those buildings. But we're seeing that now. 

Look, there hasn't been any real. There's been some good leases done in New York in the last couple months. We're doing a building in midtown south right now that signed a lease with top five tenants on the planet to take a couple hundred thousand feet in their building. That tenant was moving from one building to another. They weren't expanding their footprint. Footprint expansion is going to be something that is going to be interesting to see what happens. The client we met with yesterday, has a trophy blue chip, A plus caliber portfolio. It's not surprising that they would see activity within their portfolio. They spent upwards of $700 million retrofitting a number of assets that they've had at A plus location. So, for them to see velocity now, as the market starts to come back, it's not surprising. Other landlords are not seeing that type of velocity. We still haven't seen any large, substantial, new leases signed with tenants moving around or expanding. So, we've heard that from clients we talk to, and other colleagues that we've had in the past, that's going to happen. My expectation is assuming that we don't have any sort of Covid blow up here over the next three to four months, which I'm not expecting we're going to have in the U.S., despite what they talk about in the news and what's going on in Europe. I think that call it springtime next year, there's going to be a lot more activity in the office space.

Willy Walker: So Ivy, talk for a moment about work from home and its impact on the single-family market because these changes, one of the things Aaron was talking about wage growth, there's also the savings that people who are working remotely have as it relates to not having to pay for the same gas, not having to pay for tolls, not having to pay for the sandwich at the local deli. That is staying in their bank accounts and therefore potentially being invested in housing. How have you seen work from home impact either single family, BFR or multi?

Ivy Zelman: It's been a nice tail wind. So, you have to think about the number of people that were working remotely prior to Covid. So, if you look at the adult population between the age of 20 and 64, roughly 6-7% were working from home, whether you see that peaked out at 35%, their numbers are all over the place now, or is it 11% that are working from home. But there's hybrid, there's like New York city has 8% are working 5 days a week, and you’ll see 54% are doing hybrid, so the numbers are all over the place.

But I think that what we saw is the midst of Covid, we saw a rush to leave densely populated markets that really benefited single-family market. We saw the second home market just skyrocket, and it continues to be at very high levels, although starting to moderate. Just as an example in the state of Connecticut, where we had mic-mansions and Greenwich that were still underwater and still sitting there from the great financial crisis. Pretty much the state of Connecticut saw a 74% increase in 2020 in second home purchases. So, we saw, I feel like the chessboard is moving. A lot of the suburban markets, like the tri-state area as an example benefited tremendously for the ability for people to have a co-primary home or a place to work from home permanently as their primary or a second home. But what we are also seeing is that a significant decline in the number of job relocations. So, as you think about the mobility, relocations from one city to the next, I mean you moved to Denver from DC, that's just plummeted. So, it actually is a head wind to housing turnover.

The question is how much should we pull forward? I have young associates that are married but don't have children that were renting apartments in densely populated markets. They decided to go buy a home, buy a town home. But they weren't ready. The child formation, family formation will drive it, so have a lot of pull forward, especially for the people under 35. So, I feel like the chessboards moved. And now the incremental mover, the question really is it going to be enough to sustain the momentum that we have? Or we going to start to see that remote work can actually be a bit of a hindrance to turn over, because again, the relocations just aren't happening.
Willy Walker: Kris, you've seen a lot in the built for rent and single-family rental space, trade at fantastic premiums to single-family sales. And Ivy, I want you to comment on this, but I want to go to Kris first.

Talk about what we're seeing there right now as it relates to some of these built for rent communities that were potentially built for sale and are now going to build for rent, and the premium that people are paying for, if you will, cash flowing assets rather than a sale asset.

Kris Mikkelsen: I think we started this year, and we had a lot of conversations with Ivy and her team about the fact that only 20 to 25% of the capital that's actually been kind of formed to access build for rent and SFR has actually been to deploy. And so, there's just this tidal wave and pressure of capital that's been circled to kind of access to space. But there's really been a huge scarcity of actionable opportunities to get that capital deployed. And so, six months ago, we were having a conversation about where is this ultimately going to trade on stabilized yields? And is it on a pathway to parity with conventional product? I think that's a resounding yes at this point. I think that there's actually an argument that it should trade at yields that are inside of conventional product because of longer stays, lower retention ratios. Some of the tech centric management practices, they can improve NOI margins.

But I think it's probably about sixty or ninety days ago when we started seeing some of these completed project’s price, we had concern about whether or not values as a build for rent community once they started to knock on the door, maybe in some instances, exceed what these homes were trading for, in the retail kind of for sale market. Was that going to be a governor on pricing? And I think what we've seen is it's just two different calculators. And at the end of the day, the value of that cash flow and the durability of that cash flow, in a lot of instances, is worth more than what these single-family homes will be trading at to the retail buyer. So, I think in some ways, Willy, it's really kind of a faulty comparison. But it's one of those things I think is on the back of the mind of a lot of investment committees and it's a sanity check. But when I think about certain parts of the country, core class A, multifamily pricing it per square foot and per unit values comfortably in excess of the existing condominium inventory. I think we've been seeing it. It's just in a little bit of a different light now.

Aaron Appel: It's also a sign of immature markets. I mean some of this stuff is getting built on the outskirts of densely populated areas, not traditionally completely residential. So, if you do have residential over there, it's very inexpensive. And people are just going to buy cash flow on these assets. We've seen it before in some urban infill locations where it's been an immature market where we've seen rental price per foot on rental assets, trade at a higher level than for sale value. And that typically you can play catch up at some point. I mean we still see it in certain areas. But also, these assets, look, a lot of these tenants don't have the capital for a down payment to purchase an asset. While interest rates are extremely inexpensive, they're not able to really benefit from it, because they can't aggregate the capital to put a down payment down to go to purchase an asset.

Ivy Zelman: But the other thing about the build for rent product offering today is not an affordable price point. I mean we're talking rents that start in the twos and go as high as the $3,000 level per month. So, I think what you have to think through is that if you're doing a build for rent strategy and it's very market specific, it might be a very attractive way, especially hedge on inflation, great cash flows. But if you're competing right up the street, for a for sale product, brand new product, the box looks exactly the same. And its price 30% higher in a per square foot basis. Forget about the casualism what's attracted in the typical multi or rental product that trades at a premium to for sale. The actual competitive product starts to give affordability constraints to the person who's going to be living in that shelter.

So, what we're concerned about is that there's a lot of build for rent communities that are coming to market. They're going to be priced above the for sale, competitive new product that's coming within a mile or two of where they're located. And I just wonder where all the bodies are going to come from, because we have a more contrarian view on the demographic outlook. So, it really ultimately comes down to does this supply as it comes to market. Certainly, it's a good thing if it doesn't ramp quickly that mitigates the risk and serves as a regulator. But if it's coming and if the floodgates, if you're right, Aaron, because you were saying supply chain bottlenecks might start to get alleviated and we get the supply coming. You've got a lot of shelter that now is available, and it's not affordable shelter, then you really have some major risk, especially in the outer markets, where a lot of that development is happening at very inflated prices.

So, we just have a concern that there's concentration risk in price point and location and marry that with the for-sale development that's coming just as rapidly as the... well, maybe not even depending on the market, it's coming and ramping as well. So, there's been a huge land grab by both for sale developers and for rent developers and they’re’ building in the same price point in the same location.

Aaron Appel: I don't disagree with anything you're saying. I think it's spot on. The only caveat is going to be, are we going to see this rent and continue wage growth here. If you see that. everything works. If you don't see that, there's going to be real problems.

Ivy Zelman: You have to have bodies, physical bodies, where if you didn't have the pull forward, where the big shuffleboard is moving, and people didn't make their move during the pandemic. Now the question becomes, if you’re bringing supply, aggregate supply that's in the process of being developed, is the highest that it's been in multi decade periods. Now we just have to say, OK, let's see if that pipeline gets delivered. Will we have enough true, primary demand to fill up all this supply, whether it multi and single? But we think single is more problematic.

Kris Mikkelsen: So acknowledge for me, though, Ivy, that from the words of a macro economist, we cannot broad brush this conversation. There are population and migration and economic growth markets, that are bursting at the seams, that have seen multifamily rental rates grow at 25% over the course of the last twelve months. They've seen single-family home price appreciation 30, 40% in some instances. The only way that we slow this down is we deliver more inventory.

Ivy Zelman: Actually, no, I disagree respectfully. And I love the hand movements.

Kris Mikkelsen: So I am a hand talker.

Ivy Zelman: I love it. You're standing, moving...

Kris Mikkelsen: When I'm come imagining a debate by a macro economist, but it doesn't like I'm really ...

Ivy Zelman: I’ really not a macro. I'm a housing economist. But just think about the number of people that are in the market, whether they're institutional investors or just non-primary buyers in the market. And that’s, it's kind of like euphoric right now. Free money. Why not buy a second home? Why not diversify from the stock market and be a private investor and buy either a condo and then rent it out as an Airbnb unit, there's so much optimism and rates are free, rates are low. So, rates can change the game dramatically. And I think when you look at a market, whether they're busting at the seams, whether it's the Texas markets today and Austin, where you go into Arizona, you go into the mountain states in Utah and Idaho, everybody's busting at the seams. But what's the supply coming relative to the incremental true household growth? So, you can tell me we don't have a problem and in Austin or in Texas because household growth is growing in a double-digit rate, but the production coming is twice the level of household growth.

Ivy Zelman: Investors are very active that are fortunately not highly levered investors. So, we don't have a potential GFC, but you just have to have the intersection. You can say it's a market-by-market discussion. Are you more bullish on one market than the next? Absolutely. It's local, local, local. Everything's down to the zip code. But just high level, what we have is a situation where we've got things busting at the seam, but the markets adjusting to that, the market, the capital is following that. Do you think anybody's building in Cleveland, Ohio? No.

Willy Walker: You are. Your buying housing in Cleveland, OH. You’re speculating on that market.  But hold on a second Ivy, I just want to jump in for two seconds.

So, one of the things you clearly have said, you've taken a contrarian position, and I just this morning was here in Miami at a conference, and somebody basically set up the question to me, you've had Ivy Zelman on, and you've had Peter Linneman on. Linneman says back up the truck buy every asset you can. Rates are going to stay low; inflation is transitory. Go assets. And you had Ivy Zelman on, who basically said that bad demographics, housing cannot avoid bad demographics, essentially. And that, she's taken a very contrarian view, and everybody goes back to your fantastic research, pre-GFC and saying that you called it early and that people who listened to you were out of the market, and people who didn't listen to you paid a very, very high price.

My question is that on demographics we know that immigration, legal immigration, let me repeat that, because last time you and I talked on this, a number of people thought that I was promoting illegal immigration. And I'm not talking about illegal immigration. I'm talking about legal immigration. Legal immigration could change the scenario here in the states that Japan doesn't have the opportunity to do. And you and Dennis have talked about Japan and what's happened in Japan in their deflationary economy and their stagflation. What do we need to see as it relates to legal annual immigration to turn the demographic tables that you and Dennis have so clearly outlined?
Ivy Zelman: Prior to Covid, legal immigration was running, call it in the 5 to 600,000 annually. And currently we're running less than 200, but there's a cap per annum on what's allowed or the number of people that are allowed to enter the country legally. So, we have to raise that cap substantially. So, if we're going to sit here and think about the level of supply that were currently building assumption. The assumption that we have that we're building to, we probably would have to double that, but I'd have to go do the math and get back to you, but pretty significant. And you know whether illegals could be assumingly part of the positive need for filling up all the shelter, which also can happen a lot of those people can't get a mortgage approval or they're living multi people per household. I do think the legal immigration does solve the problem if the cap was raised substantially. I would say at least double.

Kris Mikkelsen: One more question on that. The immigration piece, Ivy, was one of your wild cards, if you will that could change baseline assumptions. And if you're not a subscriber to the Zelman research pieces, PSA give us a call.

Willy Walker: Well done Mikkelsen, well done.

Kris Mikkelsen: But, one of the stats that floored me as, you know...when I graduated from Georgia Tech, I was 23 years old. I would want to live anywhere other than my parents' basement. And the percentage of the 20 to 39-year-old population that is living at home today and the exponential growth that we've seen in that from 2010 that the stat that stuck with me, and you can refine it. I might mis-stat it. But essentially, if we return back to the percentage of 20 to 39-year-olds that are living at home to the same percentage that we were in 2010, that's an additional 2.1 million households that are not in your baseline assumptions right now. 

Ivy Zelman: Correct

Kris Mikkelsen: So like, you know, we are texting on the side here, like, Willy, I don't know how long you're going to let Jack Walker live at the house, after he comes home from Saint Lawrence. 

Willy Walker: He's going to do better than his dad. Kris, don't worry about it. He's going to do better.

Kris Mikkelsen: So talk to us a little bit about that Ivy. How does that plus the immigration, Like, what are some of the things that can move baseline Assumptions?

Ivy Zelman: First, I am so excited that you're actually reading the research and...

Kris Mikkelsen: I need all the help I can get.

Ivy Zelman: Stats are, you’re right on it. So, the number of people that are between the age of 20 and 39 was surprisingly higher from 2010 to 2020. We thought that the big increase from 2000 to 2010 was just easily explained by the GFC. So, you call it, we went from 16 and change percent of people living in 2000 to 19.7 in 2010. The real shocker, because we got bullish in 2012, because we thought that would unwind and that we would see young adults leaving home once they got employed. And that number over the decade...and we have annual numbers. So, we can look at surveys that are done by the census bureau of, the CPS, the ACS, the numbers continue to stay stubbornly high. It wasn't just like one year they just unwound. So, by the end of this prior decade, we just finished, the number is 23.7. So, we went from 19.7, and we thought that would start to unwind.

So, you're right. If it was to turn around all of a sudden, and those people were just leaving in droves, we get monthly data, and the numbers are not turning around. We see the numbers that are, again, samples that are nowhere as big as the decennial survey, but we're not seeing it, but you're right. That could absolutely change our demographic outlook. We ask ourselves; we're puzzled like why? I mean, living in... in your parent’s basement, maybe the stigma is not as negative as you think anymore. Or you just have more people that can't afford to leave home. Maybe they don't have the ability to get the down payment or they're just struggling, and they're not ready to get married and start a family. There's a whole list of reasons. We think affordability is up there, especially after the surge in home prices, or just an acceptance of multi-generational living. They say boomers are the sandwich generation. The sandwich generation, and they have their adult parents living with them and their adult children living with them. And that's how people live in Europe and they're all fine with it. So, are we shifting to a multi-generational lifestyle here in the U.S.? The numbers would say we are.

Willy Walker: I would say the one other thing that is worth thinking about and it's hard to tell, but a society that is not as focused on ownership as it used to be, to the degree of not needing to own a car and using ride share. Not needing to own a vacation home, and just renting where you live and not. Obviously, from a retirement standpoint that has significant implications because the last generation created so much wealth in the value of their home and that was the really great wealth creator for that last generation. Right now. It doesn't seem like this upcoming generation feels a need to own a piece of the rock. And that could have significant impact on the number of renters versus the number of owners.

Aaron Appel: Hence all the built for rent and multifamily development.

Willy Walker: Big time. Big time.

Aaron Appel: The tenant base. Look, the tenant base wants flexibility. So, I know people that are 28, 29, 30 years old, they're going to Miami for four or five months. They're renting apartments down there during the winter or they're going around.

Ivy Zelman: You're talking about the 1%. We're not talking about people you and I hang out with. Main America wants to own a home, because frankly, that's the only way they'll ever create long term wealth in many cases. If anything, home ownership rates for the last five years have been rising. So, the millennial have been in the market. They have been buying. I think that the challenge is affordability. And I think rent affordability is going to have the same problem. Pricing is not inelastic. So, you have a ceiling. There is a level and will wage inflation keep up. If in fact, you're right, and we have significant wage inflation then we're not going to have an economy that's going to have deflation. It's not going to be transitory. You can't have it both ways.

Aaron Appel: Inflation it’s not transitory.

Ivy Zelman: If it's not transitory then rates are going higher and not...

Aaron Appel: No.

Willy Walker: Appel, Appel, you told us yesterday...

Kris Mikkelsen: There’s not a single listener listening to this webcast. There's not a single business owner listening to this webcast. That doesn't feel like they're having pressure on the salaries that they need to pay their employees.

Ivy Zelman: The point is what I'm saying, Kris, is we can't have it both ways. We can't have the yield curve might invert, because the ten year tells the truth. The ten year is the truth teller.

Aaron Appel: That's not true, because the ten years manipulated. The ten-year treasury is being purchased by our government. They are expressing yields that they can pay debt service on their debt, right? That continues.
Ivy Zelman: Are they going to taper? Aaron? Aren't they going to taper?

Aaron Appel: They can't taper. They can talk about tapering. They can taper a touch. They actually try to taper.

Willy Walker: That might be the take from here. They're going to taper a touch. I've only got four minutes left with the three of you, and I want to get final thoughts on this. One thing, by the way, Appel, yesterday you were talking about inflation being transitory. You told us yesterday.

Aaron Appel: Hold on. I said it will come down from where it is today. At 6% and change, it will drop down. It will probably settle in somewhere around 4, 4.5 would be my guess. Right? Because of the currency of the basement that's going on, and then...

Willy Walker: But you also made the comment about Asia and the fact that Asia is going to see no inflation.

Aaron Appel: They don't have inflation right now. They have very, very low inflation. They also don't have the types of debt problems that the U.S. has. They didn't increase their money supply by 30%.

Kris Mikkelsen: This is Appel’s book for bitcoin. We're going to go all the way back..

Aaron Appel: Real estate also. Hard assets. No question.

Willy Walker: Here's my last question to each of you. I'd ask you at the top when you put $100 million and got varying answers on that. Where is there opportunity in the market today? So not making $100 million bet on one thing, but as you see, your smart clients moving into a strategy, if you will, and let's not name the clients or what have you. But as you sit there and say, we have a client who just did x. Where are the smart clients moving to create value? Aaron? Let me start with you on closing notes.

Aaron Appel: Yeah look, I think I would tell you there's a couple of different strategies that we've seen. One is we've seen clients really press the super luxury end of the market and move into markets where there's, maybe one product, but there's not enough to meet the demand. And they're going out and they're taking bets on, you know moving the needle on pricing 25, 30, 40% on an asset class. Thinking that there's enough liquidity in that marketplace for that particular product. And they're so far, those bets have been right. And they've had huge return. So, we've seen a lot of that. We've seen a lot of aggressive pushing the envelope. Price point plays at the high end of the market on really luxurious residential, really luxurious hospitality. You know, 21st century, high end industrial. And we've seen the tenants, the users, the people pay for it. If I had to make bets in terms of real estate, I spoke about this a little bit with yesterday. There's been so much capital that's moved into the southeast and southwest. There's been just so much liquidity. There's been a lot of people. The demographic shifts continue to move there because of taxation in the coastal areas in the blue states. That's a real factor. But I think those markets are certainly ready for...and if you go into those markets and you say, what's the best product I can get? And then you go take a look at some of the coastal markets and say, what's the best product I can get? There's a vast difference in construction quality and finish quality. And I think those markets are ready for the introduction of one or two of those products. And there hasn't been enough of it yet, and I think that's a huge opportunity. It's a difficult opportunity to attract institutional equity into because it hasn't been done before. There's no comparable, it's very difficult for investment committees to approve. And then it's difficult to finance for the same reason. But I think that is a mega opportunity and could be a windfall for anybody that wants to take that risk.

Willy Walker: Kris and Ivy, and I've got to ask you to be quick, because I'm over time. Real quick on finding opportunity. Kris.

Kris Mikkelsen: We spend a lot of this conversation talking about the revenue side of what's going on for all these assets. We don't spend a lot of time talking about expense ratios, operating margins. Those are going to be under a huge amount of pressure. I think the groups that get out ahead of that and really rethink the way that we're operating a lot of this real estate. Yeah, I think those are the groups that are going to win over the next five years using these really kind of tech forward management platforms, maybe as single- and multi-merge into one with build for rent and SFR in the middle, taking some of those techs for management practices and applying those to the conventional multifamily world and improving NOI margins. That's kind of the last frontier of the value add. That is the operational value add. That's what I propose.

Ivy Zelman: And Willy, I would say it's interesting, just thinking sort of a combination of factors you've got a need for automation. We have a significant amount of capital that's invested in prop tech. And whether it's smart homes or just improving the overall construction process, those things need to happen. But Lennar, for example, right now, has gotten into 3-D printing homes. There are other startups doing the same. We have an affordability crisis. If you told me that all the supply that I told you is coming was all price below $1,000 per month for a consumer. That would be awesome, but that's not the case. So, the affordable part like you buying Alliant which is genius, not just because you're my boss now and I pat you on the back. I do think that affordable housing on one end, but I like Aaron's point too on luxury. You can't find a luxury two-bedroom apartment in Miami right now. So, if that's a sliver of the market, but that's where the wealth is. So, our boomers are not going anywhere they're going to live to 130 according to my friend Dr. Roizen. So, we need both the book ends. That's where the capital needs to go. And we need to use it with technology and automation to improve the overall returns for investors.

Willy Walker: Dr. Roizen is coming on the Walker webcast in 2022, and I'm really excited to have him.

I have to tell you to have, I got a lot of colleagues at W&D, and I love hanging out with all of them. To have three colleagues like the three of you with the minds you have and with the expertise that all three of you have at W&D to be able to work with you every day is a great pleasure. And have had an hour with all of you to talk about the markets has been a real treat for me.

Thank you everyone for joining us today. If you obviously have any questions and know any of these three professionals, please reach out to them directly. For any follow up, and I'm taking next week off before the Thanksgiving holiday and not doing a Walker Webcast, but we will be back in early December with another one.

Hope everyone enjoyed this conversation as much as I did. Thank you, Ivy. Thank you, Kris. Thank you, Aaron for joining me.

Ivy Zelman: Happy holidays.

Willy Walker: Take care, everyone. Have a great day.

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