Optimism and Doom Present in NYC Capital Markets Conference

On a cool, gray Thursday morning in Manhattan, some of the biggest names in commercial real estate finance gathered  at the 18th annual Real Estate Capital Markets (RECM) hosted by law firm Goodwin and Columbia Business School. 

The conference opened with James Collins, managing director and co-head of U.S. real estate investment banking at Morgan Stanley, discussing broad market trends and the state of capital markets across the U.S. today.  

Collins said Morgan Stanely expects only one rate cut from the Federal Reserve in 2025, and that the firm is seeing slowing consumer spending in the market right now, along with a cooling labor market, uncertain impact from tariffs, and a decrease in immigration — an unappetizing recipe for inflation to remain persistent.    

“We think that will impact not only GDP growth, but also our target for inflation,” said Collins. “Inflation could be sticky, and it could be very hard to get to the 2 percent Fed target.”

Collins added that while there is still dry powder available on the private equity side, “it’s trending down a bit,” and that fundraising numbers have also decreased in recent months. In fact, CRE fundraising strategies have instead been aiming to play in only one lane. 

“Of the capital that’s been raised, it’s largely opportunistic, seeking high returns,” he said. “The core capital raise has been very, very slow of late.” 

Collins ended his remarks by emphasizing that CRE new supply is broadly low and that he’s bullish for those sponsors and investors who own assets, especially in the real estate investment trust space.  

“Supply is decreasing in every property type, starts have been low, and development economics — outside of data centers — has been challenging,” he said. “As far as we can see, there’s limited deliveries coming online in the next few years, which is a healthy fundamental.” 

SL Green (SLG) Chairman and CEO Marc Holliday gave the keynote address, highlighting the strength of New York City’s office market and the recovery the city’s central business districts have made from the COVID-19 pandemic. 

Holliday cited several metrics that made it clear New York’s economy is essentially “back” from the devastating pandemic: New York has recovered 108 percent of private sector jobs from its pre-pandemic levels; the city experienced a 4 percent increase in subway rides year-over-year in 2024; a record 68 million tourists are projected to visit New York in 2025; Wall Street’s 2025 profits are expected to cross $48 billion (its third highest total on record); and New York is forecasting 38,000 new office-using jobs to be added to the economy in 2025. 

“New York City has experienced an unprecedented recovery over the past 18 months, and it’s from a confluence of factors that we recognized in 2023: relatively stable interest rates, a strong local economy, high tenant demand, and relatively low inventory,” said Holliday. 

“I would define this moment as one of the best opportunities for investment in New York City to shine,” he added. 

Holliday took aim at the narrative that New York City office leasing is only reserved for Class A trophy towers, like his very own One Vanderbilt. He cited statistics from CBRE that revealed 86 percent of all new office leases signed in 2024 occurred in buildings over 25 years of age. 

“This narrative, which I really hate to hear, is ‘It’s all around Class A trophy buildings, new construction buildings,’ and it’s just not true,” said Holliday. “I wouldn’t want you to come away thinking … ‘It’s a flight to quality, new construction is raging, and everything else is lying fallow.’ It’s just not the case.” 

Holliday closed his remarks by expressing a contrarian approach to the distress, dislocation and high interest rates the U.S. capital markets system have experienced over the last three years. He joked that real estate professionals are probably in the wrong business if they “can’t make money at a [4.20 percent] Treasury [yield],” and added, perhaps sagely, that “business can’t exist only when the debt is free.” 

Holliday confessed that he “loves the uncertainty” of the current marketplace because dislocated markets are where investors and sponsors can achieve “relative outperformance.” While lower interest rates might inflate one’s balance sheet, they diminish the number of opportunities to buy distressed assets, he said. 

“Dislocation in the market is what you wait for,” he said. “Every 10 years, there are two good years to make money, and the rest is asset management. And we’re in that period right now, in my opinion.” 

The next panel took a bit of a different view than Holliday, as speakers Tim Mackey, chief investment officer at LoanCore Capital; Julia Butler, managing director at KKR Real Estate Select Trust; and Jennifer Dumas Hall, senior managing director at Rockpoint, all pointed to the problems created by high interest rates, uncertain cap rates, and valuations untethered to capital markets realities. 

Mackey noted that U.S. banks hold $6 trillion, or 50 percent of debt in the system, but the “extreme regulatory pressure they are under” has curtailed lending, which has obfuscated pricing and values due to the lack of transactions. 

“The dam hasn’t broken yet, and it hasn’t broken because we don’t know what cap rates are, and we don’t know how to value things,” said Mackey. “There’s a dearth of transactions overall, there’s tons of money ready to invest, but we just don’t know at what level.”

Dumas Hall said that the good news heading into 2025 is that the market is no longer talking about the “denominator effect” — the phenomenon that occurs when a majority of institutional investment capital is over-allocated to private markets — but the real problem is a lack of lending. 

“It’s liquidity, it’s the lack of distributions, which translates to valuations and transaction activity,” she said, noting that CRE transaction volume is down 70 percent over the last three years. 

Butler played the role of optimist during the panel. She argued that as rates stabilize, and more people are able to lean into new pricing, core capital comes back into the market, creating a momentum effect on transaction volumes. 

“We’re at a good time: Supply is coming off, assets are trading below replacement cost, and you have a moment now to take advantage of a good macro,” Butler said. “I’m going to be optimistic and say by the end of this year things will be rolling in a really positive way.”

Butler and the other speakers harped on just how positive the investing environment is in the U.S., largely because the country is still seen as the safest place to invest in the world, and is thus reaping the rewards of global allocation strategies. 

Butler also threw some shade on the notion that the multitrillion-dollar wall of maturities facing down the CRE industry every year since the pandemic is a dangerous, generational phenomenon. Instead, she argued that it’s overblown and that banks have mostly figured out solutions to avoid the worst-case outcomes. 

“You’ve had a lot of banks work with borrowers, and they all learned from the GFC that they didn’t need to put up the total amount to pay down the loan to meet a maturity  — if you did a 5 percent to 8 percent paydown, you get a couple years of extension,” she said. “This wall of maturities has been talked about more than being an actual issue.”

John Fitzpatrick, Blackstone (BX)‘s senior managing director and chief technology officer of alternative asset management technology, next held court and discussed data centers, artificial intelligence and hyperscalers. 

He admitted that optimizing rents in the data center space is “a much hairier conversation” than merely generating revenue off hypothetical investment models, but said he expects to see innovation in that space as the asset class evolves amid greater growth and development. 

However, Fitzpatrick did admit that the consolidation within the space among the largest hyperscalers — think Amazon, Microsoft and Meta —  will mean that less data center space will be used to compute, which will eventually lower the overall cost to the end user and in turn drive more demand. 

“My view is they’re all in an arms race to AGI,” he said, referring to artificial general intelligence. “That’s the holy grail for all of them, and that’s why they’re raising tons of dollars to get there. … And it will require the data center space and the power to get there.”

The final discussion of the day followed Pari Sastry, assistant professor of business 

Columbia Business School, as she lectured on the risks climate change has posed to the U.S. property insurance industry. 

Sastry opened by noting that insurance losses have exceeded $100 billion in the last five years, an amount she characterized as “unprecedented levels of losses,” and that the U.S. has seen a staggering 8 percent annual growth in insurance-related losses since 2008. 

“A big component is coming from changing inflation, rising construction costs, climate change, and other kinds of changes related to risk in the legal environment, but the biggest driver, by far, of rising losses is the continual building and development in high-risk areas,” she said. 

Sasty showed that the share of U.S. housing stock in high-fire-risk areas has grown from 8 percent in 1900 to 29 percent in 1980 to 55 percent in 2025. She added that high-risk ZIP codes have also increased their population growth across the country in the last five decades. 

“More and more Americans are building and moving to the riskiest areas of the country, and even if we did not have climate change and inflation, that alone would lead to rising insurance losses because we’re building in risky areas,” she said. 

Sasty also showed data that reflected the problem of state-level insurance regulation, primarily in “high-friction states” like California, Colorado and Florida, which hold down premiums by law even as risks magnify. Such regulation prevents insurers from raising premiums, even on the real estate policies in the riskiest areas. This in turn is causing single state insurance companies to go bankrupt and forcing taxpayer dollars to fill the gap of insurance costs. 

For example, Florida, a state known for experiencing annual hurricanes, saw 15 state-level insurers go bankrupt between 2009 and 2022, she said. 

Moreover, as states like California and Florida use regulations to keep premiums artificially low, insurers make up the difference by charging residents in “low-friction” states like Illinois and Michigan higher premiums, even though their environments are less risky to disasters. 

“Insurance companies are raising premiums in low-friction states where they are allowed to raise premiums to offset the excess losses they are having in high friction states,” she said. “This is creating a disconnect between risk and premium, and is posing a really big issue for insurance companies to remain profitable in states where they cannot adjust prices.” 

Brian Pascus can be reached at bpascus@commercialobserver.com