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Walker & Dunlop Execs On Navigating CRE Disruption, Avoiding 'Death By A Thousand Cuts'

Clockwise from top left: Ivy Zelman, Kris Mikkelsen, Aaron Appel and Willy Walker on the Walker Webcast.

Is now the time to move forward with multifamily property transactions? Or is it better to wait a few more months in the hope that interest rates will decline?

Those questions are being asked in commercial real estate executive suites across the country, as well as on this week’s Walker Webcast, hosted by Walker & Dunlop CEO Willy Walker. Joining Walker were his Walker & Dunlop colleagues Kris Mikkelsen, executive vice president for investment sales; Aaron Appel, senior managing director and co-head of New York capital markets; and Ivy Zelman, executive vice president of research and securities.  

Mikkelsen said commercial property owners are trying to navigate between two divergent views of the economy. On the one hand, the Federal Reserve continues to be concerned about inflation, with the possibility of an 11th interest rate hike coming in June. On the other hand, there is a sentiment among many CRE professionals that rates have peaked and may even begin to drop later this year.

Mikkelsen said this leaves many people wondering how to move forward. 

“In the conversations that we're having with sellers, if you have the ability to go long on an asset and ride through this period of instability, then you should absolutely do that,” he said. “But if you've got an asset where you need to make a decision about a capital event over the course of the next 12 to 18 months, then it's difficult to look at all the volatility and all the shifts in sentiment that we've been through over the past 90 days and feel like time is your friend.”

Perhaps adding to the confusion is that CRE professionals face a daily barrage of troubling headlines, whether they concern the potential fallout of recent bank failures or the never-ending challenges of the office sector in the wake of the coronavirus.

Appel said the news doesn't show a complete picture of what is really happening. For instance, in the case of recent bank failures, Appel said the markets have actually absorbed the shutdowns “pretty well.” 

“There's really no contagion effect that we're seeing among the banks,” Appel said. “I go back and forth on my opinion of what's going to happen with rates, but there's certainly much more liquidity than there was in 2009, when there was no liquidity.”

Even if commercial banks have shut the spigot on financing new CRE deals, borrowers have many more alternative lenders to work with than they did during the Great Financial Crisis, he added. 

“Leverage is certainly down, but for good projects or assets that make fiscal sense, regardless of the asset class, our belief is that there is credit available for those assets,” Appel said. “Whether the owner or sponsor likes the liquidity that's available is a different story. But we have not worked on any transactions that should get financing that were not able to get financing.”

That doesn’t mean these aren't challenging times, particularly for those whose investments include office buildings with gaping vacancies. But Appel cautioned that what he reads in the news and what he sees at work are two very different things.

“The markets are not as bad as what you read in the media,” he said. “The headlines are pure panic about a coming wall of maturities or that office is completely collapsing. I can tell you wholeheartedly that none of that is happening, and the fundamentals on the ground are dramatically better than what we’re hearing in the news.”

Zelman said that now is the time for CRE executives to demonstrate leadership.

“Today it's about management and how well they're executing, what their strategy is, how they're allocating the cash flow that they're generating and where the smart C-suite executives are going with their capital,” Zelman said. 

A sense of confidence and an ability to maintain perspective, whether at the consumer or C-suite levels, are key to successfully weathering market volatility, she said.

“When I talk to management teams, I’ll say, ‘What are you doing today with respect to hiring? What's your plan for the next year or two?’ And a lot of them will say they are pulling back on everything,” Zelman said. “That's self-fulfilling, and I think we almost create a recession ourselves just because banks stop lending and companies pull back. It feels like it's death by a thousand cuts as opposed to a plunge.”

Walker closed the webcast on an optimistic note.

“There's a lot of stuff to navigate, but as we all know and have all said many, many times: I wouldn't bet against the United States of America and our economy,” Walker said. “We'll figure out our way from here to the other end.”

For information about the next Walker Webcast, visit here.

This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow news staff was not involved in the production of this content.

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