Mark Bonner: 00:10

Okay. Welcome to First Draft Live. It's Friday, June 20, and we're coming to you live just forty eight hours after the Fed's latest rate decision. No cut, no hikes, but maybe, just maybe a turning point. We're thrilled to have so many of you tuning in from across North America, and you're a big shout to everyone staying up late across The Atlantic.

Mark Bonner: 00:30

We really appreciate it. We're streaming live right now across social media. I'm your host, Mark Bonner, BusinessOut's editor in chief, and I'm coming to you live from New York. On today's program, we're talking monetary policy, real estate stress signals, and what a post zero rate world looks like, because even with no rate cut this week, the ice may beginning to thaw. Bond yields are sliding, layoffs are creeping up, tariffs are still hanging over the economy, and inflation has cooled for four months straight.

Mark Bonner: 01:01

The pressure is building on Wall Street, on Main Street, and all across commercial real estate, and the industry is waiting, hoping, desperate for relief. So what happens next? Is your own pal setting the stage for September? Can real estate finally start to price in a new cycle? And what does a return to normal even mean when the old normal is gone for good?

Mark Bonner: 01:21

Joining us today to break it all down, Mark Rose, chair and CEO of Avinson Young. Since you don't know, he's transformed the firm into one of the world's most forward looking real estate companies. Under his leadership, the company's grown from 11 offices in Canada to over 100 worldwide, and he's become a mainstay voice at Davos and beyond. Mark, welcome to the program. I know you're joining us from Chicago.

Mark Rose: 01:44

Thank you, Mark. Appreciate it.

Mark Bonner: 01:46

Okay. So let's jump on in. The Fed had stealthy. The Fed held held steady, but the market isn't moving. Jerome Powell from the lectern with his remarks after the decision said, quote, we haven't been through a situation like this, and I think we have to be humble about our ability to forecast it.

Mark Bonner: 02:02

Obviously, a reference to Liberation Day tariffs. Here's the president of The United States. Here's his response. We have a stupid person, frankly, at the Fed. Europe had 10 cuts, and we have had none.

Mark Bonner: 02:14

He's a political guy who's not smart. He's costing the country a fortune. So, Mark, question for you. Is Jerome Powell stupid? Is he costing The US and therefore Siri a fortune?

Mark Rose: 02:28

I don't think Jerome Powell is stupid at all. I do think that he is a bit political, but I don't think he's stupid. Listen, he is at the cause of this as well. He held on for too long right through June thirtieth of twenty twenty two. The Fed was still buying 65% of all mortgage originations in this country.

Mark Rose: 02:53

He'll, you know, we held on with with incredible free monetary policy for way, way too long. And, you know, you had to deal with the, you know, the repercussions and ramifications of that. So, Jerome Powell is who who who, you know, who he is. I think he's, you know, a smart guy. I do think there's a political issue between he and the president, but we need to let them settle that themselves.

Mark Bonner: 03:20

What's your reaction to the Fed decision?

Mark Rose: 03:23

Nothing is a nonissue. Right? Whether you know, honestly, if there was a cut, it would have been a good thing, but a cut of 25 basis points really wasn't going to change anything. It didn't feel like there was any chance of interest rates going up, and quite frankly, consensus was that it would stay there because the tariff issue, the tariff flip flops, the conversations have really led to this situation where there is a clear, a clear recovery that's going on. But unfortunately, we in the industry, you and the media, have to cover changes that happen minute by minute, day by day, and month by month.

Mark Rose: 04:15

Having a history in this industry for over forty two years, I would just tell you that doesn't change how we look at the future. That's just a long way of saying the interest rate decision of this week was never going to impact anything. If in fact there was one out of the blue a cut, it would have been better, but it doesn't get us to where we need to be. But I think we will get there on our own because, as I said, the recovery is absolutely intact right now.

Mark Bonner: 04:47

Right. I mean, you're not the only person who's told me this week that this decision didn't matter. However, CRE transaction volume is down 40% year over year. Even trophy asset deals are struggling in the clear. How could it not matter?

Mark Rose: 05:03

Yeah. So let's just say that there are certain product types that are operating. For example, you know, industrial is selling. Industrial isn't necessarily leasing at the moment, but industrial is selling. Well, why isn't industrial leasing?

Mark Rose: 05:17

Well, every day, those who operate, own, use, develop, not quite sure of what the costs are of building, not quite sure about what tariffs are going to mean to products moving back and forth between, you know, countries. Same thing for retail, and therefore you have, you're kind of limited at the moment to anything data center works, class A office works, industrial sales work. It's just a long way to say that, again, there are far more factors than interest rates. The key one is getting us back to stability, getting us back to where we can underwrite again. In the short term, the movements in rhetoric, the geopolitical issues, are just masking or holding back what is something that is moving quite positively every day right now.

Mark Bonner: 06:17

And that, I'm guessing, is what is keeping capital on the sidelines. How does it get off the sidelines?

Mark Rose: 06:25

Stability. For example, if the president of The United States right now would start talking about his views on deregulation, which everybody's absolutely in favor of, and his views on tax cuts, which you can take either side. Is it too much, or are the extensions of the previous tax cuts right? If that's the conversation, we're off to the races. As long as we're going to keep lobbing threats back and forth around tariffs, which again, ultimately, I don't think is going to have a great impact, but you have to read into that that there's uncertainty.

Mark Rose: 07:07

Uncertainty never helps markets. Clearly isn't helping our market in the short term. With that said, volumes are going to get better. We can see it. We can see the green shoots.

Mark Rose: 07:21

We can see what people want to do. I think they would have transacted already. I don't think you would have been able to throw out the stat that we're down because it's really being pushed to the sidelines. To give you a perfect example, as we are a Canadian based company, as soon as the comments that were made both tariffs and then the kind of the ridiculous comment about the fifty first state, we literally shut down. And, you know, we know that proper, sophisticated Canadian investors are struggling to get excited about The US.

Mark Rose: 07:59

Well, when you remind yourself that all of Canada's office inventory in the entire country fits pretty much in Manhattan, The US is still a place where everybody will have to operate. It is the biggest sandbox in the world, and we have to get through hurt feelings. All of these things are temporary. All these things will work their way through the system, and we need to just get back to how do we underwrite, how do we make money for our investors, know, in our clients, and put together the best real estate for occupiers to enjoy. And that is still happening.

Mark Bonner: 08:45

And look, has Donald Trump been good for commercial real estate so far?

Mark Rose: 08:51

Again, at a certain level, and again, I don't want to get into the politics of any, you know, of any of this, but Donald Trump's policies or the outcomes that he's aiming for, in some cases, are ones that many of us absolutely believe in. Can anyone say that execution to get there has been positive or even? No, no. But trying to take waste out of system, trying to make governments smaller but proper, okay, if we stay on proper. I think many, including myself, could take issue with the social side of it.

Mark Rose: 09:31

But the financial side, we're talking about, much of what he wants to do, the outcomes make some sense, okay? But we are still dealing with how to get there, and how you get there. You know, Elon Musk and Doge have made a lot of sense. Again, waste out of government. Who can really argue about that?

Mark Rose: 09:55

Should we have fired everybody right away and then have to bring them back? Probably not the best execution in the world. The tariff conversation completely get where the outcome is intended to go. Putting them on, taking them off, changing them, what that does is it impacts our industry because it's very, very difficult to underwrite if you want to execute today or tomorrow. Okay.

Mark Rose: 10:27

I do think that that's gonna settle.

Mark Bonner: 10:31

Okay, and assuming status quo remains, no black swans, and boy, do we have a bunch out there right now that could be black swans. I'm not a conspiracy theorist, but black swans do happen. We won't get to sub 3% rates until late twenty six, maybe even early twenty twenty seven. That is a far cry from the zero rate environment that defined the previous pre pandemic cycle. How are you helping real estate investors reset expectations in this new era?

Mark Rose: 10:59

So where were interest rates in 2019? Above the five. Okay. You know, in some cases, or or should be the Fed funds, but but interest rates at zero for for the entire period of time was the anomaly. Right?

Mark Rose: 11:21

And the cycles that we have been dealing with, and we are in a cyclical business. We were very, very used to five percentage rates, six even, sevens. We could deal with that, right? Those numbers before the GFC. Having ten years of zero interest rates pushed the most money through the system that has ever been pushed through the system, anyone and everyone who got comfortable with that were kind of living in the dream world.

Mark Rose: 12:04

We had sophisticated owners taking credit for billions and billions of dollars of value created when, in many ways, it was just a reduction in, you know, in cap rates and free money. We have to keep going back to there's a history to this industry. There are cycles to this industry, and we have gotten better and more mature decade after decade after decade. But interest rates at four, at five, at three, as long as we know what they are, we know what to do with this. They do not have to get back to zero.

Mark Rose: 12:51

If we ever do, it's the icing on the cake that we lived with and had a lot of fun with for a decade. Probably never gonna see that again in our lifetimes.

Mark Bonner: 13:03

The phrase survived till '25. It became something of a rallying cry for commercial real estate. It captured the mood. Wait out rate hikes, hold off on trades, extend loans, pause projects. Now we're halfway through the year.

Mark Bonner: 13:18

Rates haven't dropped, lending is still tight, and many sectors are still in survival mode. So if we're surviving to '25, but what exactly, Mark? As as I mean, I know you and I spoke yesterday, but I'd love for you to talk about, is it possible that even in this moment with this uncertainty that CRE has actually made it through the worst period of all this?

Mark Rose: 13:42

Oh, there's no doubt we've made it through. We we've been through two two black swans back to back, which have rarely ever happened. This cycle in this downturn, hand over heart is the worst I've seen in my career since the first time that you had central banks and governments effectively working against you. Back in the late 80s, the early 90s, You had the S and L crisis, but you had the RTC. You had government stepping in in 1998 with the Russian bomb default.

Mark Rose: 14:18

There was money after the dot com implosion. Clearly, with the GFC, had you know, quantitative easing. This is the first time that you actually had the Federal Reserve, and we can talk about this in a minute, really take interest rates to 14%. Everybody thinks they went to three and four and five. They actually went to 14% because with quantitative tightening, the amount of money that was sucked out of the system and the regulations that mandated banks not lend had the impact of about another eight full percentage points of interest rates.

Mark Rose: 15:00

That's what we've been dealing with. We were at the bottom. We're coming off the bottom. There is goodness ahead as soon as we can get to a little bit of stability, and that's going to involve a few risk takers, which we're seeing with private equity, and a few less things that are stated, you know, that rattle the markets.

Mark Bonner: 15:28

Okay. If you're just tuning in, we're diving in interest rates and the Fed's big no move moment on Wednesday and what it all means for commercial real estate. With us today is Mark Rose, CEO of Avinson Young, helping us look past the headlines into what's next for commercial real estate in this Hire for Longer world. Mark, I'm going go to a question from the audience here. If the current immigration policies in The U.

Mark Bonner: 15:48

S. Are implemented long term, That implies that how Siri is done fundamentally changes. Examples, higher labor cost issues or labor availability. How are you thinking about this?

Mark Rose: 16:03

Yeah, so again, this is something that you'll see, I believe, some changes in policies. Remember, you know, we're only, what, eighteen months away from the midterms, you know, the midterm elections in The US. Right now, it is not that much of an issue mainly because the amount of development and building, you know, is down quite considerably. Depending on what the administration's policies are, and they are their policies, and they governments get to make decisions, right or wrong, there will be an impact. If things are great and we want to start to build again, we're going to have to think twice about it in terms of the pricing, which again, therefore, I think we will have a, on one hand stubbornly, or maybe on the other hand, quite a methodical rebirth of building development as you deal with all pricing, including labor pricing.

Mark Rose: 17:08

But if there are less, you know, if there's less labor, that's inflationary.

Mark Bonner: 17:17

Davidson Young publishes a lot of real time market indicators and has deal visibility across a plethora of asset types and global geographies. Mark, what are your teams seeing right now that others aren't?

Mark Rose: 17:29

So again, this is a data driven world, and the information that is produced is really meant to deliver empirical evidence to boardrooms and investment committees. We're not just relying on opinions anymore. You want the backup to it, and the backup's been pretty clear. Lease terms have been growing a bit. Right?

Mark Rose: 17:55

It's not, you know, out of the ballpark, but they are growing. It's positive. The data also comes down to you can literally go city by city, product by product, and country by country, and almost have a different view. So, let me, you know, bring all this and, you know, and attempt to summarize and bring it full circle. Our recovery is intact.

Mark Rose: 18:23

Our busyness index, which is being reported everywhere and was recognized by Fast Company, tells us very clearly we are seeing employees come back to the office. We are seeing owners of businesses ask for their folks to come back to the offices. We can go through the HR piece of this that folks missed out on, you know, promotions by not being in the office. Net net, the pendulum has started to swing back. We will see office usage and office vacancy.

Mark Rose: 19:01

You know, I'll take you to London right now. All of the banks that cut all of their space, well, now they're all scrambling to try to find more space. There's a major bank that was reported just a couple of weeks ago, that right now they're 7,700 seats short right now because they just cut too much. You have the EPC ratings in London that are taking whole swaths of inventory out until buildings are brought up to A or B standard by 02/1930. That is, on one hand, difficult to work through, but on the other hand, it's very positive because you have less inventory until it's retrofit.

Mark Rose: 19:44

Data centers, you can almost take a dart, put some money on it, throw it at it, and you've got a pretty good chance of making money. As I said, industrial is going to be fine. It had to work through, you know, as a perfect example. Last year in 2024, we had everyone talk industrial and going, Oh my goodness, we didn't grow as a matter of fact. We're down.

Mark Rose: 20:06

Well, that would be an issue if we didn't have 100% increases for the two years before then in rates and values. You can't have 100% increases every year. Industrial is doing fine. Resi is doing fine. I think the surprise is going to be office, not just your A class and trophy, but 2025 is going to be, you know, the year of the rebirth of the B asset class.

Mark Rose: 20:34

Now they're going to be converted in some cases. They're going to be upgraded, but the B class asset is about to have its time. Retail grocery anchored doing amazing. Retail malls have their ups and downs as they're trying to convert. We used to have where retail anchored by grocery, excuse me, by pharmacy, you know, was awesome.

Mark Rose: 21:03

That pharmaceutical industry, the CVS's, the Walgreens, are shutting stores down, so it's going through a little bit of transition. But just remember, fifteen years ago, everybody said we have the death of retail because of the Internet. Well, we were over retailed. We converted, we knocked down, and the hottest asset class last year was retail. So these cycles move, and the point of giving you this, I could take you kind of what's working in Germany and what's working in France and everywhere else.

Mark Rose: 21:37

It is cyclical and it moves, but they're all in unison moving upward into a recovery right now. We're still going to deal with country by country and city by city and product by product issues that will be temporary unless we do not address them.

Mark Bonner: 21:58

You mentioned the media narrative earlier, right? And I know there's been some doomish headlines out there across the media landscape, but at the same time, this is an environment where brokers and advisors are often working twice as hard for half as many deals. What's the story that tells clients about where CERT is right now? What's your story?

Mark Rose: 22:20

Yeah, so again, I you know, I'll put a plug in for you. So before I do anything in the mornings, I wake up early, I read every BizNow along with your competitors, and I probably read about 40 articles before I start my day. And, you know, you know, I read everything, you know, for each of your major market. And I I would say it's a difficult job for you with credibility when major statements are made and then pulled or flip flopped or moved or something changes. When you have to report on it, sometimes it does get sensationalized, but that's because again, you're listening to things that are happening on a daily basis in a world that we want immediate reactions to things.

Mark Rose: 23:13

I would just say as much as I read, I don't pay attention to any of that in terms of building the strategy for our company or strategies for our clients. Over a period of five years, ten years, twenty five years, We know what the industry looks like. We have the data to back it up. We can go to clients now and inform them that the highest and best price and the most liquidity for all these reasons for your project or property is probably in the first half of twenty twenty eight for these reasons, and it's data driven and it's empirical. When you have what we have with our data systems and Avison Young technologies, we aren't really influenced by another article today because, to be honest, sometimes you get it right and sometimes you don't.

Mark Rose: 24:12

When you don't get it right, in many ways it's kind of harmless from your point of view because you're just reporting on what you hear or see. But it doesn't really set the stage for what the ultimate five year plan for something might be.

Mark Bonner: 24:34

Well, look, first of all, thank you for reading Biz Now. We really appreciate that, Mark. But I mean, but what's the story? What's the elevator pitch to clients about where we're actually at? Assuming that, you know, the media narrative is a little bit off, maybe it's not totally in line with your own thinking.

Mark Bonner: 24:50

What do you tell your clients? And then what do you tell your brokers on the front lines here? The story that we're telling customers at this very moment?

Mark Rose: 24:59

So the good news was I've given these interviews for a long time, and three and a half years ago, much to my client's dismay, you know, there were a couple of articles in the media where we said, this doesn't get better for five years. I would hold to that, and I think we're seeing it. We've used the example for people to understand, particularly property people, that the tragedies of nineeleven created a situation where for two years nobody wanted to come into Manhattan, nobody wanted to go into a tall building, a name building. We spent billions on security, but after three years, somebody started to dip their toe back into the downtown markets, midtown markets, named properties, year four got a little better, year five, we were pretty much back to the races. Post COVID, and we needed a COVID recovery, right?

Mark Rose: 25:52

Now, didn't expect the other black swan of having, you know, a debt availability crisis, But post COVID, which was in 2022, you needed five years. We are absolutely 100% on track, as stated in the articles, that recovery to us was never survived to '25. That was the incremental beginning of recovery. Your recovery starts in 2026 and you really see it in 2027. And to be able to say to your clients, we can blow some smoke if that's what you want, but what we wanted to do is help you stick handle around issues and understand them.

Mark Rose: 26:32

It's not pleasant, but listen, I got to tell you, there are some major, including the biggest of the biggest of the private equity investors that have moved past what they had to give back or write off. They wrote off and they gave back, and they are so talented that they're raising money to take advantage of now the situation of being able to pick up in distress. To finish it up, internally, we were very clear, Folks, this is bad. It's gonna be bad. I believe it's the worst we've ever seen.

Mark Rose: 27:07

We're very clear when we believed we hit the bottom of the market, which was last year, that the recovery would start start in 2025, and you have to burst through the door because what is setting up here is for a very, very good run from '26 at least to '30. That's what we've been stating. We hold to it. We have the data to support it. We have the history and the experience to support it, and it's unfolding, you know, in front of our eyes.

Mark Rose: 27:38

Anything else that is the today issues around what government leaders say to us, noise. Impacts then,

Mark Bonner: 27:50

So we're gonna trade in survive till '25, and we're gonna adopt, what, heaven in '27? Do you like that, Mark?

Mark Rose: 27:58

If you I listen. You take credit because you came up with it. But, yes, I I'm I'm I'm feeling really, really good, really good about '26 and '27.

Mark Bonner: 28:10

I'm getting the hook from my producer. We're running out of time, but I just wanna acknowledge something here. You and I are both Mets fans. The Mets are on a six game losing streak. We've got the Philadelphia Phillies tonight.

Mark Bonner: 28:19

Does it does it do we get back on tonight, Mark? What's your thoughts on the Metropolitans?

Mark Rose: 28:24

Well, you need to score runs in order to win games. So let's see. They have to start to play offense again.

Mark Bonner: 28:31

Scott, look. That's all the time we have today. A big thank you to Mark Rose for being here. We appreciate you. We'll be back with another episode of First Draft Live next week, so don't miss out.

Mark Bonner: 28:40

You can sign up now on biznell.com. And by the way, you can catch all the replays and highlights of today's episode on BizNell's social media channels. You can also find First Draft Live on your favorite podcast app, Apple, Spotify. Check us out at Mark. We hope to see you all here at the same time, same place next week.

Mark Bonner: 28:58

This is First Draft Live. Have a great weekend, everyone.