General Market
How has the start of 2025 been in the markets in general?
I would characterize it as an uncertain, rocky start. Until the last few months, the Fed was cutting rates by about 75 bps as inflation was falling. However, with inflation stalling above its’ 2% target, the Fed has adopted a wait and see mode until the inflation picture improves. The Fed needs more clarity on what the Trump administration’s policy whirlwind will do longer term. It’s unclear whether the administration’s deregulation, tax cuts, spending cuts, tariffs on everything from steel to lumber imports, and immigrant repatriation will spur growth, a recession, inflation or some combination. Reflecting this uncertainty, the S&P is down 10% since January and the 2yr 10-year Treasury spread has stopped steepening which is the bond markets way of saying, we don’t fully know where the economy is going yet. I can’t see the Fed cutting rates until the Fall at the earliest unless we see consistent inflation declines which seem increasingly unlikely. Warren Buffet is also sitting on a massive cash hoard. Hmmm.
How do you expect the rest of 2025 to play out in the real estate markets?
I am, as the cliché goes, cautiously optimistic, but it depends of course on which parts of the real estate markets we are talking about. The direction of rates is key in terms of getting through the pile of upcoming refinancings this year but even at current levels the property and financing markets are much better off than say, in 2023.
In terms of development, I am concerned about a possible disruption in the construction workforce due to immigrant repatriation policies and increased costs and supply chain issues for key construction inputs like steel and lumber because of tariffs. Less new supply could bode well for existing CRE property values but would of course dampen development. Immigrant repatriation could also increase lower income service worker wages thereby not only impacting construction, but also sectors like hospitality and senior living.
How do you think institutional investors are adjusting their strategies in response to shifting macroeconomic conditions, particularly inflation and elevated rates?
I think real estate investors are generally optimistic on stabilizing property values and improving transaction and financing markets and so are moving ahead with planned investments in specific sectors. However, this enthusiasm has been dampened by the increase in the last couple of months by the rise in long term interest rates. I haven’t seen data on this but one obvious way if you fear inflation is to write shorter leases or more owner favorable leases passing costs onto tenants.
What asset classes or real estate sectors (office, industrial, multifamily, retail, hospitality) do you believe offer the most potential opportunity in the coming year?
I think I am going to go out on a limb and be a bit contrarian here regarding office which most hate and data centers which many love. I think class A office buildings will continue to offer opportunity as well as well-located somewhat lesser quality office in cities or in higher end suburbs like Greenwich, CT. The office markets seem to have bottomed in a number of places and are attracting investors. A recent CBRE report shows the prime office vacancy rate fell 10 bps to 15.3% while the non-prime vacancy rate stabilized at 19.2% albeit at a very high level. Construction fell to less than half what it was a year earlier, net absorption is the highest in three years and leasing activity is up by 23%. These trends, if they continue, combined with banks increasing willingness to sell off office buildings and notes at significant discounts rather than doing loan modifications and extensions, I think should create opportunity in the coming year. CMBS office delinquencies have been falling for the last three months albeit from record levels which may also be a sign the office market is turning for the better although I suspect this will be a steps forward one step back process. Where the office is located of course is also key. Some sunbelt offices have been doing pretty well. DC which had been a bit of a ghost town with so many government workers working remotely will be interesting. With all of the government layoffs (bad) and back to work requirements (good), who knows?
While the cost of renovating less than prime office building is high, office construction has nearly stopped, and companies increasingly are requiring workers back into the office as the job market cools. The percentage of people working solely in the office is increasing slightly but I think more importantly hybrid work arrangements are increasing which helps the leasing demand we are seeing in the CBRE data. Remote work is also, in my opinion, awful for young professionals like our students and most don’t like it. It makes it much more difficult for people to network, spontaneously learn from their bosses and colleagues, develop teams and corporate cultures.
I just came back from the San Diego MBA CREF conference and had lunch with several investors on the west coast. The president of an investment firm there told me he had just bought Wells Fargo’s headquarters in San Francisco for a good price given its current occupancy and given trends in San Francisco with the new more pragmatic mayor, and growth of AI business, believes that it offers considerable upside and was now looking for financing.
Regarding data centers I am going to mercilessly crib from my colleague, Professor Van Nieuwerburgh who believes that there is a looming bubble in data centers with massive overinvestment and rocketing values all of which is reminiscent of the dotcom bust of 2001 and the huge overinvestment in fiber optic networks.
I think Sunbelt apartments which had been overbuilt and suffering from vacancies and downward rent pressure, will also offer upside potential at the right price as construction there has slowed and migration trends to the Sunbelt continue. On the securities front, CMBS B-pieces are also attractive.
Capital Markets & Debt Financing
How is the current credit environment impacting real estate financing and structured transactions?
From 2021 to 2024 real estate finance has been on a roller coaster with record low rates and high transaction volumes from 2021 to 2022 followed by high rates and low volume in 2023 and then a resurgence. CRE lending has been improving in the last year with greater issuance, tightening spreads albeit still at higher levels than a few years ago and stabilizing property values. Based on my conversations and notes from CREFC in Miami and the MBA CRE conference in San Diego lenders, banks, insurance companies and the GSEs are looking to increase allocations to CRE debt.
That said lenders are still working through a considerable amount of troubled loans and there are more to come. There are an estimated $550 billion of CRE loans that were originated in 2015 at significantly lower rates and higher valuations coming due in 2025 and another $1trillion in 2026. According to Green Street, loan modifications are already at decades highs driven by office loans and the lingering impact of COVID-era modifications on retail and hotel properties. These modifications can be “minor” such as “adjusting DSCR requirements or the principal amortization period (providing a temporary IO period or extending it) to take pressure off a borrower with say, a slow lease up period or could be a major restructuring of loan economics such as extending the loan’s maturity.”
Lenders generally will only do the latter if they think they will ultimately get paid back. Green Street provides a good perspective and one that I also teach in my Real Estate Finance and Real Estate Debt Markets courses as to whether a lender will extend a loan. An extension at the end of the day represents the lender giving a call option to the borrower in that if the property value goes up, the borrower has upside and captures that value. On the other hand, if the property value falls after the extension, the borrower can still default and put the loan back to the lender. For the lender, the best that can happen is to get paid back. As such, the lender wants something in return for this credit call option and that is usually additional borrower equity, a paydown or additional guarantees that reduce the lender’s risk for the extension. Without this an extension seems unlikely.
That said for existing borrowers, much will be dependent on where rates go from here. Refinancing loans on office buildings, a sector that seems to be bottoming, will continue to challenge. Special servicing and asset management should continue to be parts of the market looking to hire.
Are we seeing a repeat of past liquidity crises, or is the landscape different this time?
I don’t think we are seeing a repeat of the liquidity crisis of say 2008. I lived through that period and co headed the underwriting and transfer of Wachovia’s $100B CRE loan portfolio to Wells Fargo. It was pockmarked with chaotic panic as well as existential threats to and the collapse of trillion dollar financial institutions. My discussions at the MBA CREF conference indicates that there is considerable demand for distressed note sales and that major lenders such as the big banks are actively selling off distressed loans.
Given your experience in structured products, how are CMBS and other real estate debt markets adapting to the current economic uncertainty?
CMBS issuance in 2024 was over $100b in 2024 way up from 2023 and we expect another robust issuance year perhaps exceeding those levels in 2025. Reflecting the uneven performance of commercial real estate properties, the markets continue to favor Single Asset Single Borrower (SASB) deals which made up about 70% of 2024 issuance. SASB deals are usually backed by trophy properties with institutional owners, and it is easier for investors to get more comfortable with a specific building in an uncertain environment than a bunch of smaller loans that make up a conduit deal.
Career Perspectives
You’ve had an extensive career spanning investment banking, real estate finance, and academia. What key skills or experiences have been most valuable in navigating and succeeding in these different roles?
Doing what you love so it feels like fun and not work. Being authentic, honest and trustworthy. Being a curious knowledge sponge and always asking questions. Supporting and growing the people that work for you so your team becomes one and fun, being proactive, playing the hand you are given as best as possible and working your butt off to become the best at what you like to do so that when change provides you with an opportunity, you can jump on it and make the most of it. You always need to anticipate changes in the markets and position yourself accordingly.
As an example as an undergraduate at MIT, my physics courses were incredibly challenging and being from poverty, I wondered what I would do with such a degree, so I took economics courses with some of the greats like Samuelson and Solow and graduate finance courses at Sloan which were much easier. There I learned about the potential impact that high speed computing could have on securitization and connecting the gaping arbitrage between on balance sheet loans and the bond markets. I also in my sophomore year explored real estate, working on a paid internship on what was then the conversion of vacant parking lots into Boston’s Seaport District, which I loved.
Graduating into a tough Boston job market in the early eighties with no connections, I moved to NYC and took a Capital Markets position at the NY Fed where I got to work on a BIS committee on securitization. This took me through Open Markets and a secondment at the Bank of England in London. While I was earning a pittance, I learned a tremendous amount about securitization and how the Fed works which led to a bidding war for my talent on Wall Street which led to my working at Bear Stearns for 10 years in real estate, capital markets and securitization. Bear was a crazy place full of super smart, hardworking people who all had a chip on their shoulder. I loved it. Here comes the luck and flexibility part. This led to my being given a crazy, guaranteed bid by Wachovia to move to Charlotte in September, 2001 with private planes, cars, a house and a NYC office thrown in. One week after I started, planes crashed into the World Trade Center which I thought could end my career but instead led to the Fed pumping massive liquidity into the financial markets. I then looked like a genius as the residential and commercial real estate securitization markets ballooned for the next 7 years and our team made more money than I ever dreamed of.
So how did you come to teach at Columbia?
It’s a bit convoluted. It started with a detour to Paris that I took between MIT and Wall Street. Having never traveled abroad, I went to London and Paris for a week each. I fell in love with Paris and a professor at the Sorbonne and wanted to live there for a couple of years, so I made up a story that I could teach scientific and engineering English to get my Carte Travail and Carte de Sejour (working and living papers) which worked. Having never taught, I started teaching English to department heads and engineers at Thomson CSF, a huge French electronics company which makes everything from electric toothbrushes to the Force de Frappe. They loved me and I loved teaching. That realization, and a two-year stint later as an adjunct at Columbia Business School teaching Debt Markets, always made me think when I leave Wall Street someday, I will teach what I love and know, which is why I teach real estate and capital markets courses at CBS.
For young professionals looking to build a career in real estate finance or structured transactions, what advice would you give in terms of skills, networking, and industry trends to watch?
Figure out what type of person you are and then figure out what part of real estate you want to be in. Are you an entrepreneurial risk taker? Then be a developer. Each project is really like starting a company in and of itself. Are you more cerebral and analytical, then maybe go into acquisitions or debt underwriting or become a lender. Networking is key. That is where the most accurate and freshest information is, and that is essential for everything you do in real estate. Learning the core skills and knowledge of debt underwriting, property underwriting, pro formas, and different debt types like mezz, preferred equity of course is essential but that’s not really the hardest part. It’s the assumptions and numbers you put in the models that is key. Real estate is also a deal business, so negotiating and being able to instill confidence in others, and selling your ideas and yourself is also essential.
We recently returned from a 10-day Chazen Study Tour to the UAE and Saudi Arabia. Could you talk about the experience there and what you learned?
Wow! How much time do you have? The experience was incredible. Before we even left I was excited. We had a wide variety of students including a Jewish American and Muslim Saudi as leaders and other than the Saudi nearly none of the students knew what to expect in Saudi Arabia which turned out to be the trip highlight.
The general purpose of Chazen study tours is to teach students about international business through experiential learning, develop friendships and business networks with fellow students, their faculty advisor and with the business thought leaders they meet and to better understand the cultures they are visiting and of course have a blast doing it. By these measures this trip was off the charts on all counts. Indeed, one of the best I have been an advisor on, if not the best. All of them are honestly incredible.
The experiences ranged from my interviewing and learning from the former CEO of the luxury hotel company Jumeirah, how as a young man fresh off an Irish dairy farm, he pioneered the development of the luxury hotel business in Dubai, building the Burj Al Arab, the iconic sail shaped “7 star” hotel in Dubai, to then visiting these hotels on a site tour (including the $150,000 per night hotel suite), to flying to AlUla, a Saudi tourism giga project, to spending a day and night as guests at the desert getaway camp of the President of one of the largest Saudi construction companies; think ATVs, dunes, camels, tents, a massive feast, and traditional Saudi sword dances around a roaring bonfire. We also visited the Abrahamic Family House in Abu Dhabi with its mosque, synagogue and church next to one another and learned how the UAE is promoting tolerance of different religions in the region.
Beyond the incredible individual experiences, I think all the students and myself learned that the roaring success of the United Arab Emirates, beyond of course its’ obvious oil wealth, results from the fact that it is a calm, safe, prosperous oasis of economic and political stability in a region often afflicted by violence and political oppression. My hope is that it will have a similar positive effect on other countries in the region, such as Iran, just as the prosperity of Singapore influenced reforms in communist China. Saudi Arabia is already making significant strides.
And while this is the same on all Chazen trips, I always relearn just how interesting, smart and fun Columbia Business School students are. I know that sounds like shameless promotion, but I sincerely mean it. When I first started teaching you look out into a sea of 75 anonymous faces. On a Chazen study tour, you get to know which student was a sniper in the US special services, who worked in the Peace Corps in a poverty stricken area, who developed shopping malls in Uganda, who is the granddaughter of the Shah of Iran, who grew up in a housing project in the Bronx and built their student housing company, and they get to learn about my own crazy ride. Walking in the halls or in the classroom I don’t think any of us look at one another in quite the same way.
As the Faculty Director for International Study Tours at the Milstein Center, can you talk about some of your favorite experiences and future goals for this initiative?
Oh boy this is another one of those how much time do we have questions. For my favorite business experiences I would say discussing with the chief advisor to the Indian Prime Minister Modhi about his future plans for freeing up the dynamism of India’s economy, and meeting with one of the largest home developers in South America who was developing a 10,000 residential community outside Buenos Aires, and discussing with him how he was doing this on a private equity model with buyers and no debt. (There are no mortgages in Argentina).
Some of my favorite cultural experiences? Wow. They all range from good to awesome. I would say hiking in small groups of three with a guide and a machete through the mountainside jungle on the Rwanda Congo border (with a civil war ranging on the other side in Congo), looking at gorilla families take care of one another. The camp in the desert on this past trip to the middle east was also spectacular.
One of my key future goals is to help develop an international paid internship pathway for CBS real estate students, with the hope that it will lead to permanent professional positions abroad. When we go on these trips, we develop friendships and professional contacts with some of most senior professionals in the region, several of whom say that they would love to hire our students for the summer. Indeed, when we went on our India trip last year, we met with the head of Brookfield Properties Asia in Mumbai who was also a CBS alumnus. One of our first-year students on that trip worked for him last summer and will be going to work for Brookfield fulltime in Asia Pacific upon graduation. A program like this will not only open up more internship and job opportunities for our students, diversifying opportunities from the US real estate cycle, but it will also help our international students who may face challenges with US legal paperwork or are seeking to develop professional roots outside of the US post business school.
Closing Question
You last sat for this interview series in 2016. The next time you sit for this interview, what do you expect to be the most relevant topics to cover in the real estate markets?
Wow the last one was nine years go! I would say the impact of AI on real estate businesses such as greatly improving the speed and efficiency of underwriting home mortgages and commercial real estate proformas among other things. Right now, a. home mortgage approval requires reams of paper as well as the actual closing itself where there is usually an inch of documents. One could imagine a mortgage approval consisting of a lender pointing an iPhone at the house and then at the face(s) of the borrower and an approved mortgage amount popping up.
Another important topic will likely be AI’s impact on white collar jobs and property markets themselves. Most studies, like a recent Brookings Institute study, show AI as having the greatest impact on white collar jobs like coding and financial analysis. If AI replaces these types of workers, it could have a big negative impact on go-go cities and regions like Silicon Valley and the Boston Cambridge area. On the other hand, if it makes these jobs more productive and these areas take the lead in creating new companies that leverage AI into a variety of uses. it could make them even more dominant in the pecking order. Climate change and insurance rates, of course, will also only grow in importance. Stay tuned. I look forward to the next interview.
Andrew Dickerman '25 is a 2nd year MBA student at Columbia Business School, with a focus in real estate and finance. Prior to CBS, Andrew worked at Prospect Ridge, a real estate private equity firm, where he was responsible for underwriting, structuring, and asset managing opportunistic real estate equity and debt investments across the United States. Prior to Prospect Ridge, Andrew worked in the Real Estate Investment Banking Group of Goldman Sachs.
