by Daria Walker, Walker Realty Capital
A couple of months ago, I was named Program Chair of the Los Angeles Mortgage Association and asked to organize their next luncheon. I selected some of the top bankers in the industry, and led them in a discussion about current events and their impact on construction lending. The event was held last Thursday, and surprisingly, the house was so packed that we needed to bring in extra tables.
To start, I noted that in the past three months, we’ve witnessed bank failures, volatility in the stock market, a bank run, and massive layoffs. Yet, the panelists were all still hesitant to say that we are in a recession. So, I said it, “I think we’re in a recession, and the prosperity we saw during the pandemic was just the ‘Dead Cat Bounce.’” They chuckled, but still refused to affirm or deny outright, so the conversation went on.
“Will there be a catastrophic economic collapse?” They all agreed that probably not, but things are slowing way down and becoming more complicated. Newly passed measures are creating additional economic pathways for developers by taking a ‘carrot and stick’ approach. On one hand, the California State Legislature is incentivizing housing development with AB 2011, while on the other, Los Angeles County is taxing the bejeezus out of real estate sales with Measure ULA to offset the cost of increased spending for social services. Having accidentally taken a wrong left turn onto Skid Row, and watched homeless encampments bloom into Calabasas, I have to agree that the latter isn’t an entirely bad idea. However, a major concern is that it could potentially hobble developers who employ a build-to-sell strategy. In the coming months, those who can’t hold their completed properties on their balance sheets will likely be forced to sell at a discount AND take an additional tax hit on already thin margins. If the room had quieted down enough, you could have probably heard the rumbling from all of the lawsuits being filed at the courthouse down the street.
That aside, if there really is a plan to rebuild the LA infrastructure for supportive services, one could reasonably project that medical office, hospitality, and affordable housing developers will see new opportunities throughout the next era. I could also be totally wrong.
In all, the consensus was that more regulation is on the way, interest rates will eventually stabilize (but not likely drop), and overall, the group was pretty optimistic about the future.
We’re looking forward to another sold out event in June, and if you are a mortgage banker or broker in commercial real estate, please join our LinkedIn Group for updates on market activity and upcoming events.
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