CRE Capital Markets Set to Grow in Trump Administration: NYU Schack Panelists

Commercial real estate debt markets are strongly positioned to benefit from policies expected to take shape once President-elect Donald Trump enters the White House for a second term, according to some of the nation’s leading lenders at the 57th annual New York University－Schack Institute of Real Estate Capital Markets conference Thursday.

Miriam Wheeler, head of the global real estate financing group at Goldman Sachs (GS), said she doesn’t share concerns others in the CRE industry have voiced about Trump’s economic proposals such as tariffs driving up inflation. Wheeler noted that tariffs imposed by the incoming president aren’t likely to be on a global scale and will be largely offset by tax cuts that will drive growth to the economy.

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“When we look at what’s likely to happen under the new administration, we actually think it’s a pretty good environment for real estate,” Wheeler said during the NYU conference’s global capital markets panel held at the New York Hilton Midtown hotel. 

“We do think that some of the reduction in immigration that’s expected under Trump is going to be positive for domestic employment,” Wheeler continued. “And then when you think about the tariffs, our expectation is that that really is not a universal tariff, but is more targeted towards autos, towards China. And we think that the tax cuts that you’re likely to have actually are going to outweigh or wipe out a lot of the impact from tariffs.” 

Wheeler cautioned that one risk for CRE next year is what happens with long-term interest rates due to concerns about government spending and the deficit. She said Goldman Sachs’ baseline forecast has 10-year Treasury yields in the low 4 percent range, but many traders are bracing for yields to go up to around 4.5 percent or even 5 percent, which could have a “knock-on” effect for CRE valuations.

Samantha Rotchford, managing director at BDT & MSD Partners, said global tariffs would be “terrible for inflation”, but if limited to automobiles and China it won’t have much effect on the CRE market.”

The global capital markets panel — moderated by Dino Paparelli, global head of commercial real estate at Deutsche Bank (DB) — also featured Jeffrey DiModica, president of Starwood (STWD) Property Trust, and Tim Johnson, global head of Blackstone (BX) Real Estate Debt Strategies. 

Johnson said the CRE market is in a positive place entering 2025 with inflation “very well controlled” in Blackstone’s CRE portfolio and capitalization rates in a relatively stable environment. 

“Leading up to the election you saw a lot of rate volatility, and it didn’t really have such a dramatic impact on what was going on in the real estate markets both from a buying and selling standpoint or from a credit fundamental standpoint,” Johnson said. “The market believes that there’s going to be some more inflationary headwinds with the change of administration, which makes logical sense, but it also feels like things are relatively range-bound.”

One area where CRE will benefit from the Trump administration, according to Paparelli, is looser regulatory requirements on banks. Paparelli noted that a Federal Reserve proposal known as Basel III raising capital requirements for banks and scheduled to take effect in 2025 has been postponed a year, and with Trump taking office there are questions of whether it will  be implemented at all. 

DiModica said he has recently had calls with two large banks who indicated a strong desire to ramp up their balance sheet CRE lending in the near term in part due to Basel III not being as “punitive” as feared. Prior to the election, Basel III was scaled back to require that banks hold 9 percent more in capital in aggregate, down from the 19 percent in its original conception.

Wheeler said while the CMBS market will likely continue to take a share of the lending volume from banks, it may not be as large as envisioned six to nine months ago due to sentiment about CRE. She said CMBS has the potential to stretch from around $100 billion this year to hover around $150 billion in 2025 based on investor demand if acquisitions begin to accelerate to go along with refinancings.

The scale of the CMBS market could hinge on the health of an office sector still recovering from hybrid working trends spurred by the COVID-19 pandemic. 

DiModica stressed that while there is improved transparency around Class A office valuations, Class B office assets remain a major headwind for lender portfolios, with losses likely remaining over the next five years. He noted that recent market data suggests 64 percent of all CMBS loans will be able to execute no cash-out refinances  in 2025 marking a big improvement over the last few years. But the ones who won’t be able to refinance are concentrated in the office sector. 

Rotchford said New York is a bright spot in the Class A office market. The city’s financial services, law and consulting firms are largely back in the office four or five days a week, and a number of technology companies are following suit after Amazon announced its strict back-to-office policy this year. 

She said New York’s creative companies have been slower to return to the office, but Park Avenue and Madison Avenue have become among the “strongest corridors in the country” for office occupancy, and those areas will get a further boost when J.P. Morgan Chase’s new 60-story headquarters debuts in 2026. 

A sign of demand for Class A office space in Midtown East was evident, according to Rotchford, when BDT & MSD Partners recently sought more space near its New York headquarters at 100 percent-leased One Vanderbilt and were unable to find many options before settling on 550 Madison Avenue. 

“New York is certainly an exception in the sense that it’s the largest, most diverse market and there’s an offering in New York that’s really just not available anywhere else,” Rotchford said. “But I think in some respects it’s sort of the front-runner in that other office markets such as Dallas, Tampa, Miami, that we’ve seen perform really, really well are sort of extensions of New York.”

Despite some momentum for Class A offices in New York, Rotchford stressed that a number of older buildings will likely need to be torn down, since only around 16 percent of these properties in Manhattan are conducive for conversions to uses like multifamily or condos. 

DiModica said that while a number of Sun Belt cities have seen population spikes during the past few years, the momentum has not always been reflected in the office market. He said Miami, where Starwood opened a new headquarters in 2022, has seen some high-end Class A office buildings command $100 to $150 a square foot, but a number are struggling to attract tenants. 

“There’s no big companies moving to Miami, there’s just rich guys moving in Miami,” said DiModica, noting that Starwood is one of the few large employers in the area and the city has a 19 percent vacancy rate similar to other U.S. markets. “Rich guys need small space. They don’t need space for 200 people.” 

Andrew Coen can be reached at acoen@commercialobserver.com