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Peter MuoioTen-X’s Peter Muoio Addresses Economy, Capital Markets, Real Estate

While the economy seems to be chugging along at a steady pace, heightened uncertainly prevails – potentially constraining investment and economic growth.

At the recent Trigild Spring Lender Conference, keynote speaker Peter Muoio, Ph.D., chief economist and executive vice president at Ten-X, enlightened attendees with his unique perspectives on today’s economy, capital markets and real estate.

According to Muoio, there are several indicators which are fueling economic uncertainty.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, is now at its highest level since before the election.

Additionally, the current expansion is the third longest in history, which may mean the end is near, plus there are a number of landmines – both domestic and international — that could disrupt the economy’s current growth streak. These include:

  • CMBS market implosion due to retail struggles
  • Interest rates could rise too far and too fast in response to inflationary policies
  • Potential for Tax Shock due to the border adjustment tax
  • Trade disruption
  • U.S. Government Shutdown
  • European Union chaos, including Brexit negotiations
  • Trade shock of Nafta/EU Brexit v current administration
  • China economic recession

Muoio also discussed how President Trump’s policies, from immigration to healthcare, could impact taxes, industries, markets and specific regions:

  • Immigration policy changes could disrupt coastal and southwestern states and major cities putting metros with high international real estate investments at risk
  • Pipeline states could see a short-term boost, and gulf coast refiners could receive longer term benefits
  • An ACA repeal could mean short-term medical office demand but long-term uncertainty
  • The impact – both positive and negative — of a federal hiring freeze and defense spending boost on employment
  • Competitive bidding within pharmaceutical manufacturing could boost metros with large bio/pharma clusters

He also addressed the capital markets – including cap rates, pricing trends and deal volume, which reached about $89 billion in the first quarter. Overall deal volume is down 23 percent from a year ago, with hospitality and retail losing the biggest share. The apartment, Industrial and multifamily sectors saw strong deal volume growth of at least 15% from last quarter.

Prices remain healthy, with non-major market pricing growth outpacing major market growth since 2016. The gap between major and non-major market indices is at the widest point in history.  Overall, the combination of higher interest rates and policy uncertainty has kept valuations in check in recent months.

On the lending front, Muoio said, loans are at a record high —  with CRE credit conditions good and the CMBS adjusting to rent retention rules. And since the current administration has taken a more relaxed attitude toward financial regulation, the outlook for CMBS issuance has brightened.

Muoio also addressed the outlook for market segments – including retail, multifamily, industrial, hospitality and CRE  — and touched on various trends and hot button issues which are impacting specific sectors, among them:

  • Airbnb and other home sharing site are a big threat for the hospitality industry, and could impact implicit supply, pricing power and business travel
  • Great long-term prospects for multifamily industry are largely due to shifting millennial lifestyles
  • For CRE, robust tech driven markets are outperforming markets barely out of the downturn
  • Brick and mortar retail outlets are getting eaten alive by e-retail, resulting in shrinking store footprints and store closures.
  • A robust demand for industrial is being driven by the rise in e-commerce distribution centers
  • Immigration policy changes could disrupt coastal and southwestern states and major cities putting metros with high international real estate investments at risk
  • An ACA repeal could mean short-term medical office demand but long-term uncertainty
  • Competitive bidding within pharmaceutical manufacturing could boost metros with large bio/pharma clusters