Question A:
The impact of the Covid-19 pandemic on working and shopping habits has not been fully priced into current private valuations of downtown commercial properties in major cities.
Responses
Responses weighted by each expert's confidence
Question B:
A continued fall in commercial real estate valuations would trigger another round of banking panic.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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 John Campbell |
Harvard | Bio/Vote History | ||
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Private valuations often lag market conditions, which have been strongly negative since the Covid-19 pandemic altered office working practices.
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 John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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Most commercial real estate problems are not due to pandemic per se, but subsequent policies. Pandemic didn't cause crime. "Not priced in" is weird. Prices are low, and few buying. The effects on rents and debt are rolling in. Prices that ignore information are not central.
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 Francesca Cornelli |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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 Darrell Duffie |
Stanford | Bio/Vote History | ||
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How inefficient is this market? Probably not very inefficient, but I'm not confident about that.
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 Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
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Available private valuations show a markdown of CRE assets, especially among the worst performing in office and retail. Some assets still have stale prices or are held in opaque ways, so the repricing is not always available or visible.
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 Xavier Gabaix |
Harvard | Did Not Answer | Bio/Vote History | |
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 Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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 John Graham |
Duke Fuqua | Bio/Vote History | ||
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 Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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The answer depends on the city. CMBS spreads are very wide and vacancy rates are rising with San Francisco having an eye-opening 35% commercial vacancy rate. Many of these properties are being carried on the books at unrealistically high values.
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 David Hirshleifer |
USC | Bio/Vote History | ||
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 Harrison Hong |
Columbia | Did Not Answer | Bio/Vote History | |
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 Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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 Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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 Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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Until the current owners face the inevitable problems in refinancing the properties, they will not fully accept the coming price concessions. A credit crunch is coming and that will lead to further price declines.
-see background information here |
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 Ralph Koijen |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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 Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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 Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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 Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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Lower demand (due to remote work), higher maintenance costs, and rising interest rates contribute to lower valuations. While many major banks are expected to lower their valuations in the 2nd quarter, other institutions will likely wait until the loans are refinanced.
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 Sydney Ludvigson |
NYU | Bio/Vote History | ||
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 Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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 Gregor Matvos |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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It’s hard to know if “fully priced” but certainly values, lease rates, and cap rates have changed to reflect the pandemic’s effects.
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 Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Private valuations are clearly lagging the available public valuation indicators (e.g., REITs)
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 Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Absent a really good reason, market prices are good reflections of true values, as are the values that the owners place on their assets. At banks that are currently under duress, current valuations made for bank regulators may not have losses completely priced in.
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 Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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 Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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 Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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 Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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 Paola Sapienza |
Northwestern Kellogg | Bio/Vote History | ||
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My answer is based on the following research
-see background information here -see background information here |
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 Amit Seru |
Stanford GSB | Bio/Vote History | ||
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 Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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 Laura Starks |
UT Austin McCombs | Did Not Answer | Bio/Vote History | |
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 Jeremy Stein |
Harvard | Bio/Vote History | ||
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 Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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 Amir Sufi |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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 Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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The stronger reaction in the REIT market suggests that the reported reaction in the property market may not fully capture the response.
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 Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Transaction volumes of distressed urban office & retail have been low since the onset of the pandemic and selected, i.e., only the best properties have traded. Expected distressed office sales to ramp up from their sporadic levels in 2023.H1.
-see background information here |
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 Toni Whited |
UMich Ross School | Bio/Vote History | ||
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Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
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John Campbell |
Harvard | Bio/Vote History | ||
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While banks have significant exposure to commercial real estate, banking panic is extremely hard to predict especially in light of policy responses to restore confidence.
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John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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First "price" now "valuation." Different items. Questions fixation on prices is strange. No rents, empty buildings, laws forbidding conversion, defaults are a big problem. "Valuation" less so. You go bankrupt when you run out of cash.
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Francesca Cornelli |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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Much of the exposure is in smaller banks with insured deposits primarily.
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Darrell Duffie |
Stanford | Bio/Vote History | ||
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Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
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Commercial real estate is a broad class. The concentration and pricing of the worst CRE assets across banks is opaque. There could be distress if the sector (and the economy) worsen, especially as margins tighten with higher funding costs and legacy low rate assets.
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Xavier Gabaix |
Harvard | Did Not Answer | Bio/Vote History | |
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Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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John Graham |
Duke Fuqua | Bio/Vote History | ||
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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I believe the banking system is far more vulnerable than the Fed would lead us to believe. It is a red flag that my TBTF bank can only pay 2 bps annual rate on my savings deposit. CRE + problems created by higher long rates = trouble. The private loan market is vulnerable too.
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David Hirshleifer |
USC | Bio/Vote History | ||
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Harrison Hong |
Columbia | Did Not Answer | Bio/Vote History | |
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Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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It could, but will depend on how much capital is raised, and whether the weakest banks find merger partners before hand. The largest banks are not going to run into problems because of this.
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Ralph Koijen |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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According to a recent Goldman Sachs report, small and medium sized banks account for 80% of commercial real estate lending. These are the banks that are subject to less regulatory scrutiny, and may be slower to adjust valuations.
-see background information here |
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
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Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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Gregor Matvos |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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Many banks seem over exposed to CRE.
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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It seems likely that a lot of problems with CRE loans are still hidden in many banks' balance sheets and hold-to-maturity accounting, but whether a panic might arise (given the current level of official support for the banking system) is uncertain.
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Many banks, particularly large regional banks are reliant on profits from a stable depository base at low interest rates to cover recent losses on hold-to-maturity assets. If credit losses mount, uninsured depositors will withdraw, raising funding costs and endangering solvency.
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Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Paola Sapienza |
Northwestern Kellogg | Bio/Vote History | ||
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Amit Seru |
Stanford GSB | Bio/Vote History | ||
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Depends on where we end up with proposed regulations and capital raising by regional banks.
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Laura Starks |
UT Austin McCombs | Did Not Answer | Bio/Vote History | |
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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It certainly COULD trigger such a panic, since regional banks (and others) have sizable CRE exposures. But whether it WOULD actually trigger it depends on a range of factors, including the performance of the remaining loan book as well as the policy response.
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Amir Sufi |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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The banks are potentially affected depending on their exposures. I have no opinion about whether this will trigger bank runs.
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Many, esp. regional and smaller banks are over-exposed to CRE loans. Many of these loans will come due in 2023.H2 and 2024 and will fail to refinance. Banks have not provisioned sufficiently for future fire sales of these CRE assets.
-see background information here -see background information here |
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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