[co-authors: Sarahan Moser and Jared Goldstein]
On October 26, 2022, Dechert’s partners Laura Swihart and Stewart McQueen attended the CREFC Capital Markets Conference in New York City. Stewart gave a keynote address and Laura moderated a panel on the current real estate market and its intersection with multi-family, single-family and built-for-rental properties. Laura and Stewart sat down with legal clerks Jared Goldstein and Sarahan Moser to recap the lecture.
Q: Good morning Laura and Stewart, thank you for joining us today. To start, based on the current economy, what was the consensus among everyone at the conference?
A: (Laura) This was the first conference where everyone finally admitted that there has been a downturn in the industry and that it may be for a while. Of course, if you’re in the industry, you don’t want to admit that it’s not great right now. And so, it takes a while for people to deal with that, but that’s the first step towards a recovery.
Q: What was your impression of the general mood?
A: (Stewart) The atmosphere was a little more positive than I expected. However, we don’t see an uptrend anytime soon. There will be deals, but I don’t think we’re going to say, ‘Okay, let’s go back to work on January 1stst.” Most people I spoke to said the volatility will likely spill over into the next year.
A: (Laura) I agree. We will be fine and always have been. And we’ve experienced this rodeo before. So, it’s not doom and gloom. It’s just that we’ve been on the upswing for 12 years. This is unheard of. So, there is a restore going on. And it is due. It will last a few months and we will find out again.
Q: What do you think is contributing to the recession?
A: (Stewart) What is driving this is where the spreads move and the volatility that it is creating. Once we know where the new normal is, people can figure out how to buy and sell at the right prices and decide what to do.
Q: So, are we in familiar territory?
A: (Laura) I mean, I don’t know if you disagree with Stewart, but I’ve seen it. I’ve experienced it several times now and people need space. You know, that’s the beauty of real estate, it doesn’t go away.
A: (Stewart) I agree. This is my second reset cycle in my career. Like Laura said, we knew this was coming. And even in 2016, we kept asking ourselves, “What inning are we in?” Now the game isn’t over, but let’s go back to the first inning. I’m not worried about this. I came away from the conference feeling much better.
A: (Laura) Yeah, I did too, because people have dealt with the fact that we’re in a bad cycle right now, but it’s not horrible. It’s not irreparable. We’ll find out. There will be some slow months. Then we’ll all roll up our sleeves and move on.
Q: How has Dechert addressed this recent downcycle?
A: (Stewart) This is a great time for lawyers, especially young lawyers, to improve and learn. We always come out stronger at the back end: better products, better engineering, better everything. I am very optimistic.
A: (Laura) It’s a great time to learn. I learned the most in the downturns of my career. It’s scary. I’ve always said that when it’s slow, we [at Dechert] they are agile. We don’t do the cookie cutter thing. We produce new products with our customers and it is very interesting. If you’re forced to be more nimble, you’ll come up with interesting ways to fund things. You’re keeping your customers going, and it’s like your brain is spiked. We are not the company that just does public securitization like a car. We do weird things. So during this time we partner with our customers and try to find the new normal. And I find it funny.
A: (Stewart) We must be nimble and creative. I couldn’t walk five feet without bumping into someone who wanted my thoughts on possible alternative structures and solutions. I’m sure, Laura, you’ve had the same experience. It was constant. I must have talked to three hundred different people.
A: (Laura) I was being bombed.
Q: How do companies stay competitive?
A: (Stewart) This sector evolves, we always evolve. We are always looking for the next solution.
A: (Laura) In the last recession, people’s homes were foreclosed and so there were all these empty homes all over the country. In response, companies have decided to buy, repair and lease them to people. They bought existing abandoned houses and fixed them up so that people could live in them. That’s what an SFR is, a single family rental. And it made neighborhoods better; made cities better. Many people start out in multi-family rentals, in apartments. So they start a family and understandably want a backyard and a place where their kids can ride their bikes and play outside. If they can’t afford to buy a home yet, single-family rentals provide them with the opportunity.
A: (Stewart) Single-family rentals have also produced positive economic growth in neighborhoods, first with retail: stores that have opened, jobs that have been created. There was one plus. But there is still not enough.
Q: What about “Build-To-Rent” properties? How do they fit into the equation?
A: (Laura) Now companies are connecting with contractors and buying, say, a field in Ohio, and then they’re building houses there. It can also be of all ranges. Some of them are smaller houses, others are five bedroom houses with swimming pools. Corporations build these properties and then tenants can rent them out. The company does everything — they mow the lawn, fix the dishwasher, all the things a landlord would do — but the properties are houses, not condos. It’s nice because if a tenant has a large family with kids, he can live in a house, and then if he runs into financial problems, it’s just a rent, so it’s only for a year.
Q: Interesting. Any thoughts or final impressions you’d like to share?
A: (Laura) Housing has always been interesting to me. It was a great conference and it was good to reflect on how Dechert is leading the initiative with real estate capital markets.
A: (Stewart) I agree and thought Laura’s panel was great.
Q: Thanks for your time, Laura and Stewart.