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Current Season: First Draft Live
Between economic whiplash, shifting policies and market volatility that changes by the hour, you need industry insights that cut through the noise. That's exactly why we're launching First Draft Live, a new weekly series that breaks down what's happening, why it matters and what you need to know to do better business.
Join us live on Bisnow.com every Friday at 12:30 PM ET / 9:30AM PT for conversations with the industry's sharpest minds discussing the week's most critical stories, or catch the replay right afterwards — here on your podcast app of choice.
Alright. Welcome to First Draft Live. I'm Mark Bonner, BizNow's editor in chief coming to you live from New York. It is Friday, December 19, our final first draft live of 2025, which feels like the right moment to say out loud what everyone in commercial real estate has been muttering under their breath all year. This was a weird year.
Mark Bonner:If there's one honest takeaway from 2025, it's not that the playbook didn't didn't just break. It kept getting rewritten mid deal. This wasn't a a recovery year. It wasn't a crash year. It was the year uncertainty became the dominant asset class.
Mark Bonner:Policy lurched. Tariffs spiked and blew holes in construction budgets. A record forty three day government shutdown froze lending pipelines, jammed inspections, and told everyone to underwrite without a map. And yet, here's the twist. Some things actually worked.
Mark Bonner:The Fed cut rates three times. Capital thawed. Private credit stepped in. Banks crept back. Deals finally broke loose.
Mark Bonner:Office sold, albeit at discounts that made people wince, but leasing stabilized. Retail quietly held its ground. Multifamily, it stayed liquid. And data centers went absolutely bananas. So this wasn't total chaos.
Mark Bonner:It was controlled turbulence. Confidence didn't come back, but activity sure did selectively, cautiously, and usually with a lawyer sitting in the room. That tension between what broke and what held is the story of 2025. Few people that I know have a clear, more global view of these cross currents than Spencer Levy, global client strategist and senior economic adviser at CBRE, someone who spends his days translating macro noise into actual capital decisions. And like me, suffers through his life as a Knicks and Mets fan.
Mark Bonner:But not this week. Right, Spencer? You're stoked that the Knickerbockers hoisted their first trophy since the next Nixon administration. Am I right?
Spencer Levy:Well, notwithstanding our pre call, I think I have to add that Patrick Ewing ruined my childhood. And the reason was is that Patrick Ewing was supposed to be the savior of my childhood, and Patrick was great. 20 points, 10 in rebounds, two blocks a game, never brought home the gold. So until they bring home the trophy from '73, I'm not gonna put my optimism in that camp.
Mark Bonner:Spencer Levy, folks, not excited about the first trophy, probably supports the decision by the New York Knicks organization to not hang a banner in Madison Square Garden. That's great. Thank you, though, for being here to close out the year with us. We'll get into the Knicks, the Mets, and even the Jets and the Saints and LSU football in a little bit, but let's get to CRE wrap 2025. And before we get going to our audience, please liberally drop your questions, comments, and heresies into the chat.
Mark Bonner:We'll get to as many as we can, but let's get into it. So, Spencer, 2025 didn't break CRE, but it stress tested it. From your vantage point, was this year more about macro fundamentals or about confidence in the rules of the game?
Spencer Levy:Well, I like to put it in this in a slightly different but similar fashion. I think people take too much out of the macro and not enough out of the micro. And what do I mean by that is there is a there was a heck of a lot of noise in 2025. And, yes, some of it had real impact. And the real impact, of course, greatest was in April when we saw the tariff increase, the spike in the ten year treasury, and then perhaps most importantly, a real fall off in foreign capital flows into The US.
Spencer Levy:But that turned tail quick. It turned tail in a couple of weeks, and then we saw the ten year come in, ten years stabilize in that four to four and a quarter range. We've seen the stock market surge. We've seen foreign capital come back. So, yeah, I guess it was the tale of two years pre April, post April, but at least the April May malaise was only the April May malaise.
Spencer Levy:And look, I would make
Mark Bonner:a strong argument that Merriam Webster should make the word uncertainty the word of the year. That itself seemed to become the biggest risk premium in all of commercial real estate to your point. And that's macro noise for sure. But it was noise that did show up in the microeconomics of commercial real estate. What do you what are what are we gonna do about that?
Spencer Levy:What I advise my clients to do is when they see noise, you should see opportunity. Because I think people overplay the noise, both macro politically and otherwise, and what they need to look at, and I hate to use hand gestures, durable demand drivers. And durable demand drivers are things that cities like New York, like San Francisco, like Miami, like Dallas, and dare I say it, increasingly, yep, I'm gonna say it, the Midwest. I'm like, well, what? The Midwest?
Spencer Levy:That's where everybody's been running away from for the last twenty years where everybody wants to be in a smile state or gateway city. But people have to look at durable demand drivers. And one of the durable demand drivers that's really improving the Midwest is not just the reshoring of manufacturing. It's the train line from Mexico to Canada. I understand almost $2,000,000,000,000 of trade goes across that trade every year train every year, and it's only going to increase.
Spencer Levy:And you follow that durable demand driver, that infrastructure, despite some of the tariff noise, despite some of the trade noise, despite some of the political changes, that's the time to find opportunity.
Mark Bonner:Right. But look, policy is no longer a foot a footnote here. Right? It can't be ignored. To your point, tariffs, permitting delays, power availability, environmental roadblocks, litigation risk, and whatever else comes out of the White House.
Mark Bonner:How should underwriting evolve when these policy changes are happening faster than asset life cycles?
Spencer Levy:Well, I go back to my original answer, but I will put a asterisk on it now. There are some policies you need to watch. And so the, one big, better, beautiful bill had some things in there you have to be aware of. Right? Some of them you know.
Spencer Levy:Some of them you know as it relates to the extension of opportunity zones, the maintenance of the 10:31 exchange, getting rid of eight ninety nine, which would have really slowed foreign capital flows to The US. But there are some things in there, and I brought my handy dandy notebook with me just so I get it right. But qualified improvement property, which is basically manufacturing, you can expense it 100 in year one. That is an unbelievable tax benefit. And there's also bonus depreciation allows you to expense 100% of things like TI dollars.
Spencer Levy:These things are going to change the mathematical equation of what is a good real estate investment because you can just knock it out against your income. And so it is a thing that you should look at, you should use, and once again and again, this is not the Midwest is number one show but it is going to give further help to the Midwest, certainly from the qualified improvement property, and it's going to give further boost to office for the bonus depreciation as TI dollars become marginally cheaper.
Mark Bonner:We're going to talk about geography in a few minutes here. But like, I think the story of the year was that CRE didn't move in 2025, but it did fracture. Right. Office thought multifamily stayed liquid where supply and insurance behaved, retail stabilized, industrial cooled, data centers ran around from the pack. They got AI headwinds out there.
Mark Bonner:What did the market misread this year? And what do you think is still mispriced for 2026?
Spencer Levy:I still think that the mispricing and and I when I say mispricing, let's just be very clear what we're talking about here. If you could sell me every asset in Austin, Texas right now at fair market value, I would buy it all. The problem is they're not selling at fair market value. They're selling at prices that expected cap rates to stay much lower than they really are, interest rates to be much lower than they really are, and the leasing volume is much worse than people believe because, you know, look, bottom line is they overbuilt. Okay.
Spencer Levy:Oh, no. Bad news. Right? You know what it reminds me of? It reminds me of Nashville ten years ago.
Spencer Levy:We had exactly the same thing. They overbuilt. You know, we have ten years of new supply. It's not gonna happen. Wrong, wrong, and wronger.
Spencer Levy:Is wronger even a word? The point is durable demand drivers. Austin is probably the fat, no it's not, it's the second fastest growing city in America behind Boise, but it's a lot bigger. It's got tech. It's got capital.
Spencer Levy:It's got human capital. It's got cool. It's got weird. And that is their expression, keep Austin weird. Folks, you see this short term dislocation and when you can get stuff as close as possible to what is true fair market value, unbelievable opportunity even in markets that are soft at the moment.
Mark Bonner:I think it's weird two point o if you really wanna be honest. I mean I mean, Spencer, when Austin was keep keep Austin weird, I mean, it was because it was the land of hippies and people who smoke pot. I mean, it's a lot different now with being a tech capital of the world. Let me just talk to you about data centers really quickly. Data centers red hot, probably the story of the year in commercial real estate, one of the things that it's most proud of as a monolith, yet headwinds everywhere.
Mark Bonner:What do you make of this AI bubble noise?
Spencer Levy:Well, you use the B word. I am not going to use the B word. I'm going to use the uncertainty word because I think that if people people don't remember, right? I have a long history in the data center space. I remember the first data center space I looked at was Infomart in Dallas back in 2001.
Spencer Levy:So it's been around for a while, folks. But what also people don't realize is that rents were declining in data centers until about four or five years ago. Declining. Okay? This is like the new big thing where rents finally hockey sticked in the last couple of years.
Spencer Levy:But why did they hockey stick? They hockey stick because of AI, because of crypto, and because liquidity. Right? Liquidity sometimes drives other things, and the liquidity came from big foreign banks that are able to write $500,000,000 and up checks to give you some of the debt. Lots of equity coming in.
Spencer Levy:So it's heavily, heavily liquid, but there are strong fundamentals to back it up, including but not limited to the fundamental that it's hard to put new supply on. It needs a lot of power. Needs a lot of water. So it's a very good space to be in in data centers. All that said, there is a percentage of the real estate space that has caution on it.
Spencer Levy:And the caution on the space is the B word that you just used a moment ago, which I'm not going to use on air. And also the concern about technological disruption. Look what happened to, you know, one of the big chip manufacturers back in January. Some company in China says we can do chips with one third the power. That company had a bad day at the office.
Spencer Levy:So I am not a tech expert, but there is technological disruption that is part of the story that is giving some people caution.
Mark Bonner:Look. Bubble. Bubble. Bubble. Bubble.
Mark Bonner:Bubble. Bubble. Is this a media creation? I mean, lot of smart economists are out there saying bubble.
Spencer Levy:Well, listen. I remember when I was a kid, I used to get these things of of bubble with a little thing you used to blow. You remember that thing? And you can and if you blew it just right, you can get a double bubble. So, I mean, we could talk about bubbles all you want all day long.
Spencer Levy:What you're really talking about is irrational exuberance, to use the word that I think was given by Alan Greenspan. And I think he used to say irrational exuberance in this sector, and that's when he would jack up interest rates to try to cool the exact irrational exuberance. Do we have irrational exuberance in AI and other sectors of the economy? I think that the fundamentals are good enough that no, we don't have. Do we have a lot of liquidity there?
Spencer Levy:Yes, we do. Is that often a caution sign to to hit the pause button? Yes, it is. But the fundamentals are still excellent in the space, and you need more of them because unlike other asset types where, you know, you can put it pretty much concentrated in one place, data centers have to be in other countries because of different regulatory regimes. So it's not like the kind of thing where you say, we'll just stick them all in Dallas.
Spencer Levy:No, they got to put one in Argentina, got to put one in Chile, you got to put one in Portugal, or many maybe more. The point is that I agree with you. I'm not going with irrational exuberance. I'm not going with bubble. I am going with a lot of liquidity, which is often a caution sign, and I'll leave it at that.
Mark Bonner:Let's talk about another word, capital. It didn't disappear in 2025. It got disciplined. Private debt dominated early. Banks crept back later pushing issuance to $227,000,000,000 in the first three quarters.
Mark Bonner:That's an 85% jump year over year. Delinquencies held near 1.56%, but nonperforming loans kept rising, at large banks. Committee slowed. Structures tightened. Optionality became strategy, my friend.
Mark Bonner:Where is capital actually positioning for 2026? Not talking, but moving.
Spencer Levy:Well, the good news is this. A lot of appraisers don't get a lot of love. This is the thirty seconds of love for appraisers. And why is that? Because when markets are good, appraisers will often undervalue an asset because they're going with comps, and comps are backward looking.
Spencer Levy:When things are going up, they're looking back. Well, when things are going down, they're also looking back, and they'll keep asset values higher. What happened because of that? They slowly ramped down the value of office buildings rather than dropping them like a stone, and that allowed the banks to recapitalize. Okay, what was going down, what was going up?
Spencer Levy:And it took a couple of years. And now some of our best capital sources right now are regional banks, which had a high percentage of real estate in them because they recapitalized. So look, the bottom line is this. There's a lot of liquidity in the market right now, but there's not a lot of liquidity right now for new construction. And I think new construction, it's a great time to build now.
Spencer Levy:Why? Because new construction fell off the cliff and fell off the cliff because labor costs are high and interest rates are high. Though I did hear actually in a meeting I had yesterday that they're beginning to see a drop in labor costs. That was one of the first meetings I heard that. And I'm like, well, how are you hearing a drop in labor costs?
Spencer Levy:He said, because there's not a lot of new construction and these contractors and subcontractors got to work and they're pricing it lower. So there's even optimism there. So I think that right now for 2026, there's capital for everything, but capital for the higher risk assets. And, you know, I have a good friend of mine who thinks actually construction is less risky than buying existing, but that's a debate for the other day. But capital for the higher risk assets like new construction, I think is ready to go.
Spencer Levy:I think it's ready to go once the coast is clear, maybe by another 50 basis points in interest rates.
Mark Bonner:We'll see, Spencer. I mean, it hasn't necessarily been a wonderful year for construction. I mean, anybody who's working a pro form a saw a category five hurricane wash upon its shores. Tariffs have been really hard.
Spencer Levy:Really hard for multifamily in particular. Particular. And you got you have a second And
Mark Bonner:we're in a housing crisis. Right? So that's a pretty serious situation, don't you think?
Spencer Levy:Well, the thing about it, when you look at tariffs, okay, you have commodities, which is like wood and steel and oil, and then you have finished products like the refrigerator, like the stove. Those are the things that got hit a lot harder than the commodities because the commodities, have replaceability. For these finished goods, you don't have as much replaceability. And that's why multifamily actually got hit harder than did some of the other sectors in terms of the falloff of new construction, which actually was a good thing because twenty twenty four, not 2025, 2024 last year, I believe was the year that had record new deliveries in the multi space. So we probably needed somebody to hit the pause button.
Spencer Levy:I'm not saying it was good that the way we hit the pause button, but hitting the pause button a little bit multifamily was probably healthy overall because of the peak where we were a year ago. But the housing crisis, very we could have a whole show on the housing crisis. But let me sum it up like this. Yes, we need a lot more units where people work. It's not that we need more units.
Spencer Levy:Oh, look, we have all these empty houses in, you know, Rochester. And by the way, I love Rochester, so don't give me the nasty grams from Rochester. But, you know, markets that haven't grown as quickly. That's not where we need the houses. You need the houses right where people are moving.
Spencer Levy:And those houses are of all shapes and sizes. So one of the most politically disfavored asset classes is institutionally owned SFR or BTR, single family rental or build to rent. And I push back on that hard all day. I'm like, Folks, does it marginally increase the price of a single family home? Yes.
Spencer Levy:At the local level, marginally, it may in fact do that. But you know what it does? It brings more money into the sector. That means you're going to make more of it. And that's what we need.
Spencer Levy:We need incentives for more supply, period. Now the second thing you might need is just a different way of looking at housing. So I'm surprised it took me eighteen minutes into your show to shamelessly plug the weekly take, but we have a whole episode on new ways to think about housing, not as entire houses but as bedrooms. Meaning that if you have a four or five bedroom house, why don't you rent it out by the bedroom rather than renting it out by the whole house? Yes, I know it brings up privacy concerns.
Spencer Levy:Yes, I know it brings up security concerns. But if we can figure out how to operate SFRBTR better, which we have in the last decade, we can figure out how to use smaller segments of existing housing stock more efficiently.
Mark Bonner:If you're just joining us, this is First Draft Live. I'm here with the great Spencer Levy of CBRE unpacking the year that was 2025 commercial real estate. Spencer, I hate to burst your bubble, but America is not moving anymore. In fact, the last couple of weeks from a number of reliable data sources as America has stopped moving, migration has stalled as sub 3% mortgages have locked households in place, making a typical relocation 73% more expensive per month. What movement remains is smaller, wealthier, and increasingly corporate driven.
Mark Bonner:Arkansas, Idaho, North Carolina, they lead in inbound games. While Bentonville, home of Walmart, alone is capturing nearly 40% of Arkansas rivals. Louisiana topped outbound list again, my home state, while outflows from California, Illinois, and New York finally cooled. What do you what do you make of that, Spencer? Concerned?
Spencer Levy:Here comes the big my my not surprised face. And why is my not surprised face? So once again, going back to, and, again, I forgive me for shamelessly plugging, The Weekly Take podcast, but we had on the show before he passed away the late great Sam Zell. And on the show he said very colorfully, by the way, one of our most colorful guests we've ever had to say the least he said, The death of New York has been forecast every five years for the last forty five years. Didn't happen then, it ain't happening now.
Spencer Levy:And that's why people are staying in New York because they have great economic activity. They have the great durable demand drivers, infrastructure, capital, human capital, live, work, play, cool. All these things say, you know what? Living in these big cities is actually a very good place to be. And low cost is great, but it's not everything.
Spencer Levy:And so I was in a market where was I last week? I was everywhere last week. Last week, I was in Raleigh, North Carolina, one of the truly, truly great growing markets in The United States. For all the right reasons. I was very fortunate.
Spencer Levy:I interviewed the CEO of the Carolina Hurricanes. Anyway, there were some complaints by the locals that things were getting more expensive. And, you know, things are getting more expensive. And what I said to them was this. That's a high class problem to have because low cost is a race to the bottom.
Spencer Levy:You will always have somebody who will do it cheaper than you, always. But you will not always have somebody who will do it better than you. And better is not necessarily cheaper. It comes down to, I hate to use a fancy economics word, utility. It's not anything but utility, and utility is a combination of economic opportunity and, dare I say it, happiness.
Spencer Levy:You put those two things together, you get a whole lot of that in the big cities too.
Mark Bonner:Look. Where do you you're on the road a lot, Spencer. I mean, where you talked about the Midwest. Tell me more about that. Where do you think is next in terms of investment in The United States or even overseas, Europe or Asia?
Spencer Levy:Well, look. I was very big on Madrid, Spain, and Spain overall, and I still am big on Spain overall. And the reason is very straightforward. It's just that magic word, it's just math. Because Spain and Southern Europe during the global financial crisis in 02/2012 was a very, very tough place to be because the banks were broke and unemployment was high and nobody was building.
Spencer Levy:Well, guess what? That was fifteen years ago, folks, and the banks are now super healthy. Unemployment's still high, so labor is cheap, and they're under built. Now the story was slightly better probably in the first quarter of this year when the US dollar wasn't as weak because the US dollar devalued by 10%, folks. And by devaluing the dollar by 10%, it made Europe and other places slightly more expensive.
Spencer Levy:But nevertheless, places that went through the apocalypse, like Southern Europe, now look pretty good because they've solved those problems because they're underbuilt and lower cost.
Mark Bonner:Got a question from the audience related to this topic. Do you think Miami overbuilt as well since class b condos are now not moving? Miami's been one of these things that's been in the all year, last couple of years since the pandemic. Right? They're that they're gonna steal all of our population because of Zora and Mondami here in New York.
Mark Bonner:What do you make of the Miami dynamic? Can that last?
Spencer Levy:First first of all, you should know that if we weren't on this show, I'd be sitting in Little Havana right now with my Panama hat, which is sitting right over there, smoking a cigar and drinking the best Cuban coffee in the world, and I'd probably wash it all down with the best Cuban sandwich in the world. Little Havana is one of the coolest little sub submarkets there is. But that's what makes Miami awesome, what makes it durable over the long term because it has these cool cultural elements like that. Wynwood is a cool emerging market that's night and day different than brickable. We have a lot of our big clients moving over there.
Spencer Levy:Is there going to be some overbuilding in condos? Yes. But the overbuilding in condos is the Class B condo story is not overbuilding related. It's related to the change in building codes in Miami because we had that terrible, terrible tragedy about four years ago where Surfside collapsed, killed just dozens of people, and Miami said not happening again. And so people that are in older condo buildings are running the risk of being whacked with a massive capital expense charge.
Spencer Levy:That's why b condos aren't moving. It has nothing to do with lack of demand. Oh, I'd buy a b condo right now if I didn't have that overhang over me. So that's the real issue there. It is not the overbuilding.
Spencer Levy:It is the change in law, and people just need to adjust to it.
Mark Bonner:I mean, can the hype meet the reality? I mean, I I is the runway still there for Miami? Right? I mean, it it sort of the narrative I mean, it is a cool place to visit. I love I love Miami myself, Spencer.
Mark Bonner:But can it remain hot as, a growing city that attracts major investment and major population growth over the next two
Spencer Levy:or three years? Can. And and I said what what I'm my the first words out of my mouth are gonna sound negative, but I'm then I'm gonna spin it. It's actually not that easy to build in Miami. Miami is a somewhat more regulated market, and with people in Florida, it's more regulated than say a Tampa or in Orlando to build new stuff.
Spencer Levy:That said, that's sometimes a tough zoning board is your best friend because it makes your existing product more valuable. But Miami suffers from a couple of things that a lot of big cities that are growing quickly suffer from. The traffic there, no good. Okay? The issue of rising prices of the Class A market makes it tougher, more expensive, hard to get around, all that stuff.
Spencer Levy:That's a high class problem to have. The Miami story isn't going anywhere, and it may have some short term challenges in certain submarket or sub sectors like Class B, but that's due to a change in law. But no, I think Miami has great long term strength. And by the way, they're improving the Miami Airport, thank God, because the Miami Airport for a city of its caliber needs a bigger, better, more beautiful airport.
Mark Bonner:We've got another question from the audience here. They wanna hear more about your love for the Midwest. Are the opportunities set as simple as follow the railroads? What are the nuances to be aware of in your opinion?
Spencer Levy:Okay. So here's the biggest nuance of all. And I'm surprised it took me this long to bring it up on the show. The single biggest change in our market over the last two years and going to be for the next ten is from 2012 to 2022, 75% or so of the real estate gains were due to compressing cap rates because we had low interest rates. Guess what we have now?
Spencer Levy:High interest rates and they're going to stay high. They might come a little bit lower, but you're not going to get bailed out by the magic, which is a really low exit cap rate. And so if you're not going to get bailed out by a really low exit cap rate, you need to do two things. Number one, you need to operate better so that you can grow NOI faster. And the second thing you need to do is get a higher going in cap rate.
Spencer Levy:And the Midwest has higher going in cap rates. Are you going have a higher going out cap rate too? You will. But you know what? I'll take the 150 to 200 basis points upfront if I know I'm not gonna get the lower exit cap rate in the major markets too.
Spencer Levy:So I think the Midwest story is not just the railroads, it's the math.
Mark Bonner:What cities do you like?
Spencer Levy:Well, look. It kills me to say this as a guy whose son goes to Michigan, but I love Columbus, Ohio. Okay? I love it because they are, you know, a beneficiary of this train line thing. They also have New Albany which has a new Intel chip plant, has new data centers.
Spencer Levy:It has the Ohio State University. Yep. I said it. And, you know, those are the kind of things that are gonna drive the economy. It's also so it's location.
Spencer Levy:I think it's it's it's centrally located near probably half The US populations within 200 miles of Columbus. I mean, it's really well located. So Columbus is a market I like, but here it is. And now now I'm gonna get thrown off the show. Chicago.
Spencer Levy:Yep. Who said it? I did. And you know why? Because not all of Chicago is great.
Spencer Levy:And, yeah, it's tough in certain markets, particularly the office market for older office stock. You know what? We just sold a multifamily deal in the suburbs of Chicago that was oversubscribed, and and the Fulton market is one of the great submarkets. River North, another great submarket. I love markets that people don't like the headlines, but if you look into the submarkets, there's great opportunity.
Mark Bonner:That is surprising to hear. And by the boo to the buckeyes. No I mean, offense intended to buckeyes fans over here, but I hear you loud and
Spencer Levy:because you
Mark Bonner:Of course, I'm an LSU guy. We took care of Ohio State in the two thousand seven national championship in the Louisiana Superdome.
Spencer Levy:How was You know what?
Mark Bonner:I went
Spencer Levy:to Cornell, and we took care of Dartmouth in the nineteen thirty one national championship too. So, I mean, how far back we're gonna go?
Mark Bonner:The Ivy League. I love it. One more question from the audience, and then we'll we'll we'll get into the our final thoughts. The recent BLS report is subject to a lot of criticism, and it seems politics is more overtly intruding into government statistics. Should investors be concerned about a, quote, unquote, credit event in 2026 like investors losing losing faith in US treasuries?
Spencer Levy:No. Next question. I mean, this one to me is the easiest answer of all. Know, You lot of people say that, oh, people aren't gonna trust the treasuries because our national debt is ballooned up to $3,435,000,000,000,000 dollars wherever it is right now. But US debt to GDP is only about a 110% now.
Spencer Levy:Only about I wish it was 80%. Right? Don't we all do? But you know, we can handle it so long as interest rates keep coming down a little bit. If they stay high, it crowds out a lot of other spending because it throws so much of the government spending into nonproductive uses, which is debt service rather than building a new hospital or a road or a school, something that's really productive.
Spencer Levy:Right? But no, I don't think there's any risk of people losing faith in the full faith and credit of The United States. And the full faith and credit of The United States comes from a thousand different factors led by rule of law, led by critical mass, led by strength in a in a 100 different ways. And, you know, you all you gotta do is take a look at The US's formation of new Fortune 500 companies versus every other place in the world, and we're doing pretty good.
Mark Bonner:True. But, know, I'm a I'm a journalist, Spencer. Right? So I'm skeptical by nature. Right?
Mark Bonner:Yesterday, we're high fiving about the inflation report coming out of the government. Then this morning, I wake up into the headline at the New York Fed president is saying that those were artificially inflated. So therefore, there is mistrust in the data that's being provided by the US government. I wonder if if that's gonna become a factor moving forward.
Spencer Levy:Or do
Mark Bonner:you think that's more noise?
Spencer Levy:One data point is not a trend to make. Alright. That is
Mark Bonner:It's not one time. It's more than one time over the last six months.
Spencer Levy:These numbers are not being manipulated. They're being changed by events. Okay? So the reason why inflation number was partially low was that we had a government shutdown of forty five days, which retarded some spending. And then we have to and you know what's gonna happen now?
Spencer Levy:And I was just on the call talking about this with another economist. It's going to increase GDP in the next in first quarter of next year. And so the bottom line is the distortion of the numbers that you are claiming is not done for nefarious reasons. There are events that are driving that.
Mark Bonner:Didn't say it was nefarious, but it does create fog. It creates uncertainty and it feels into this chaos narrative of the last year. Right? Yeah. And it makes it very difficult to make big time decisions when you've got extra fog in the room.
Mark Bonner:These are already complicated decisions that we're talking about here. And then when you have that added on, it's just one more layer of uncertainty.
Spencer Levy:Yeah. Look, again, I think if people are voting against the government, you know, give me a call because the government is and The US isn't going anywhere. The government in The US is the land of as and listen. I'm not saying it's perfect by a long shot. I'm not saying it isn't noisy.
Spencer Levy:I'm not saying that democracy isn't a mess sometimes. And as Winston Churchill says, democracy is the best form of government unless you compare it to all others. I think I got that wrong with them. Is is the well, the bottom line is this. I'm not like some big, yo, USA all the way guy.
Spencer Levy:I'm just here looking at the facts, and the most important fact is growth, right? We're growing slowly. We're growing like 2%, and I think we're going grow a lot faster than that due to AI. But the bottom line is using it to help grow AI, using it through AI and other ways to grow, it's going be because of the entrepreneurial spirit of The US government system overall that permits entrepreneurialism in a way that is not permitted in a lot of other places. So, look, no way.
Spencer Levy:I I'm not I'm black and white on this one. Notwithstanding our problems, I wouldn't wanna be any place else.
Mark Bonner:You're black and white, you're red, white, blue, my friend.
Spencer Levy:Nearly one saying we don't have problems. Look, I
Mark Bonner:am with you. Well, last last question before we get into our our our our final thoughts here. Nearly $1,000,000,000,000 in commercial real estate debt is gonna come due in 2026. The maturity wave didn't crash this year. It just deferred.
Mark Bonner:At the same time, the biggest unanswered policy question still looms. The future of Fannie Mae and Freddie Mac and what privatization could mean for housing finance. Is 2026 the year uncertainty finally converts into opportunity, or do you think it's just another year of selective motion?
Spencer Levy:You are worried about the wrong stuff, my friend, because the privatization of Fannie and Freddie does not make me lose a minute of sleep. And the reason is very simple, because the implicit or the explicit government by the way, the president said he was explicit when it came to the guarantee of, government debt through Fannie and Freddie even if it is privatized. That's not going away, and that's all that matters. The privatization thing really has to do with, you know, the efficiency of operations and has to do with the bondholders and things that have very little to do with the bondholders of the Fannie and Freddie stock, not the bondholders of government bonds from Fannie and Freddie. That's what we're talking about here.
Spencer Levy:Are we going to impair the value of government bonds of Fannie and Freddie? The answer is nope. Are we gonna impair the value of the implicit or explicit government guarantee? Nope. And whether it's private or owned by the US federal government, I think it has almost no bearing on what's going to be the liquidity of the multifamily market multi and single family market.
Mark Bonner:If one thing were to unlock real momentum in 2026, what do you think it would be? Lower rates, clearer policy for sellers, or simply fatigue, meaning investors deciding that waiting is riskier than acting?
Spencer Levy:I like to be mister fan actually, I try to be the opposite of mister fancy talk. And I'm gonna be real simple here, folks. If inflation materially cools down like, when I say cool down, I mean, getting close to that 2% magic number, and we can legitimately reduce the short end of the curve from where it is now in the three and a half percent kind of range, three to three seventy five, down to something closer to two, all that will unleash growth. Alright? And the president knows that.
Spencer Levy:Everybody knows that. The whole every it's it's just math, folks, because the short end of the curve right now is still marginally restrictive in terms of new new economic activity in the economy. And so because it's marginally restrictive, we're not growing as fast as we can. But what will happen is going back to several of the things you said before, Mark, was it'll let people sell their single family homes. It'll allow more economic movement in the country.
Spencer Levy:It'll allow more investment in certain things because the cost of debt is lower. So that is the one thing. If inflation really cools, that is the single most important thing that could boost the economy. The single thing that could really nail the economy is the exact opposite. That inflation goes bonkers again.
Spencer Levy:And that and that to me causes concern. And the concern or the the thing that causes the third thing that causes concern is inflation goes bonkers, they still cut interest rates because then you know what would happen? The bond vigilantes would take over and jack up the 10, and we'd be in a worse position overall.
Mark Bonner:Spencer, let's play a little game. Hot or not for 2026. You game?
Spencer Levy:Bring it hot.
Mark Bonner:Hot or not. Hot or not. Office. Hot. Industrial.
Mark Bonner:Getting hotter. Multifamily.
Spencer Levy:Getting hotter.
Mark Bonner:Okay. Retail? Hot. Data centers? Well, I know where you're going here.
Mark Bonner:Hot. Not warm. You're going hot. Okay.
Spencer Levy:Private I'm going hot because I see the issues in data centers as not being resolved in 2026. Think that the issues of data centers, if there's going to be a challenge in that center sector with the worst challenge with the b word. Right? It's it's delayed by a few years. It's delayed by a few years by a technological change that I don't see on the horizon immediately.
Mark Bonner:Okay. Spencer Levy is hot for data centers. Private credit.
Spencer Levy:Private credit. Define private credit. Meaning like from a non bank financial institution? Yeah. Family office.
Spencer Levy:Oh, family office. Oh, so private capital versus
Mark Bonner:Private capital. Yeah.
Spencer Levy:Yeah. Private capital versus institutional capital. Well, it was hot this year as compared to institutions because actually private capital was doing a lot of the development deals that the institutions wouldn't do. And so I see it, staying hot and getting hotter for another reason that we didn't bring up on the show and we should have.
Mark Bonner:Okay. Hot or not? We gotta keep moving, Spencer. I'm sorry. You're hot.
Mark Bonner:Okay.
Spencer Levy:I I would say of all the things we mentioned, the hottest of all is going of the the traditional investors going for private capital, non accredited capital versus going for pension fund endowment capital. That is of all the hot categories, that may be the hottest category of all.
Mark Bonner:Okay. Distress investing. Cold. Okay. Secondary markets?
Spencer Levy:With good infrastructure hot, with bad infrastructure cold.
Mark Bonner:Sunbelt. Would say I Hey. You're hot on the Midwest. Are you are you still hot on the summer?
Spencer Levy:I once would the overbuilding is done and over the long term hot, but in the short term, it's warm because there's there's been some overbuilding in certain segments.
Mark Bonner:Gateway cities, Dallas, New York, Los Angeles.
Spencer Levy:Long term, couldn't be any hotter. Short term disruption, great opportunity. So I'm warm short term, hot long term.
Mark Bonner:The New York
Spencer Levy:Knicks. My childhood was ruined by Patrick Ewing. It's not gonna be ruined twice, but I will say this about my beloved New York Knicks is that, dollar bill Bradley and and Walt Clyde Frazier and Willis Reed, and Phil Jackson all hung it up a long, long time ago. There's something about 1940 for the rangers that reminds me of 1973 for these knicks. What's gonna win for the knicks isn't talent.
Spencer Levy:It it's believing. And that's why we go back to the '69 back to the Mets. You gotta believe.
Mark Bonner:The New York Mets.
Spencer Levy:Well, now I live in Baltimore, and I I thank you for the gift that is Pete Alonso.
Mark Bonner:Oh, man. That hurts, man. How about your Jets, man? We got the Jets and the Saints this weekend. Both of our teams hot.
Mark Bonner:They gonna win?
Spencer Levy:Still playing that game? How many paperbacks can they sell
Mark Bonner:over there? You're totally right. Alright. I'm gonna I'm gonna give one to myself. LSU football.
Mark Bonner:The lane train is going all the way to the playoff. I'll see you there. And the Saints, very sadly, we are not dad. We are we are cold. Not gonna be good.
Mark Bonner:Okay?
Spencer Levy:Well, listen. I think LSU football, the whole I don't even wanna get in. This is not a foot this is not the college football segment of today's program.
Mark Bonner:Oh, it sure is. But we need to wrap up. What do you want to say about LSU football? You can get it in right now, man.
Spencer Levy:My son my son is a is graduating from Michigan and they won the natty and then things just all went downhill and it's just gotten horrible in the last few weeks. But look, I went to Ivy League ball, okay? I went to Cornell, right? And I, you know, I'm so old school. I just love that system And it's like, you know, you're such a funny duddy.
Spencer Levy:We're making billions of dollars, and you just don't wanna play because you're becoming better people. You know? No. It's you know, I always chose the better academic school over the other one, and maybe nobody thinks that way anymore.
Mark Bonner:It's all about winning, man. Okay. Spencer, this has been a lot of fun.
Spencer Levy:One story for you. One more winning Oh, god. Okay. Come on. Quick.
Spencer Levy:To be said. In 1940, Cornell also won the national title, beating Dartmouth on what was a fifth down play. What happened? The president of Cornell found out it was a fifth down and forfeited the game. That's what football should be.
Spencer Levy:It's about a lot more than just winning and losing.
Mark Bonner:Spencer, thank you so much for closing out the year with us. This has been a lot of fun. And to everyone watching live today and to everyone who catches First Draft Live later in the week on social or on your podcast feed or in your car or on your computer at the gym, we thank you. And, yes, we also wanna thank the one listener who reached out to me earlier this week to say that they played the show off fishing on some beautiful freshwater lake in Tennessee. Thank you.
Mark Bonner:We see you. To our listeners and viewers overseas, we are grateful to you as well. It means more than you know that this conversation travels as far as it does. This is our final first draft live of 2025, and none of it happens without the incredible team behind the scenes at BizNow every single week. Elizabeth Baker, Will Follett, Katherine Rountree, Sam Anderson, Ali White, Andrew Nathanson, Katherine White, Julia Troy, and Katie Dixon.
Mark Bonner:It truly takes a village, Spencer, to put this show together, and I'm deeply grateful for mine. We'll be back in 2026 with more signal, more clarity, and hopefully a little less uncertainty. Until then, have a wonderful warm holiday season. This is First Draft Live. We'll see y'all in 2026.