Download Transcript
Spencer Levy
Whether you work in institutional capital or private equity, whether you're interested in asset backed securities, ABS, that is, or commercial mortgage backed securities, aka CMBS, or other areas of the real estate capital markets, this corner of the business can be a hard language to translate. The state of play is complex and has endured a prolonged period of change. On this episode, we dig into the fundamentals of funds and the state of commercial real estate investment, with informed perspectives that have been shaped by history and are active and influential in the business right now.
Bob Ricci
You know, it's a bit of a Charles Dickens market right now, right? For some, it's not too bad or perhaps even pretty good, and for some they're just trying to get their head above the waterline.
Spencer Levy
That's Bob Ricci, Senior Managing Director at Lone Star Funds, which manages 23 private equity funds with aggregate capital commitments totaling approximately $87 billion. Bob is a 35-year veteran of the real estate capital world, joining Lone Star in 2009 on the heels of the global financial crisis. He's now responsible for Lone Star's commercial real estate investments across North America.
Tom Rugg
If you're one of those deep-pocketed sponsors that has a lot of wherewithal, you're feeling quite better about the markets and the depth of the market and liquidity and the cost of capital compared to where we were just 12 months ago.
Spencer Levy
And that's Tom Rugg, co-head of U.S. Large Loans at CBRE, within Debt and Structured Finance. Tom has been on both sides of the coin, so to speak, joining the company last year after spending the previous two decades on the lending side at banks such as Deutsche Bank, Wells Fargo and Wachovia, where, incidentally, he and Bob were once colleagues. Coming up, another conversation in which we follow the money. We're talking funds and investing in commercial real estate. I'm Spencer Levy, and that's right now on The Weekly Take.
Spencer Levy
Welcome to The Weekly Take, and I'm delighted to be speaking with our very own Tom Rugg. Tom, thanks for coming out.
Tom Rugg
Thanks for having me. Great to be here.
Spencer Levy
And then our old friend Bob Ricci. Bob, it’s great to see you.
Bob Ricci
Thanks, Spence. It's great to be here. Thank you.
Spencer Levy
You bet. So let's just start big picture. Tom, I think there's been no segment of our business that's gotten more scrutiny in the last couple of years in the debt capital markets, at large part because of rising interest rates and sticky inflation. From your perspective, what's going on?
Tom Rugg
2022 and 2023 were difficult years for the financing markets. This, of course, was led by rising interest rates. This really dampened lender demand and investor appetite. What we saw as recently as Q4 was a shift in tone from the Federal Reserve. There was a pause in rate hikes, and this created, and generated increased liquidity and demand for paper. As a result of that, we've seen a stabilizing market in terms of borrowing costs, increasing demand, and a cost of capital which has improved. Today's interest rates are 50 to 60 basis points tighter than they were six months ago. The sources of capital are varied. There is life insurance company capital available. There is debt fund capital available. There is insurance company capital available. The GSEs are open for multifamily assets. So the markets simply feel much healthier, more robust, and we are on a path towards a much healthier capital market.
Spencer Levy
So, Bob, how do you see the market today?
Bob Ricci
You know, it's a bit of a Charles Dickens market right now, right? For some it's not too bad or perhaps even pretty good, and for some they're just trying to get their head above the waterline. The first category are largely institutional investors, right? Certainly all your REIT's and a lot of your better capitalized institutional borrowers. They've either financed long term or never had as much debt. For the other side of the market, and it's certainly smaller, but it's still significant, there are many borrowers that were buying when cap rates were close to all time lows, and they were putting in close to all time high debt levels, and they were using short maturity debt. And many times they didn't hedge it because when would rates ever go up, right? And all of that changed. So the temptation is to characterize commercial real estate with a tagline. And that's always incorrect. And it certainly is now. So I think for the part of the market that works, meaning you're above water and you size to the current debt requirements, it's pretty darn good because you're seeing that in the CMBS SASB market, right? The volume’s up almost 400% from year to date last year. But if you don't, your head is at or below water. You can't finance your way out, you can't sell your way out, and you're in a pickle. And that's the part of the market where the commentary is directed at, many times it’s mislabeled all of it, but it's a significant, and it's a fairly large part of the market.
Spencer Levy
So, Bob, let me take a step back for a second. Just tell us who Loan Star is and what do you do?
Bob Ricci
Sure. So loan Star is a private equity firm that's been successfully investing for over 30 years. We operate funds and commercial real estate, traditional corporate private equity and residential mortgage loans and securities. Our funds are typically closed-end. And what sets us apart, or if you ask us for the differentiators of Lone Star, I'd say one, we have a strong, dedicated, affiliate asset manager, Hudson Advisors, which allows us to underwrite and execute our business plans. Two, we have the ability to pursue debt or equity across commercial real estate sectors, so we have a fairly flexible mandate. Three, we have a global reach, so we never face the conundrum of having to invest in a particular market when the opportunities don't avail themselves in that particular market.
Tom Rugg
Capital plays an increasingly important role in the markets as well, Bob. Given the pull back from the REITs, from the core funds, substantial dry powder has been raised by the funds to buy assets, given the market dislocation as well as the repricing of commercial real estate, which is happening real time. In my opinion, many funds are in a terrific position in today's market to buy great assets that reflect a discount to peak values, and that includes Lone Star and your stellar team.
Spencer Levy
When we talk about Lone Star and your ability to do equity or debt, today sometimes, it's preferred equity, sometimes it's… sometimes it's a little gray what it is. Do you have separate funds for debt and equity?
Bob Ricci
No. It’s all within our fund. And you're right. In fact, we have trouble sometimes characterizing whether an opportunity is straight debt or whether it's equity. How does one characterize a lender facilitated short sale? It's clearly got a debt problem, and the equity is certainly impaired. So I don’t know, is it debt, is it equity? Yes. It’s the opportunity. And I think this period we're in right now, when the market gets churned up, the neat delineations blur, and we're in there, right? The trick is to be able to pursue those investments, right, that are compelling however you wish to categorize them. But it's certainly born out of, I think, debt problems and valuation problems right now.
Tom Rugg
The market has had a strong resurgence in terms of capital and demand for liquidity and depth in the market. When you're talking about a large syndicated bank deal, that is not available in today's market. On the flip side, there's been a strong resurgence in the capital markets, in the CMBS market. And I can give you a few statistics, regarding that. The CMBS market, if you're looking at year to date CMBS issuance and I'm talking about non-agency, non-CLO, is approximately 39.6 billion year to date. That's roughly three times more than this was in 2023, which was 13 billion. Of that 39 billion, approximately 28 billion or 72% has been single asset single borrower deals. These are the large securitized deals. The remaining 28%, or 11 billion, has been conduit. That really speaks to the resurgence of the large loan market, particularly in CMBS. In terms of what is that comprised of? Industrial portfolios are dominating the CMBS SASB market. Ten deals totaling over 10 billion, or 37% of SASB issued to date. Also, hotels, both single assets and portfolios, have had strong issuance as well. Year to date, 17 deals totaling approximately 8 billion. That's 28% of the SASB issued to date. Between industrial and hotels, that's 65% of the market year to date.
Bob Ricci
I just want to circle back to my Charles Dickens state of the market. I enjoyed the thought of that. But to dig a little deeper, the commercial real estate finance market is about 4.7 trillion, right? That number we know. Loans are typically plus or minus about seven years, banks a little shorter, the GSE is a little longer… an average of about seven. So your run rate of maturities is something around 700 billion a year. Last year, 200 billion of the 700 didn't pay off on time because they couldn't. So this year's maturity are 900 billion. So what does that mean? So you're starting to get a bit of a stack up. Not from the good side of the market. They're the ones that are repaying. From the ones that can't or don't want to, or the bank doesn't want, or they're doing something. It's in overtime, right? Trying to figure it out. You're going to continue to see that push, right. Where does it go? Well, to date, through May, 63% of loans that have matured have repaid. That's down from about mid 70s last year. So that is part of the decay I'm talking about. It’s about ten points less successful, worse. The biggie that you touched on: office. How's office doing? Year to date, 36% of office loans that were to mature and have matured have successfully repaid or refinanced. 36. Broad markets: 63. Clearly doing poorly, but not surprising, right? Everyone knows offices have got issues. But where was office in 23? It was 53%. Where was it in 22? Over 90. So the financing markets like Tom… the good side that Tom was talking about that I alluded to, full on wide open especially CMBS a lot of capital spread tightening all that stuff volumes up. Yes. But if you're not that, if you don't work, you don't size. You're in a conundrum, right? You're not refinancing and you're trying to find your way. Your lender didn’t want the property back. And if you're an underwater borrower, how much capital are you gonna put in? You already lost it, most of it. So this is what I refer to as the finality of default. Like these problems can be kicked. We start in GFC, the great financial crisis, right? We all lived through it. It took several years. Lenders didn't want it back. Borrowers didn’t want to let them go, but the ultimate determinant of how these get resolved is many times, the finality of default, how I think about it, when capital is needed in commercial real estate is one of the most capital consuming asset classes there are. It always requires capital. When it comes time to put that in and they’re an underwater borrower, they’re not putting that in. A lender? Oh, they're not putting it. They’re lenders, they're nothing. And that's where it breaks. We're not fully there yet, but that finality of default is you starting to see it. And that's what needs to happen to start to have loans clear market whether they're going to default, get restructured. I think we're really starting to get into that. And then the second half of this year, I think will be all of next year, I think be all of 26. Next two and a half years are going to be shot full of dealing with the underside of the market. The good side of the market is coming.
Tom Rugg
I would agree with that, Bob. And to add more to that, higher rates just simply changed everything. The math has changed. It used to be LTV and debt yield as the sizing parameter. There's now a new constraint and that's DSCR, which is debt service coverage ratio. More often than not, what this means, given the elevated rates, is that there's a shortfall at Refi in terms of the available loan proceeds. Virtually every loan now requires a rebalancing, which is exactly what you're talking about. That can come in the form of equity being put in that may or may not be available, subordinate debt or gap capital being raised, and it may push some asset sales if some loans need to be dealt with. Additionally, you made another point that bank balance sheets need to reduce and the better assets will roll off. Assets need capital, and while the banks have stepped back as we've been talking about, the CMBS markets, private capital and debt funds and the life insurance companies have stepped in.
Bob Ricci
Yeah. And it's always interesting to look through a period, an epoch of performance. So pre-GFC, when we worked together, we saw CMBS go from a relatively small market share to very large. It out gained market share from all the other sources of financing. And where did the problems hit when GFC bam CMBS was right in the crosshairs. If you look at post-GFC, who had the hot hand, it wasn't CMBS right? Their market share was kind of flattish. The big banks, the money center bank, it wasn't them because they already got drubbed during the GFC. The financing source that had the hot hand post-GFC were the regional banks. They almost doubled their market share from roughly 10/11 to roughly low 20s. Double. When that happens in commercial real estate, it's a very good indicator of where your next set of problems are likely to occur. And that's what we started seeing a year ago. And it's not done. We saw the three bank failures last year, excuse me, but another one, Republic First, that quietly was failed last month. It wasn't a huge write. It was 6 billion. You're going to see, I think, many more of those. There's well over 60 or 70 banks under 10 billion in assets that have more than 300% commercial real estate to tier one capital. And that is the demarcation line the regulators use for danger. They’re over that. So those are the ones that are probably most at risk as they deal with it.
Spencer Levy
Problems seem to be not totally but disproportionately in regional banks. And the conduits have come back in terms of being able to issue new capital and we're not seeing as many problems in the CMBS space as we did the last time. Is that because, in your experience Tom, that maybe CMBS got a little bit more conservative post-GFC and were able to avoid some of those issues?
Tom Rugg
The CMBS market coming out of the GFC did adopt new underwriting standards, particularly around how underwritten cash flows were sized. The rating agencies which rate these deals revisited their methodologies. All of this led to better leverage, better cash flows, better capital structures, and from that perspective, CMBS is more resilient. Now, that's not to say that there are not certain CMBS deals which are under considerable pressure, which have been transferred to special servicing and which are experiencing hardships, workouts, extensions, restructurings and so on. So while the CMBS market has fared reasonably well, the default rates are within a reasonable band. It's not completely absolved from its risks.
Bob Ricci
Your qualification of a fully exonerated CMBS is spot on I think because CMBS, as we know, is a really slow lagging indicator. They’re not a mark to market balance sheet like banks can be. They're not regulated the same way. They don’t have regulators walking their hallways. Some of them mark their book. And two, they tend to have very long maturities: ten years. So if you're a borrower and you're financed 3, 3.5% coupon, even if you're underwater today, you're financing is your lifeboat because it's in the money, a reciprocal amount. So I think it's hard to tell.
Spencer Levy
Tom, I was speaking to our good friend and colleague James Millon the other day, and we were talking about, is there a magic number out there for the cost of debt when the market really takes off? Now, we already mentioned that CMBS is already up 3x from what it was last year. There's liquidity for good deals, but is there a magic number, whether it be a 4% ten year or otherwise, that you think will be the “ah ha, we're off to the races again,” or is it a pretty liquid market now?
Tom Rugg
The credit spreads have come in materially, which is largely a function of investors seeing historically higher yields relative to the risk that they're taking. We've seen the market come to a complete grind, given the recent Treasury volatility when it hits upwards of 4.5, 5%. But as the yields fall, the longer term yields fall below that 4.5% mark, and particularly as they trend towards 4%, the market's become wide open from a liquidity perspective. And that's borrower demand looking to lock in those rates as well as demand from lenders.
Spencer Levy
Where are you seeing some of the best opportunities today from Lone Star’s perspective?
Bob Ricci
Well, it's still a bit early on the debt side, but if supported by facts first rather than opinion… If 200 billion last year couldn't Refi and is in over time this year, and its likely to have a similar or greater amount this year, there is no question that debt is going to be the most sizable and consequential investment opportunity since GFC. It's going to be huge. We haven't seen it be huge yet outside of the failed banks. And that's because banks, servicers, real estate funds, they're quantifying it and they're trying to figure out what their loss exposure is, and they're trying to reserve against it. Those things take time. They will happen. So yes, I think it's going to be a big opportunity, but it's still fairly early because from the time Lehman went down in September ‘08 till we saw real meaningful activity of portfolios, that would have been early ‘11. I mean, it was two and a half years, right? So we're just about two years since rates started to go up. And it wasn't even the big 75 rate bumps. So we're still in the early side of that.
Spencer Levy
So Tom, what are some of the asset types you're really active on right now?
Tom Rugg
Sure. Liquidity is strong for asset classes that have strong performance and strong fundamentals. And in today's market that includes industrial logistics. It includes multifamily. It includes data centers, particularly powered shells, self-storage, as well as select hotel and retail assets that have performed well. Liquidity is currently more limited for other asset types such as office as well as life sciences.
Spencer Levy
Life Sciences was the hot asset class probably three years ago. It wasn't that long ago. So what happened there, Bob?
Bob Ricci
I think that there was an excitement, euphoria, over the VC, right. The unicorn, you’re going to go public. And this is a tenant that will create a lot of liquidity. If you're buying it, you're trading it, the value will go up. But what happened was very few of those panned out. Many of them were unable to make that leap. So you're stuck with tenants that are either not in operation or space that's not being fully utilized. And that space is very, very technical and it's very expensive to go find another user for it.
Spencer Levy
Tom, we obviously want to focus on the new deals, liquid markets, but we can't do all of that today. What is the best advice you'd give to our borrowers today that have an asset that's on the cusp. Not one that's greatly underwater, but one that’s sort of neutral. Today, what should they be doing if their loan’s coming due in the next 2 to 3 years?
Tom Rugg
Yeah, I think those transactions that are a little bit more cuspy, I've really been seeing a variety of outcomes there. There have been combinations of extensions, modifications, restructurings. Some of those have involved minor cash-ins. I've seen A/B note splits, to inject new equity at an agreeable basis. I've seen sourcing of new capital or subordinate capital for particular deals. And then there are simply those situations where there's a deed in lieu of foreclosure or a short sale if there's no longer an economic incentive to carry that asset.
Spencer Levy
How would you gauge the optimism of our average customer or client today? Today, in mid-2024 versus where they were a year ago?
Tom Rugg
Improved. Moderate improvement. What we're seeing today is there's actually fairly good depth for stabilized value-add bridge to perm construction. All of course dependent on having the right asset. The more important consideration for debt liquidity isn't really the investment type as much as it is just the property type, the asset quality, the strength of that sponsor and the market location. And so if you're one of those deep-pocketed sponsors that has a lot of wherewithal, you're feeling quite better about the markets and the depth of the market and liquidity and the cost of capital compared to where we were just 12 months ago.
Spencer Levy
So same question to you, Bob, but I want you to put on your GFC hat. How does this feel today versus how we felt, call it in 2010, two years into the GFC?
Bob Ricci
Listen, there are some clear and unavoidable parallels and those are one, the overvaluation of assets. Two, the over leveraging of those overvalued assets. The trouble is going to be most pronounced were those who were paying the highest price, most exposed to those over prices and then using abundant over leveraging short dated. That's like the triple play. Unlike the GFC this is not systemic, right? We don't have the big banks. Citi or Wells Fargo or Wachovia, where I came from, right. We didn't fail, but we fell into the arms of Wells Fargo. We don’t have a Lehman. So it's not the same. But in commercial real estate, there is a meaningfully, or significant part of the space where it's eerily similar: way overvalued, way overleveraged. Now it's due. And you’re stuck. And like I said before, it's not the whole market, but it is 200 billion didn't pay off last year. So if that's your run rate over the next three years, right? You have 600 billion you're dealing with – just simple math – it's not the whole market, but it's a big part of it. And at some point that needs to turn, that needs to liquefy. So I think it takes the next couple, couple and a half years. But I think you're going to start seeing it because lenders – you follow the quarterly call reports of banks, the regionals – they're building up their reserves every quarter. They're fattening up the loan loss reserves. And once they do, you know what's going to happen. Bam! They're gonna hit the release valve and get rid of the stuff the regulars want to get rid of, and then they'll fill it again. They'll do that for 6 or 8 quarters till they clear the decks.
Tom Rugg
Another important lesson from the GFC that's applicable today is just the value of liquidity. And I learned that early in my career in the run up to the GFC, sitting shoulder to shoulder with you, Bob, being on the front lines of distributing paper and seeing that liquidity evaporate and subject to big market moves, absolute whipsaws in the market and what became ultimately a very frozen financing market, particularly big banks that have big mark to market books. They learned these lessons from the GFC and they certainly remember them well today, and that is that liquidity is paramount in risk taking, particularly for banks and other lenders that warehouse loans and mark to market books. The importance of liquidity is just as applicable today as investors are seeking debt to capitalized acquisitions manage their maturity schedules, as well as lenders that are managing the risk that they have on their own books.
Bob Ricci
And I think an important point to that is, while there is quite a bit of dry powder today, I wouldn't say that that's tantamount to liquidity. The dry powder is going to be looking at value in return from where we are today. And if a deal or bar is under water, they're not going to sign up to take them and just trade places and say, hey, now I’m underwater. Oh, that feels pretty good. They don’t do that. They're going to figure out where that should be properly valued in the market today. And then you'll have dry powder to go in there. But it doesn't turn, doesn't clear itself until you get that proper market value. And that's what we're struggling through right now.
Spencer Levy
Tom, I just want to turn to you. Who else is out there today? Is it sovereign wealth funds? Is it high net worth individuals? Are there some banks that are out there? Walk me through where the depth of liquidity is and isn't today in the capital markets.
Tom Rugg
It's nearly all private capital. There's been a huge pullback from the core funds. There's been a pullback from the REITs. New funds that have been raised, this encompasses a big chunk of the dry powder. The sovereigns have been very active taking advantage of market dislocation, elevated yields in which they can acquire some of these assets. Life insurance companies for very high quality, core, A-plus will look to add some exposure. So that's really the bulk of where the liquidity in today's is coming from.
Spencer Levy
We're going to now go through the forward looking portion of today's discussion of what do we see over the next two years? I think Bob you did a great job saying, look, we've got basically a logjam of old loans which are of questionable quality that are going to logjam the market for the next two and a half years. Tom, what's your perspective? The next two and a half years, what are we seeing?
Tom Rugg
To me, the challenge of higher rates is one thing, but tremendous rate volatility just makes it harder for buyers and sellers to agree on anything. Investors and lenders, what they need more than anything is transparency in the markets, reduced rate volatility. I think that'll go a long way for setting price levels. And this has been difficult just given limited investment sale activity as well as Treasury market volatility. But, as we've been talking about, the Fed pause has given debt providers more confidence to deploy at today's elevated yields. Liquidity and cost of capital has come in. And as a result, there's been some moderate improvement in acquisition activity and a more substantial uptick in refinance activity, particularly in the CMBS single asset single borrower space. I also think, and just to complete this thought, there's a real bifurcation in real estate. Not all of it is painted with a broad brush, as you may see in the media. Everyone is aware that office has unique challenges and taking office as an example, perhaps the mall sector is a reasonable guide or proxy for the office sector. You're going to see tearing and bifurcation in certain asset classes, and office is probably one of those. The B and C quality assets, you're going to see losses, but you're going to see the A quality assets hold their value. And then you have other performing sectors such as hospitality where you've got a really strong consumer, you've got strong leisure demand, driving rates and cash flows, you've got an uptick in urban hospitality. So you've got some real positive fundamentals going on with asset classes like hospitality. And perhaps the risk associated with that sector is just how sustainable is that demand?
Bob Ricci
And I think – I have a couple of thoughts there. Rates. We all want them to come down. And it's hard to get the transparency we want because the Fed, they control the short end. They don't do nearly as much on the long end and the treasuries at the bit of a box canyon, because our deficits are so high, they need to issue lots of debt. So over the month of May, we had two, five, seven and ten year note auctions that all did worse than the when-issued market, meaning they cleared the yield was worse than the immediately preceding yield level. That's a bad sign. That's telling you that the market needs to be paid more than what it was before to take your new supply. Two, the bid to cover ratio was also very weak, meaning there were fewer people raising their hand, saying, hey man, count me in. So it constrains how much rates can come down, because just the quantity of debt we've amassed as a country and that we haven't had in our lifetimes, right, back to World War II. But I think that is playing a role that commercial real estate and no risk asset is going to be able to figure out. But it's out there. Our debt to GDP is well north of 100% now. Most of the G7 countries it's worse. It may mean your ten year is just a bit higher than it's been historically, which isn't great for that transparency, because I think that transparency is thinking, hey, I'm 4.5 now, but I'm going back to 3.5, right? 3? Anyone? I think that may not be there by the quantum of debt we have out there.
Tom Rugg
And I think to answer your question, take it another step further, Spencer. What all this really boils down to is the adjustment to the higher rate environment. It's going to take some time. This value adjustment period, this could take years for certain asset classes. And it's important to remember, commercial real estate is a cyclical business. 20 years ago, when Bob and I were at Wachovia together, the focus by lenders and investors was big office towers and regional malls. Today, we're talking about industrial logistics and data centers. I think it's just a great reminder that the markets are cyclical.
Bob Ricci
And I think the other thing about commercial real estate that we don't think enough of as an industry of practitioners is the role of, I hold my cell phone here, technology. Commercial real estate has really been transformed by technology. That's what led to the death of retail, the rationalization of malls. It's the same thing that's happening to office, right? Technology-forward office buildings, well-located, newer amenities, are what people want. The old stuff they don't have it. They're dying. But it's affecting all commercial real estate. So because of that, the capital requirements are higher and the life cycle, I believe, is getting shorter than it historically has been. Because these quantum leaps in technology happen more frequently and the cost to adopt them are more considerable. So I think that's something that we have to factor into in our investment to commercial real estate.
Spencer Levy
I think one other thing. This is not anti-technology, but this is just an observation of where the institutional grade real estate is. The location is changing. It's not changing by city necessarily, because New York will always come back, LA will always come back, San Francisco will always come back. It'll just come back in different neighborhoods. And those neighborhoods are the ones that have live, work, play. They have infrastructure. They have wealth. We have this new report coming out called Shaping Tomorrow's Cities, which talks all about the fact that these big cities aren't going anywhere. They're just gonna move neighborhoods on where some of the best institutional quality real estate is going to be.
Bob Ricci
Thoroughly agree with you. Absolutely.
Spencer Levy
As a final thought, what are the tactics for success we're giving our clients today?
Tom Rugg
Yeah, we're coming off of 2023, which was the biggest year ever for bank failures. And today's market feels substantially better. As we talked about earlier, there is a real path towards a healthier capital markets, towards better liquidity, a better rate environment. So where we are today, there's an abundance of opportunities, and investors are picking through a lot of those opportunities. And that doesn't come without a significant amount of risk in today's market. There remains risk on the rates and the inflation front. That is a headline risk for investors. There is risk on geopolitical side. We have conflicts in the Middle East and in Eastern Europe. These are all macroeconomic concerns that weigh on investors. But that being said, more broadly speaking, there may not be any better time than now to make generational buys, acquire good assets at deeply discounted prices, leverage and financing is becoming more available and from more capital source. That’s coming from CMBS, life companies, private capital, selectively from banks, and the GSEs, as we talked about, for multifamily, are open. So between the depth of the market, improving liquidity, the outlook is quite positive.
Spencer Levy
Bob, last question to you. You see everything, given that you have such a wide breadth of what your mandate is for Lone Star. You also have Hudson Advisors, which is one of the largest asset managers in the business. And you have partners that are asset owners that Lone Star invests in. What are you telling them for success today and over the long term?
Bob Ricci
Well, I'd say a bit philosophically. Making returns is always difficult. It's only in hindsight does the answer look obvious. But you never have the benefit of that, right when you're in it. It's an effort where it favors the informed and the diligent. And your pedigree matters a lot less, right? Because each deal is that new opportunity to get it right or not or pass. So I'd say just, commercial real estate is un-elegant. It's the gritty determination of being informed and being really diligent to boil down those opportunities that you think have very attractive total return potential from where you sit today, and you’ve got to divorce that a little bit from what was in the past, because the past is not Prolog, it doesn't mean it will happen again. I'd say the informed and the diligent and candidly, that's what we try and practice at Lone Star and Hudson every day.
Spencer Levy
Well, I think if I were to summarize this podcast in one word, I'd summarize it by saying today. And people need to be laser-beam focused on today, not yesterday, not tomorrow, today, using reasonable assumptions to get the best risk adjusted return. So on behalf of The Weekly Take, I want to thank our two friends, starting with Tom Rugg, Vice Chairman, Co-Head of U.S. Large Loans. Tom, thanks for coming out. Great job.
Tom Rugg
Thanks again, Spencer. Appreciate it.
Spencer Levy
Great job. And our old friend and client and former colleague of Tom's, Bob Ricci, Senior Managing Director of Lone Star Funds. Thank you for coming out.
Bob Ricci
Spencer, thank you very much.
Spencer Levy
If you're interested in more on the state of the real estate capital markets, check out our website, CBRE.com/TheWeeklyTake, and also look for other episodes in which we follow the money in our business, including conversations about deal flows and investments across sectors and markets. You can find those wherever you get your podcasts, and if you subscribe to the show or follow us on LinkedIn, you won't miss a beat. You can also find the report we mentioned, Shaping Tomorrow's Cities, on our website, and stay tuned for some bonus content we've got in the hopper to share later this week. We hope your summer is off to a great start, and look forward to keeping you informed with lots of new episodes coming soon, including a special one for you road warriors out there featuring The Points Guy, a look at travel loyalty programs, AI and hotel real estate, and lots of other great shows, as well. Thanks as always for tuning in. I'm Spencer Levy. Be smart. Be safe. Be well.
.jpg)
