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Willy Walker's CRE & market insights

August 30, 2023

Willy Walker's CRE & market insights

Willy Walker

CEO of Walker & Dunlop

In a very special episode of the Walker Webcast, Willy Walker flies solo and shares his opening remarks from this year's Summer Conference.

In a recent special episode of the Walker Webcast, I flew solo without any guests to share my opening remarks from this year’s Summer Conference in Sun Valley. I had the opportunity to touch on some of the topics that are most important to me, including well-being, artificial intelligence, and the state of the various commercial real estate markets.

Unpredictable Fed policy

Over the course of the past year, we’ve seen the rate on the 10-year increase by 100 basis points, whereas the S&P 500 has gone up 14 percent. The Fed has hiked rates considerably in that same amount of time, and yet they are looking to continue their rate hikes, citing continuing inflation. I don’t understand why they are chasing a perfect inflation rate and a perfect unemployment rate. Unemployment may be historically low, but at the end of the day, Americans having jobs is a good thing. It’s great for the economy, and it’s great for the average consumer.

This reluctance to stop raising rates has made the Fed very unpredictable. Countless analysts have been making the call that the Fed will stop raising rates for months now. Even at Walker & Dunlop’s board meeting, various board members had differing opinions on what the Fed would do next. This makes it very difficult to project out into the future. Although many of us are hoping that Jerome Powell stops the rate hikes soon, it’s still unclear what the Fed has planned for us.

The future of commercial office space

The future of commercial offices is also unclear, as it has been for quite some time now. While people are slowly returning back to work, there are still countless empty office spaces across the country. This leaves commercial landlords without tenants, forcing them to negotiate with banks that, quite frankly, don’t want to foreclose on the properties, as they wouldn’t be able to sell them.

While many see this as a great opportunity to retrofit existing office spaces and turn them into multifamily spaces, there are countless headwinds that come along with the conversion process. There are obvious complications, such as the fact that floorplans will need to be reconfigured and tremendous amounts of plumbing will need to be added.

However, there are some additional complications that few think of. One of these is that there are very few office buildings out there that are at zero percent occupancy. Many office spaces may see 15, 20, or even 30 percent occupancy. Unfortunately, working around these tenants is typically impossible when converting from office to residential. This means that landlords will need to buy out their existing tenants leases, likely at a premium, which in turn puts additional financial pressure on landlords.

The need for younger leadership in our country

The leadership in our country’s government is aging at a rapid pace, and there are few people looking to get into politics. However, there are plenty of critics, both young and old, willing to take pot shots at those who govern.

It’s important to remember though, that at the end of the day, these pot shots do nothing to move progress forward. If you love this country, you believe in what it stands for, and you have great ideas and an open mind, take action, and get into politics. We, as a country, need to see more people take on leadership roles in politics. While we have plenty of young leadership in the business space, we desperately need some of it to bleed over into the political space.

The implication of AI on businesses and health

It’s no secret artificial intelligence will have tremendous impacts throughout the world. The two areas where I see AI making the biggest impact are in business and healthcare. For instance, there is a news station in India that has implemented the first AI newscaster, named Lisa. Unlike humans, Lisa does not take a salary, she is not in the Screen Actors Guild, and she’s not on strike right now. She can work 24/7, without any breaks.

While that may seem scary, there are other areas where AI can do tremendous good, such as the healthcare sector. For instance, AlphaFold is a program designed by Alphabet’s DeepMind team. This software was designed to catalog the 200 million different types of proteins that we know of. Before the development of AlphaFold, humans had only cataloged 150,000 of these proteins. However, through the use of AlphaFold, the DeepMind team was able to catalog the other 199.9 million types of proteins over the course of a year and make said information available to anyone who needs it.

Although this is the first time we’re seeing AI used in this capacity, it’s important to remember that AI is not a new technology. It has been used for decades in video games and basic internet searches. The technology itself is not new; it’s the application of said technology that is new.

The economics of climate change

While many see climate change as a strictly scientific problem, it’s actually a financial problem too. As sea levels rise, it becomes more difficult and expensive to insure coastal properties. You also see this phenomenon occur when temperatures increase in areas that are prone to forest fires, such as Sun Valley. We’re all finding out that the economic impacts of climate change are very real. Hopefully, these impacts will catch the attention of both lawmakers and executives, so we can make a change for the better.

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