Most Insightful Hour in CRE Part 20 with Dr. Peter Linneman
Willy Walker: We know that there are many people, including some people that you and I were just talking about, who are really struggling with the loss of property, loss of life, loss of history. And to anyone who is dialing in today from California and who is dealing with the fires, we're sending our best wishes for that not to impact your life too terribly. And to people who have lost, I was going back and forth just two days ago with our mutual friend Bobby Turner, who's a Penn grad, and he was protecting his house from looting. And while the house was still standing, it’s not an easy time to be out there. With that said, this is the 25th anniversary of the Linneman Letter. And this volume of the Linneman Letter goes back and talks a little bit about that history and how Al Ratner read it the first time and said, “Peter, this is pretty good.” And then somebody else called and said, “It's actually really good and you stuck with it for 25 years.” We are all the better for it. Thank you. And your brother Doug is here and you've got a great staff at the Linneman Letter. And as someone who reads it probably more closely than most, I would just say thank you for everything you put in there.
Dr. Peter Linneman: Thank you for reading it and caring and promoting it.
Willy Walker: This is Peter's and my 20th conversation, which is hard to believe. If you do the math on it, that says it's a little bit more frequent than on a quarterly basis between the beginning of the pandemic and today, but not a lot. It's about five years ago coming up. We're a little bit inside of that. But it was five years ago that we started this. And boy, have we covered a lot of territory! At the beginning of last year, Peter, I asked you to make some predictions on 2024, and I want to run through your scorecard on those. I'm going to get you to go on the record again at the end of this one for 2025. But the first one I said was cuts. You said we'll get five. We ended up getting three. In May of last year, as many people remember, the prediction in December of ‘23 was seven, Peter said five in January, and most people had gone to zero by May, given where the economy had moved and what had happened. I actually got a lot of emails from Walker Webcast viewers saying, “I really love Dr. Linneman and I listen to him all the time and think he's really great, but he is so off base on thinking that the Fed is going to cut three times this year that I'm not going to listen anymore.”
Dr. Peter Linneman: To be fair, one of them was 50 basis points and everybody was using 25 for the record.
Willy Walker: You and I sat down here in Philadelphia in June and I said to you, “If we get one, that's not a big deal. If we get two, a broken clock is right twice every day.” I'm not going to call you a cuckoo clock. But on numbers, if we get three, I'm going to come and kiss your feet. And you said, ‘Game on.’” With that, I got to start this webcast. Peter did wear brand-new shoes for me, which was very nice. So I have to come down and give those shoes a real kiss.
Dr. Peter Linneman: Let’s give him a round of applause. You can’t know how much energy I put into choosing the shoes. I actually thought about just coming over in running socks.
Willy Walker: We actually got a lot of notes from people saying you’re letting me off easy if you’re actually wearing shoes. That's very nice.
Dr. Peter Linneman: I’m that kind of guy. I actually chose this morning brand new pair of shoes just for you.
Willy Walker: Sorry to everyone who's dialing in from outside because we were having a little bit of a technical difficulty here on my notes, which I usually don't reference, but when I'm going to Peter's actual notes, I've got to use that. Let's go to this. I will continue forward with my notes as it relates to what you did last year. On the cuts, you said five. We got three. On the ten-year, it was 401, you said it would be at 343 to 350.
Dr. Peter Linneman: It almost got there and then.
Willy Walker: And then it came back up.
Dr. Peter Linneman: Ran away.
Willy Walker: The one data point that I think is really interesting is JPMorgan did a research report that looked at previous Fed rate cuts and where the ten-years was 65 days after the announcement of the first cut. In seven previous Fed cuts, in five of them it was down between 30 and 50 basis points. You would have been right on given that we were at 401, it would have gone down to exactly your range. In one, it was up ten basis points. And then obviously in the most recent one, it was up 90 basis points.
Dr. Peter Linneman: And I'll save you a question. I have no idea why.
Willy Walker: Yes, you do. We're going to talk about that. You got to be able to tell us all that you do know. That was at 375. You said up 6% to 7%. I then said to them, “Come on, that's easy.” To which he said, “Look, with cuts, the market should do very well. But if I said 18%, that would be silly.” My comment to you is you should have been more silly.
Dr. Peter Linneman: Should have been silly.
Willy Walker: Crude. It was at $72, you said it was $72.29? You said $68 to $70. It was at $71, $72. You were pretty much right on that one. I then asked you not to predict the presidential election, but whether Jerome Powell would be re-nominated as Fed chair, to which you said, “No.” And I think you're looking really good on that one.
Dr. Peter Linneman: I think so. That one's a pretty much sure thing.
Willy Walker: That's great. And then the final one was GDP was 2.5? You said no change. It was at 2.8. But one of the things that you point out in the Linneman Letter this quarter is the 30 to 60 basis points of GDP growth from the war in Ukraine.
Dr. Peter Linneman: We talked about that, I think, when the Ukraine war began and people lost sight. It helped the US. It's tragic. But it helped the US in that we're the largest oil producer in the world. We're the largest gas producer in the world at this point. Both Russia and Ukraine cut off as sources. You do the math. And our exports went up substantially. Second, we're a major agricultural exporter. And you cut off Ukraine and Russia from a lot of the export market. You do the math. And the third was weapons and weapons systems. And we're the largest weapons and weapons system producer in the world. And you do the math and back of the envelope, my math comes out somewhere 20 to 60 basis points from those three added together of GDP. It's sad, but it's true.
Willy Walker: As you look forward to GDP growth under a Trump administration, you say in the letter that you're expecting sort of 30 to 60 basis points of additional GDP from a Trump presidency versus a Harris presidency, if you will, not 300. But we sit here today with what was just announced, a peace settlement in Israel, which is quite something. I was with someone last night who was supposed to have dinner with Steve Wycoff last week. He had to cancel dinner at the last moment to fly to Qatar. What my friend showed me last night was some email communication where Steve Wycoff said that he would like to meet with Netanyahu. On Saturday, the prime minister's office came back and said it is the Shabbat and the Prime Minister would be happy to meet with him after sundown, to which Steve Wycoff said, “This doesn't wait for Shabbat to end. We will meet today.” They had a meeting Saturday afternoon and got to a peace settlement today.
Dr. Peter Linneman: Amazing.
Willy Walker: It's really amazing. But with that said, if the war in Ukraine is resolved, does that take away the GDP growth you're expecting for the Trump administration?
Dr. Peter Linneman: It will not be 20, 30, 40 basis points off. It'll knock a bit off. It would be. But good news, bad news, if you will. I don't think any of us are thrilled about people being slaughtered and so forth. But yeah, it would. I think the Israel situation is less determinative from a GDP point of view. But yeah, that would be. On the other hand, you're going to get deregulation. You have bookends. You can look at pages in the Federal Register studies of major regulatory and so forth. You have the Biden years that are quite high on the one end of the book and especially the last two years. And you have the Obama years on the other end that are quite high, particularly those last two years. And then in the middle, you have the Trump years which ramp down and small businesses in particular get hammered by regulations. They don't have a position to lobby very effectively. They don't have compliance officers. Just this silly, what is it the reporting act that's I don't know, is it legal or illegal? I have no idea what they're going to do with that information and put aside whether it's legal or illegal. But my company, which is small, is not set up to comply. It's not a big deal for a big company to comply with something like that. The lower regulations will be a boost. It's not coming night and day.
Willy Walker: But one of the things that I'm concerned about there, Peter, is this. If you think about it, with the stroke of a pen, President Trump can increase tariffs. With a stroke of a pen, he can disrupt the labor markets. The efficiencies that you're talking about, the deregulatory movement takes time to get implemented. And to put numbers around that, there was a study I saw that said that the additional regulation of the Obama administration added a cost to society of over $1 trillion. It was the same with the Biden administration. And during Trump one, it was $25 billion. We're talking orders of magnitude difference between the Obama administration and the Biden administration, and the Trump administration. But that's going to take time to work through. Are you concerned about quick actions that could set us back from an economic standpoint that will get implemented in ‘25 versus the longer term implications as we run through the Trump administration?
Dr. Peter Linneman: Not terribly, because Washington doesn't do much of anything fast. And you say executive orders, but it then has to be administratively implemented. Suppose this is not going to happen. Suppose it was everybody who's here illegally we're going to deport by Tuesday after the swearing in. Do you think that could ever occur? That's going to be delayed, too, and that's never going to be done.
Willy Walker: Your fear about the job market is not that significant?
Dr. Peter Linneman: Yeah. Look, our tariffs are great things. No tax is a great thing for growth. And tariffs are another way to collect taxes and another way to change behavior.
Willy Walker: Double click on that for a second as it relates to the impact of tariffs. As you write in the letter, if Trump were to implement every tariff he has mentioned, which nobody believes is going to happen, that would take us back to 1967 level tariffs. Was that an overly burdensome tariff environment?
Dr. Peter Linneman: It wasn't viewed so at the time, just to give you an order of magnitude. I'm doing this off the top of my head. If in 1967 you bought $100 of imported goods, you paid $10 additional in tariffs. By Obama and the first two years of Trump, if you bought $100 you paid $2 in tariffs and it came down more or less smoothly over time. You paid $2. The last two years of Trump, you bought $100, you paid $3. And that was done by a big increase on China and effectively a big decrease on Vietnam and every place else pretty neutral. But it was a dollar higher per $100. Then you go to the Biden administration. Biden raised it on China, didn't change on everybody else except it further reduced on Vietnam and it stayed at $3 per hundred, just to give you where we're at. If everything you said got implemented or everything you think he may have said got in, it'd be like $10 again. We're back to 1967. The world functioned in 1967. It's not like we go spinning into outer space. I'm not saying it's great, but the world will function. Tariffs are not going to save a dying company. They're not going to save a dying industry if we're not better, cheaper, or faster. It's just a matter of time.
Willy Walker: You also talk about inflation and many people are concerned about the impact that tariffs will have on inflation. And as you point out consistently, first of all, all the Fed needs to do is get their read on housing, whether on single family housing or owner equivalent or on rental housing. You point out that if you look at the CPI data, rents between April of ‘23 and November of ‘24 went up in the CPI data 4.8%. And you would ask me, “Do I have a single Walker & Dunlop borrow watch rents go at 4.8% and there might be one in our entire portfolio.” But on average, it was between 1.5% and 2% on a national basis.
Dr. Peter Linneman: And in fact I saw that a dash on that number a year over was -0.3. It depends on the data source. The point is zero ish to slightly positive over the past year.
Willy Walker: On average across the country. Some quite negative, some excessive. The issue there is the Fed continues to get both rental housing as well as single family housing wrong. And they're both such huge components. But as it relates to if you go back to 1967 tariffs levels and you're at $10 per $100, how much does that impact the 80,000 items that make up inflation in the sense of how much of a tick up do you see coming in inflation, should we implement?
Dr. Peter Linneman: From that second order? First of all, any cost increase that happens to any company that I've ever known, the first thing you do is get out your pencil and try to sharpen up ways to improve your systems and operating. And that's what the evidence is partly on tariffs. It's that evidence is on taxes, it's on oil price increase, all those kinds of things. Some of it gets muted. Second, it is a small part of the economy. It's a great newspaper article, but we're not a huge import country. We do import stuff. We import important stuff. I'm not saying we should have these tariffs raised. It's tricky with Trump because he views tariffs as a general negotiating tool. You want to get Europe to spend more on its defenses? Has nothing to do with tariffs per se. I want you to spend more on your military. Germany, by the way, has a much higher GDP than Russia. And its defense system is essentially those of us in this room. You got a pencil or something you can throw at the Russians as they come. He also views it as an on-shoring tool. But a lot of it, he just views it as, “By the way, I don't like the drug cartels in Mexico. I'm going to put a tariff on it.” Now, by the way, let's be fair in the following sense. Let's suppose he raised tariffs on Mexico and it actually did have some impact on the drug cartels. I'm not an expert to have any idea if that would happen. That would be a good thing. That would be worth some price, if in fact, you got Europe to defend itself a bit more. That would be a good thing. But it would come at a price of the tariff. It's a little complicated because it's not just tariffs as an economic act. Its tariff is an economic act and as a tool, a broader tool to bigger social agendas.
Willy Walker: You don't think that tariffs will have a reversing effect on inflation, forcing the Fed to raise rates rather than continue cutting?
Dr. Peter Linneman: No. Think about how we saw the tariffs go up under Trump and Biden. We got no inflation from when that was raised under Trump and the inflation we got under Biden was not about the tariff. We can have a long discussion about what it was. But did you ever hear anyone in all the discussions you had about inflation with all the people you've had discussions with say, “The increase in inflation under Biden was due to his keeping the tariffs high?” Nobody said that.
Willy Walker: Not at all. But I would say it feels like everybody is a Monday morning quarterback on Fed policy and on rates and on inflation. Look at this morning. CPI comes out. It's up ten basis points month over month. You sent me a chart that talked and I want you to dive into that. But the point is that immediately stock markets up, and the bond market rallies. We got a 2.5% pickup in the ten-year where it dropped by 15 basis points this morning. And you sit there and say, “This market is hyper-focused on these minor ticks in the inflation print that I think going back to an old mindset is a little difficult given how keyed into these issues the market is.”
Dr. Peter Linneman: We have too high of attention to things that don't matter. Probably in life that's probably true. If you're running the Fed, should you really be focused on last month as opposed to the broad picture? Where are we at? Where is it heading? Obviously, last month is a piece of the puzzle, but it's hardly the puzzle. It's a tiny piece of the puzzle. I think the bond market, and it's odd if the Fed is going to be focused like that, then I guess the bond market has to be focused in the sense of now it becomes like old criminology, where you're trying to interpret every comma or every Fed move. Now, by the way, over the next week, we have all the Fed presidents going to speak. And this is like the old Soviet Union. What are they really saying? You're trying to read every little head faint and it could be they coughed. It may not have meant anything.
Willy Walker: I hope it's more than that. Think about this, in the letter you say, you have rates coming down and cap rates coming down and you say a 570 cap rate today is going to be a five cap rate in 12 to 24 months.
Dr. Peter Linneman: Money will flow.
Willy Walker: There are a lot of people who sit there and want to understand that one.
Dr. Peter Linneman: Okay. Everybody does. And by the way, I was part of everybody. A couple of you who are supposedly trained by me back in the day, and I was part of everybody saying, “Marginal bidders, weighted cost of capital.”
Willy Walker: I will tell you one thing, just as an aside on that, I get a lot of people who come up to me as I travel across the country and say, “I work with Walker & Dunlop and this person at Walker & Dunlop is great or whatever else.” The number two thing that people walk up to me and say across the country is I studied under Peter Linneman at Wharton. It's ridiculous how many people come up to you.
Dr. Peter Linneman: They use it as an excuse for doing that.
Willy Walker: They don't. It's actually a very impressive group of people. But anyway, as you say, a number of people supposedly studied under you. There are a lot.
Dr. Peter Linneman: No, I'm very blessed. As an aside, you were saying before how it's such a joy to watch customers of yours grow over the years. And so you can imagine the joy of seeing former students of mine. People say, “Are you proud that they got good grades?” I don't give a damn if they got good grades. Did they learn and have they grown wonderfully and been good people and good contributors?
Willy Walker: We were on rates and a cap rate cap from 570 down to 5.
Dr. Peter Linneman: Here's the thing. Suppose the interest rate fell to zero. You say, “Yay. Cap rates should be through the floor.” Not if no one lends to you. Your cost of capital did not fall if no one lends to you. And if you look back in history which I did, the periods of super low interest rates, no one would lend to you. At the least opportune moment you had to move from relatively cheap debt to loads of equity at a time when equity was demanding a premium and cap rates went up. Then there was the reverse of that where people needed to get in. They didn't care what the interest rate was like 2007 was 5% plus for both the long and the short rate. And yet you had all those record transactions in 2007 because people had to get in and the money needed to get in. And people were lending more than they did. The cost of capital went down. And if you believed in enough growth, I've been through this. I've written about it. And more than that, I actually looked at the data and the data shows that basically for all these small moves, it does nothing to cap rates and small moves dominate the data. Empirically, 10 points here, 20 points there, 30 points here, 10 points there. They dominate the data and no one would say cap rates move with those. Then you're only left with the big movements and the big movements tend to be, “I got to be in or I got to be out.” And that's the flow of funds. And flow of funds dominates. The best analogy I've come up with is to imagine that this is the seabed and this is the height of the water. Neutral. And we said, “Okay.” The seabed has some determination on the height to the top of the water. You can have sediment building up. The seabed rises and so you wouldn't have as much water below it, above it. And or it could get eroded and you'd have more water above it. Interest rates are like the seabed and we get it gets a little higher, a little lower affects how much water is on top of it. But what really determines the amount of water on top of that at a moment in time is tide swamp, movements in the base. Everybody would agree with that. Winds blowing the water not from here, but up to here. Rains temporarily move it. You can think about the flows of capital. I got to get in. I got out. And they bring both debt and equity, but especially debt. That's the wind. That's the rain. That's the tides. And you can think about the interest rates. They're down there. They're changing the seabed. But it's trivial how much it's changing. It's not like it doesn't matter at all. It just matters too. Have you ever seen anybody come in and say, “Since the interest rate is seven basis points higher, I'm going to change my cap rate by seven basis points.” You never see that .
Willy Walker: Never seen that. I have seen people say, “I'm not going to do my deal now the interest rates have moved by seven basis points.”
Dr. Peter Linneman: But that's rare.
Willy Walker: It's rare. It's moved to a certain level where it got seven basis above where they were at a break in.
Dr. Peter Linneman: Why I say the cap rates come down, it's real simple. I don't think the bottom is going to change much. I don't think the neutral level is going to change much. But what do I believe? I believe instead of being at a low tide, we're going to be at a high tide. And how do I know we're at a low tide for the last two years and it's lasted longer than I thought? I’ll be the first to say.
Willy Walker: So low.
Dr. Peter Linneman: I have more complicated ways, but I’ll give you the simple way: transaction volume. You're in the transaction volume business. You want a crude proxy for whether it's low tide or high tide? If transaction volumes are below historic norms, you’re low tide. If transaction volumes are above historic norms, you're on high tide in terms of capital flows. It depends on what month and what product. And in multifamily, what 60%, 70% of normal transaction volumes, that's a pretty low tide.
Willy Walker: For two years.
Dr. Peter Linneman: For two years. And tides don't stay out forever. We know that there's money out there and the tides will flow.
Willy Walker: One of the things that you point that to Peter and your analogy of the sea, I want to get back to because I want to talk about the environment in the fires in California and how that's going to impact the housing market. It was a perfect segue, but I'm going to stay on this for a second. As you sit there and think about what you're talking about there on inflationary inputs on rates, another thing that you say in the letter is that people can continue to do deals with negative leverage for a long period of time. Explain that.
Dr. Peter Linneman: Growth. I don't know how to say it. Growth, right?
Willy Walker: If you think about Q3 2024, you had cap rates that had trailed interest rates up.
Dr. Peter Linneman: Up? Yup.
Willy Walker: Not because of interest rates, but because of capital flows. Same deal. They get up all of a sudden in Q3 of 2024. Boom. Cap rates have adjusted up. Rates come down and everyone says, “I've got positive leverage back in my deals again and bang, we get this big flood of deal flow.” Refinancing activity kicks up, sales kick up. And then all of a sudden, boom, we get what happened to the ten-year. The ten-year starts to move out, and all of a sudden, everyone's either at even leverage or they're at negative leverage once again. And for the last quarter, buyer after buyer who works with us has sat there and said, “I had positive leverage; today I'm in negative leverage territory. I can't make my numbers work.”
Dr. Peter Linneman: And that's because sellers are saying, “I'm not going to sell at the prices that make it work. I'm going to buy my own property back from myself.” Do the following intellectual exercise.
Willy Walker: Do you think that is a decision to not sell at that price because they see future growth or they just don't like the aggregate price today?
Dr. Peter Linneman: Two things, they see future growth and they agree with me de facto, that the tide is going to come in.
Willy Walker: I don't see that happening.
Dr. Peter Linneman: You think we say the below abnormal transaction.
Willy Walker: What I don't see them doing is going in saying “I'm gonna now adjust my future rent growth to say that this asset is worth more tomorrow than it is today. Therefore, I'm not selling.” In other words, it seems like there's a binary decision that says, “I wanted to get 75 million for this asset.” Right now the BOB is coming back at 72. I'll hold it, but they don't seem to be going down and then rerunning their growth scenario of saying, “Now it's a hold because over the next three…” It all has to do with the duration I think is my issue.
Dr. Peter Linneman: And the cap rate. Would you have been a smart seller in 1991, ‘92, ‘93? No. Why? Because the capital market came back. Would you have been a smart seller right after 911? No, because the capital market came back. Would you have been a smart seller in 2009, ‘10, ‘11? No. Why? Because growth occurred, but also the capital market came back. And I think you're looking at the same thing today, which is growth will occur and the capital market will come back. Can I guarantee when it comes back? No, but I can guarantee it will come back.
Willy Walker: Okay.
Dr. Peter Linneman: If I'm not forced to sell, or I'm not in this state where I just want grandma's money, or I'm not squeezed out. I'm going to hang on and see it through. I'm cash-flowing. Most of the people locked in a pretty good interest rate, but not everybody. But most of the non-sellers, you have to admit, are locked in at a pretty good interest rate. Why would I give up that cash flow? I think capital comes back.
Willy Walker: One of the big questions that we have as it relates to transaction volumes for 2025 is the amount of commercial real estate debt that matured in ‘23, that was kicked at ‘24, and the amount of commercial real estate debt that matured in ‘24 and has been kicked to ‘25. It's going to be somewhere between $250 to $350 billion of commercial real estate debt that moved each one of those years. Now it's all kind of piled up into 2025. And if you add it all up, I think the Mortgage Bankers Association is going to come out with some projection that says, “Over $900 billion of commercial real estate debt has a maturity date of 2025.” Now, we could be back to ‘24, where another 300 to 400 billion gets kicked to ‘26. But as you look at the banks, bank earnings came out this morning. Wells Fargo and JPMorgan crushed it. Very interestingly, commercial real estate, which was mentioned heavily in past earnings for the last two years, was not mentioned by either of them. And their adds, their CSOR reserves was a couple of basis points, but very little adds to their commercial real estate exposure and their CSOR reserves. Do you think we've bottomed, Point A, as it relates to credit? And then Point B, do you think banks start to call those loans and get liquidity into the market, or do you think they continue to extend and pretend?
Dr. Peter Linneman: I think anything that's in trouble with a good borrower, I foreclose. I go through all the brain damage of foreclosing. By the way, the property will get operated worse in the intervening time. Seven months later, I sold it to an operator just as good. Why, as opposed to extending? Those loans they say are due this year? They're not. They’re due when the property functions.
Willy Walker: And is that an office specific comment or do you take that more broadly?
Dr. Peter Linneman: I think it more broadly, but it's largely an office-specific issue. People are coming back to the office. There was a piece in the Journal today on it. They aren't back. I've been saying since day one that they'll come back. They are slower than I thought.
Willy Walker: Does Trump call them back next week?
Dr. Peter Linneman: I don't know if he does it next week, but I wouldn’t think it's more than a couple of weeks until government workers get called back.
Willy Walker: And you're bullish on D.C. because of that?
Dr. Peter Linneman: Bullish is a little strong. I'm sort of not bearish like everybody else.
Willy Walker: I think I'm right.
Dr. Peter Linneman: And I would say you're right.
Willy Walker: You're right.
Dr. Peter Linneman: It'll be a surprise on the upside.
Willy Walker: Specifically, I asked you about offices which you are backing off of, but you’re bullish on the D.C. metro region from a commercial real estate standpoint?
Dr. Peter Linneman: Yeah. Why? It grows no matter who's in office.
Willy Walker: Even with DOGE?
Dr. Peter Linneman: Look, you can't get rid of enough people.
Willy Walker: Talk about that for a moment because you and I got a lot of questions on that before doing this.
Dr. Peter Linneman: I'm going to do this really fast. Do they probably have more people than necessary to process interest payments on federal debt? Sure. Anybody doubt that? They have more people than necessary to process federal debt payments. Not that many people involved. How about floating U.S. government debt? Do they have more than necessary? Probably.
Willy Walker: Actually, the Treasury Department has a pretty thin on that stuff.
Dr. Peter Linneman: I'm saying I'm taking that just technically. Are we going to get rid of the military? We're going to fire one out of every ten people in the Department of Defense. By the way, we probably have 10% more in the Department of Defense than we need. But really, I don't think that's going to happen. You go through it and, “Okay, we'll get rid of the ladies room attendant in the Capitol building or something.” The big part of the budget is transfer payments. Do we have too many people handling transfer payments? Of course, we have too many people handling transfer payments. Let's get rid of one-third of them. It's not a lot of money compared to. I suspect that DOGE will put pressure on processes, military and other processes. I think the biggest thing they could do is put pressure on Congress to care about how they spend money, which they haven't done for decades.
Willy Walker: The continuing resolution wasn't exactly getting rid of a lot of pork. In other words, there was a lot of pushback on that. And we also have the debt ceiling coming up right now. Do you think that DOGE plays into getting the debt ceiling handles? Trump didn't want the debt ceiling. He wanted that taken care of before he got into office.
Dr. Peter Linneman: Of course, why does he want to use political capital on his watch? This whole debt ceiling, you understand, is a farce. Because everybody knows every government employee is going to get paid. I don’t know if they'll get paid on the day. Everybody knows every holder of US debt is going to get paid. Anybody doubt that? Everybody knows every employee of the government is going to get paid. Everybody knows every Social Security person is going to be paid. Everybody knows every Medicare bill is going to get paid. Just go through the list. Every soldier's going to get paid. Every missile that's been purchased is going to get paid. All of it is theater. And it's intentional theater. Because every time that theater occurs, it's a chance to horse swap between the Democrats and Republicans. If we had no debt ceiling or we had a debt ceiling that we would never get rid of, take your pick. If we had an absolute, inviolable debt ceiling, that would achieve something. If we had no debt ceiling but what we have is a theatrical excuse to horse trade. That's all we have. And you know that because every time it suddenly resolves. It goes from the world's going to end. It's like Y2K. You're young to know why it's going to end the world. And then the 2nd of January came and everything's still here. And that's how these debt ceilings are. But everything isn't still here. Behind the scenes this bulls*** program got approved in my district, and that nonsense program got approved in my district. Or it may not have been a spending program. It may have been that my social belief got backed. Milton Friedman was the one who originally proposed the idea, or at least in modern times originally proposed it, and he viewed it as hard stop.
Willy Walker: Hard stop.
Dr. Peter Linneman: Once that's not true, it simply becomes a tool to do whatever the hell they want negotiating without us understanding we're getting screwed. Was that too subtle?
Willy Walker: Exactly. I want to run through just quickly on DOGE that I want to go to debt and the interest payments on the debt and whether that's becoming concerning to you because you continue to say it's not. But before I get to that, just quickly on DOGE, one of things you were talking about was federal employees versus state and local employees. There are 3 million federal employees in the United States. Many people think it's a much bigger number. They're 19 million state and local employees. The real part of the government workforce is at the state and local level, not at the federal level. There's only a certain amount of cutting and federal payroll as a percentage of employment in the United States is at an 85-year low as a percentage of total employment. As they sit there and talk about these big cuts to the workforce, there's only, as you accurately say, so much cutting to be done. Quick question to you on that and then I want to go into debt is if the goal at first was 2 trillion and then Musk came out last week and said, “I think 1 trillion would be magnificent.” What do you think the actual amount that they cut will be?
Dr. Peter Linneman: For real? For a headline?
Willy Walker: No.
Dr. Peter Linneman: They're gonna come out for the headline.
Willy Walker: What's you gonna put in X?
Dr. Peter Linneman: They're going to come out with a headline just like always happens in politics of whatever number they've already announced. And it will be based on speculation and what might have occurred. And over five years. They're going to come out with for real of several hundred.
Willy Walker: Million dollars.
Dr. Peter Linneman: Yeah. They're going to come up with real money. But more importantly, if you asked me, the important thing of DOGE is this is what the Office of Management Budget was created to do originally. OMB was created in ‘70 to be the hammer that looks over every department and says, “You got to be kidding me. You didn't put that out for bid and so forth and so on,” and they aren't doing that or not as well as they might. This is essentially a reset that says, “Okay, we're going to look at everybody and they're going to find some.” If they came to your company, you know they'd find something. They'd find inefficiencies at Walker & Dunlop; they'd find it at my little company and so forth. They're going to find and they're going to make big headlines on the worst. They're going to find some really crazy stuff. William Proxmire, I think, was the senator who used to put out such a thing to embarrass. And the only difference is they're going to put it out in a bigger package than Proxmire used to do. Because I'm sure there are wasteful, horrible things. And that's why I think the real thing will be a bit of a reset on Congress and administration. “I don't want to be outed. I don't want my department to make an effort. I don't want to be in The Wall Street Journal in that way.” And I think that will last about three years.
Willy Walker: Debt expense. You have a great analysis in the letter that talks about taking GDP and doing the PV of GDP, which gets you to some type of value for the US economy between $400 and $600 trillion.
Dr. Peter Linneman: I've come up with what because Musk is so much in the news. I think I've come up with the simplest analogy for why our outstanding federal debt and deficits have no notable impact on interest rates, which by the way, is what all the empirical studies show for the United States. You can imagine a lot of PhDs have studied that. No shortage of studies on the impact of debt, deficits, and outstanding federal debt on interest rates. In fact, two people at the Fed put out a meta study. And they found that essentially if you raise by, I'm doing this from memory, 500 basis points, five percentage points, that's a pretty hefty deficit increase. It has something like seven basis points or ten basis points on the long term rate, which is to say you couldn't tell.
Willy Walker: Everything that's going on.
Dr. Peter Linneman: So here's what…
Willy Walker: Is it always due to what?
Dr. Peter Linneman: Let me just finish first. Think of Elon Musk, who we think is a pretty rich person. Imagine Elon Musk came to you and said, “Willy, I want to take out a mortgage on an apartment complex I'm buying and I want 10% loan to value.” And you'd say, “Great, I'm lining this great loan up. It's the cheapest loan available. It's there.” And let's assume it's easily refinanced. Put aside the refinance cost and then it comes back a year later. And by the way, it's not just the loan on the property. He goes full recourse to get the lowest possible interest rate you can get. He's full recourse on it as well as the property. And now he comes back to you and says, “Willy, it's a 10% LTV. I'd like to go to 12% LTV. But I'm willing to stay on full recourse. It's a $20 to $22 million loan and you have the property and me as full recourse.” You think you get a different interest rate quote? Not really. Let's say he comes back and says, “Willy, I'd like it now to go up to a 20% loan to value. So instead of being a $20 million loan, it’s a $22 million loan and you have full recourse to me.” You think the interest rate changes? By the way, he goes to a 90% LTV on his little property. Now it's a $200 million loan or whatever the math is, and he's full recourse. Do you think it changes his interest rate? No. That's the United States. We're really rich and it's not backed by our tax revenues. It's backed by recourse to the full faith and confidence of U.S. taxpayers. And the world knows that. Capital markets know that or at least should know that. And that's why when you look at the empirical studies, you don't find any real impact. Would you find a real impact on the interest rate and the LTV and the interest rate on Elon Musk? No. Would you find it on a young entrepreneur who has no wealth and they do full recourse? But that's bulls***, of course. And as you raise the debt level there, you'd see the interest rate go up and eventually somebody would say, “No.” We are Elon Musk.” Zimbabwe is…
Willy Walker: The young entrepreneur.
Dr. Peter Linneman: They are the young entrepreneurs. Of course, Angola and so forth…
Willy Walker: That makes no sense about what's happened to rates then, Peter, because everyone's been sitting there saying…
Dr. Peter Linneman: By the way, you guys saw me, did I not say earlier that I have no idea why?
Willy Walker: But everyone's sitting there saying, “Okay, it's tariffs.” And we've talked about the fact that it's not tariffs. We've talked about how the US debt has gotten out of control and everyone's concerned whether we're going to be able to continue to service it. And you've just put real numbers to it that say, “It's nothing, it's a rounding error. This is not something for us…” And by the way, one of the things to keep in mind on this, and Peter has this data in the letter, back in 1984, the US was paying about 3% of GDP on debt service. Since that time to the current time, it went down to about 2% on an annual basis. It is now moving its way back to 3%. Everyone hears these big numbers and you actually put the aggregate number and it says, “Our debt payments have gone up by like $80 billion a quarter.” And everyone sits there and goes, “Oh, s***, that's a ton of money. “
Dr. Peter Linneman: If we could have afforded 3% in ‘84 and we're much richer than we were in ’84, of course we could afford it. Here's the debt problem for the United States, very different for other countries, by the way. That evidence I told you about the Fed meta study was about U.S. data. The real problem is politics, not economics. Imagine Elon Musk had two kids.
Willy Walker: They don’t wanna pay it.
Dr. Peter Linneman: Split it. And he said, “Now who's responsible?” And the kids are going to point at each other. The problem is, let's start out with I'm not going to pay any of it because I'm 73 and my wife, even though she's far younger, she's not going to pay any of it because she's married to a 73-year-old guy. And by the way, you're not going to pay for it because you're still in school. And by the way, you're not going to pay for it because you're doing research on nuclear energy, and you're not going to pay for it. None of us want to pay for it. It's not that we don't have the resources; it's that none of us want to pay for it. The income tax is the primary source of tax revenue for the United States. There are other sources. That's the primary. 0% of tax filers paid a net zero income tax in 2022. That's up from about 48%.
Willy Walker: Why is that up so much since pre-pandemic?
Dr. Peter Linneman: I'm not sure.
Willy Walker: Was an interesting stat you had.
Dr. Peter Linneman: I don't know the answer. It went from about 48%. I remember that it's been trending up over time because both parties figured out that the winning scenario is to chip away and make the zero tax. By the way, they get withheld if they're working and then they get it back.
Willy Walker: But there are also payroll taxes and all that. Your point there is that we have a very progressive tax code and that the burden at the very high end is extremely… You have a very interesting ratio in there of the income to tax proportion where you have the top 1%, is it 80% income to tax proportion. The next 2% to 5% is at 125%. And then below that, if you're in the low half of the distribution, it's actually 2.6%.
Dr. Peter Linneman: Let me take an example, a really simple example. I'm not saying this program should disappear or not. That's not the point I'm saying. You talk about what do we do? I don't want to pay for it. I don't. When I was a kid, which granted was a long time ago and maybe the longest time ago in the room in that regard, everybody paid for their kids' lunches and breakfasts. And we were poorer then than we are today, demonstrably poorer. Today, what was the number I had? Something like 52% or something of lunches are paid for by the government and something like 30% of breakfast is. Now, I'm not saying that program should be killed or not killed, but if we could pay for our children's breakfasts, then it's hard to believe we can't pay for our children's breakfasts today. But we choose to have the government pay for it.
Willy Walker: I want to jump in on that. And I want to shift topics here for a second, because as always, you and I run out of time on talking about all the things that I want to talk about.
Dr. Peter Linneman: We haven’t done inflation and the number came out today.
Willy Walker: I know. I want to talk about the fires and the impact that they're going to have on insurance costs, because in the letter, you not once but twice essentially say we should not be concerned about global warming and increased temperatures and that we've had hurricanes in Florida for centuries. And Florida's population, you actually give some really interesting stats where the population of Tampa Bay in 1950 was 400,000 people. And I was there on Sunday watching the Washington Commanders beat the Tampa Bay Buccaneers, and it's now over 3.5 million people in Tampa Bay. You talk about Miami having a population of over 6 million people. And it was only 460,000 people in 1950. You talk about the fact that in Las Vegas and in Phoenix, nobody lived in those markets back in 1950. Today, there are millions of people who live there.
Dr. Peter Linneman: And visit.
Willy Walker: You basically say, “When trees fall in those markets, we now hear them because people actually live there. But if our grandkids can't deal with a couple extra degrees of Fahrenheit, they're wimps.” It is essentially my reading of that.
Dr. Peter Linneman: You're oversimplifying. By the way, just give you a sense, how much you care about Lima, Ohio? If a storm is happening right now in Lima, Ohio, how many of you care? Not many. Lima, Ohio, had what was it, 50,000 more people than Las Vegas when I'm born. These things change. Now, here's the thing. How many of you had a hard time dealing with the fact the temperature got two degrees warmer as you walked here this morning versus 9:00 o’clock? You're dealt with that. And if you have a real hard time, you move down to Washington or whatever and so forth.
Willy Walker: But there's a cost to all this.
Dr. Peter Linneman: Of course, there’s a cost. But there's been, of course, through all of history, adjusting. Here's the thing, though. And I said to somebody, the reason I put that in, I was talking to somebody my age two months ago and they were saying, “Oh, I don't know how.” And I said to them, “Is your granddaughter smart?” They said, “She's brilliant. She's got 3.3 from Harvard.” I didn't have the heart to tell him that 3.8 is the median GPA. But be that as it may. I said, “If you believe your granddaughter is smart, you don't think they can solve these problems to a degree or two?”
Willy Walker: Hang on a second. Here are the numbers, though, and this is what's concerning me. The Palisades fire as of Saturday was predicted to cost $50 billion dollars of losses worth at that time, $20 billion of insured losses. That number of $20 billion has been revised to $30 billion was the number that I picked up today. $30 billion of insured losses as a reference point to that. Hurricane Andrew in 2002 had $103 billion of insured losses. The Palisades fires right now, high end estimate of insured losses of $30 billion. But the frequency of these fires and these hurricanes is picking up. Global climate losses, 2024 globally, $148 billion of global climate losses to insurers in 2024, which is up from an average over the previous ten years. Inflation adjusted from $92 billion to $142 billion over a ten-year period on average to last year. People sit there and say, “Can you rebuild a house in Palisades and get insurance for it? Can you build in southern Florida and get insurance?” And what does that do to the cost of living in those markets for both renters as well as homeowners?
Dr. Peter Linneman: First of all, I encourage everyone to not read the IPCC studies on climate. Just look at their tables. You don't read the narrative. Look at the tables and what you'll see is hurricanes and all this and all that and storms, wind, and rain. And they're volatile and they have long been. Just look at their charts. Don't trust me. Just look at their charts. Don't read the narrative. Look at their chart. That's one thing. Second is there are probably some places we shouldn't be living. We don't live in the far reaches of northern Alaska because at least with current technologies, it's not viable. Now, the problem that's occurred is that nature is more powerful than us. Kelly and I used to dive on the southern shore of Cayman Island. They had these beautiful elkhorn corals and so forth. Ivan came along; now they’re gone. And you gave them seven years. They were back. That was that particular thing. But nature is much more. I couldn't have done that much damage if I had hand grenades. I couldn't have done it. But when you move in to where nature says, “This has not been a place where a lot of people historically have wanted to live. You have to adjust.” Building codes in Florida---that's a human adjustment. We don't build those little shacks like they used to be. We don't have houses like Haiti because if we had houses like Haiti and we tried it, it would be a disaster. If we're going to go in harm's way, we all do, you've got to adjust and you've got to commit the resources. There's a benefit to going in harm's way, but there's a cost of going in harm's way. If you only take the benefit and say, “Eventually the cost will occur and I'll deal with it when it occurs,” it will occur. Milton Friedman used to say, “The odd thing about 1 in 1,000,000 events…”.
Willy Walker: “Is they happen. “
Dr. Peter Linneman: They happen about once every 1 million times, and they do. I'm not trying to be cruel. If you're going to get the benefit of these places, you've got to take…take, for example, we just had on a happier note, we had this storm in Atlanta and Carolinas and Texas, and they were crippled by two inches of snow. Sun Valley gets two inches of snow in a half an hour and everybody's going, “Thank God it wasn't a big snow.” Why? Because Sun Valley is prepared for really serious snow. Anybody who's been there, they're prepared for it. They went in harm's way, so to speak, and adjusted. That's the game and adjusting costs. And the question is, “Is the benefit of going in harm's way worth the cost?” And that's everybody's individual decision. And I'm not saying it's an easy decision. The losses are horrific. I'm not trying to minimize the losses. The losses are up because more and more of us have decided to go in harm's way. We could never have had that number of damages from a hurricane when I'm born because there wasn't that much economics in harm's way.
Willy Walker: Got it. We’re tight on time. I want to do a couple of quick things. First, I want to just jump through the asset classes, as we always do. And then I want to get to your predictions for 2025.
Dr. Peter Linneman: That's what I was filibustering about.
Willy Walker: Here you go. Exactly. On asset classes, the read I get is pretty positive across the board. I looked at the absorption numbers and the vacancy numbers in this letter and pretty much every single one of the asset classes you have, if you will, net absorption and tightening. You go market by market. And there's an outlier where you think that retail in Houston gets worse. And generally speaking, Houston gets better. On the multifamily side, you seem very positive on the undersupply that's coming up in ‘26 and ‘27. And therefore, you like that play. A quick one on that, you talk about the population will grow 10 million people in the United States over the next five years. And then you do a 2 to 1 ratio on single family to multifamily to get to what the supply demand is going to be. My question to you is, anything that would change that calculus in the sense of you've been using 2 to 1 for a while, is there anything right now, given the cost of single family housing, that would have you change that calculus?
Dr. Peter Linneman: The 2 to 1 is not perfect, but it's pretty…
Willy Walker: It's been historically accurate.
Dr. Peter Linneman: Remarkable historically. Obviously, this prolonged shortage of single-family housing, which is pushing up the prices of single-family housing at the margin, is going to push people. It does not push people very much. It forestalled them a little bit. Tokyo prices and London prices and New York are crazy, but people figure out a way to do it. So will the people in Toledo or wherever figure out a way to do it. There's a lot of money to do it with. People have basically figured, “I want to own a home.” Every survey I've seen all show there's this narrative that young people today, they don't want to own things. They don't want to have possessions. Guess what? The surveys show they want cars and they want to own them and they want homes and they want to own them. It's a nice little narrative, but it doesn't hold up. The surveys tend to show that. I don't see it changing big at the margin. Remember when people said " Oh, interest rates are up, home prices are going to plummet?” And I said, “Maybe for a quarter or so, but not for sure because you have this huge shortage.”
Willy Walker: Right.
Dr. Peter Linneman: And that's what's driving the home prices, not the interest rates. If we didn't have a shortage, interest rates might react. I feel good about most sectors because the supply spurt is over. Not 100% over, but the supply spurt is over. Recoveries tend to last 6 to 8 years and we finished the third year. And when you look more fundamentally, I come out the same way. Not a lot of canaries died. I think growth continues.
Willy Walker: Only three canaries on bad Fed policy.
Dr. Peter Linneman: And only because I'm nice to the Fed.
Willy Walker: We're going to have to see a canary at some point.
Dr. Peter Linneman: Of course.
Willy Walker: At some point.
Dr. Peter Linneman: But we just don't have it. By the way, are we seeing excessive lending on real estate?
Willy Walker: No, we're not seeing it.
Dr. Peter Linneman: Lots of speculation?
Willy Walker: You aren't. That’s it.
Dr. Peter Linneman: You go through this kind of stuff.
Willy Walker: Although asset values across everything are at such incredible heights, the US equity market today is 70% of global value. In 2007, it was 42%. In Europe it was 38%.
Dr. Peter Linneman: Because they went to hell.
Willy Walker: Today, I know Europe's gone to hell.
Dr. Peter Linneman: They've gone to hell.
Willy Walker: But our market is seven companies and then a bunch of little fries like me.
Dr. Peter Linneman: The most interesting thing about this last Linneman Letter was the 25 year look back. It was fun. I remember 25 years ago everybody's saying the stock market was overvalued. And I can't remember the number of years ahead, but it did pretty well since then. Is that a fair statement? And it did it like this. It did the same on property values except for office. By the way, those were real terms I did on the property categories. They all did better than inflation except for office.
Willy Walker: You got a deal across all the five major food groups. Obviously it's location-specific, it's asset-specific, it's what you're buying in from a basic standpoint, all that kind of stuff. But you're just sitting there right now and you say, “Look, I could invest in any one of the five major food groups.” Which food group do you really like right now?
Dr. Peter Linneman: If it was stay rich money, I would do multifamily. Everybody gets what I mean when I say “stay rich money.”
Willy Walker: And if it was to get rich money?
Dr. Peter Linneman: I probably would do office. As a broad statement, I wouldn’t do any office building. But I would do office and I think it has NOI problem and it has capital that doesn't want to be there problems. I think the NOI problems on some properties will resolve with time. And I think capital will come back maybe not to where it was, but will come back to properties. Not all of them, but much as it did in retail. It didn't come back.
Willy Walker: But retail sales have been so strong.
Dr. Peter Linneman: But it came back remarkably to the stronger retail properties. If I had get rich money, I would probably do office.,
Willy Walker: Where's your poor money going?
Dr. Peter Linneman: Where's my poor money? If I really had to say, it would be data centers. It's a very funny thing. You've done it. You can quantify this mechanical demand for it.
Willy Walker: The JPMorgan number that I read in a research report last week, Peter, was that the computing power that we have built in data centers in America today already by the hyperscalers can power 1,300 ChatGPTs, when there are seven of them.
Dr. Peter Linneman: You can get real excited about data centers. The problem is this industry and capital as well tends to fall in love with stuff. And there's a beautiful scene in Godfather II where Michael Corleone wants Hyman Roth killed. Tom Hagan says, “Michael, you can't kill him. He's under FBI protection and so forth.” And he says, “If history has taught us anything, anybody can be killed.” Famous line. If history has taught me anything, no matter how good the fundamentals are, it can be overbuilt. We have that skill. That's an interesting comment. If we can overbuild stuff, even when there's massive demand, we can figure out 1 or 2 degrees.
Willy Walker: I like that. Stay rich, multi; get rich, offices; get poor, data centers. The prediction right now is three Fed rate cuts in 2025. You over or under?
Dr. Peter Linneman: I'm going to do it a little differently because I was always building in 25 BPs. I'm going to do it in BPs. Fair enough? I will say you're going to be at least 100 this year. And it's very simple. From when the interest rate was at 5.5%, inflation has fallen like 5% and 6% and the interest rate has fallen 100 BPs. That's simple. You can make it more complicated and it is more complicated. But I'm just trying to give you the essential.
Willy Walker: It's 100 BPs and you have to say whether it's in 3 or 4, it's 100 BPs.
Dr. Peter Linneman: 100 BPs
Willy Walker: GDP, Ukraine gets resolved. That's going to take 30 to 60 basis points out. Trump comes in, you're adding 30 to 60, are you saying 2.7 or 2.5?
Dr. Peter Linneman: 2.7, 2.5, something in that range.
Willy Walker: But Trump comes in. Ukraine doesn't get resolved.
Dr. Peter Linneman: A little bit higher, 2.9,2.8, something like that.
Willy Walker: Good. You want to go Dow or S&P, because I asked you Dow last year. And by the way, I asked you last year on the Dow, you obviously said to me, “Look, if I wanted to get crazy, I'd go to 18.” The Dow was actually only up 13% last year versus the S&P, which was up 26%. You want to go S&P or you want to go Dow?
Dr. Peter Linneman: I want to go to S & P. And the only problem with S&P is it doesn't pick up a certain company, but it's broader. That's the point.
Willy Walker: It's tech-heavy.
Dr. Peter Linneman: But that's because the pool is tech-heavy. I would guess in the range of 7% to 9%.
Willy Walker: Crude. We have a new incoming president who says drill, drill, drill. And crude oil prices are at 76 bucks a barrel today. That makes no sense to me. But that goes back to your Russia thing and all that. And we didn't have time to really dive into that. But the bottom line is Ukraine gets resolved, that oil comes back onto the market. The U.S. is drilling more, as you said, at the top than we've ever drilled. That's got to come down.
Dr. Peter Linneman: 70, 68, something.
Willy Walker: Not more material on that?
Dr. Peter Linneman: Not that fast, because you can't put the oil on the market quite that fast on the net drilling. You can extract a little faster, though, from what's there.
Willy Walker: And then my final question is, how long does Elon Musk remain Donald Trump's bestie?
Dr. Peter Linneman: Wow. I thought you were going to ask me, “Have you seen ‘Man on the Inside’ with Ted Danson?” I've gotten 100 emails and calls and WhatsApp saying, “Are you in that or is that Ted Danson?” Look, neither one of them has a history of keeping besties for a long, long time.
Willy Walker: Is it six months or a year?
Dr. Peter Linneman: Something like that. It's a marriage of convenience, and it doesn't mean they become mortal enemies, although that's not an out of the money bet.
Willy Walker: It's a rosy outlook.
Dr. Peter Linneman: People want bad news and obviously California is bad news.
Willy Walker: I know we've run over, but one of the things that you and I have talked about previously and that you talk about it in this letter, is that the Consumer Confidence Index has a historic average since 1960, which you put in there, of 95. And in the best days of Joe Biden's presidency, he's still in there. It's now gotten to 111. But when the economy was going well, it got to 102.
Dr. Peter Linneman: Some numbers.
Willy Walker: During Trump one, it was between 120 and 136 the entire time he was in office. For good and for bad.
Dr. Peter Linneman: Yes, but that was only because he was the only person answering the question.
Willy Walker: No, but I find it to be really interesting to your point. Consumer confidence with Trump in the White House has been, of all the economic indicators, off the charts.
Dr. Peter Linneman: Small business confidence leaped. Both times he was elected, the month he was elected, small business confidence spiked. That was the overwhelming spike that occurred with small businesses in the first month of the election month--the data that came out for that November. Look, one other thing I'd say, there is a bizarre chance that what is horrifically happening in California net-net may actually be good for the state. I don't know how it avoids triggering a lot of “what the hell happened?” And in that process, yes, nature is hugely responsible and maybe even arsonists. But there's going to be varying degrees of "they could have, they should have, they might have." I'm not an expert on it. That could trigger things. It's like San Francisco got so bad that they actually started. I remember when New York City was a true cesspool where the poster child for New York City in the mid ‘70s was Death Wish and a movie called Little Murders, where you had 42 locks on the door. And then that era triggered some net movement. Cleveland, I remember the Cuyahoga River burning as I went as a freshman in college that triggered the Al Ratners of the world and it didn't make Cleveland Nirvana. But those guys got together. Those people got together and improved the vitality of Cleveland. It didn't happen overnight. And there is a chance that this is a sad way to get some movement toward reality.
Willy Walker: On that, first of all, reiterating our thoughts with all the people who are suffering from the fires. Thank you to everyone who took the time to come and join us today here in Philadelphia. It's great to have the live audience and have all of you here. Peter, as always, 25 years strong. Keep going with the Linneman Letter.
Dr. Peter Linneman: I'll be 98 when we hit 50.
Willy Walker: That's awesome. Keep doing it. I have no doubt you will. And hopefully we'll still be doing a Walker Webcast. I will say I had Mohamed El-Erian last week, and we have had 405,000 views of that webcast in the last week or so. We have raised a whole new bar for you and me as it relates to our webcast.
Dr. Peter Linneman: What you've got to do is you got a lot of getting on getting off. He's got all the people at PIMCO getting on and off.
Willy Walker: Exactly right.
Dr. Peter Linneman: Probably he has bots, I'm sure.
Willy Walker: And all of the students at Cambridge University, Peter, Thank you. It's been a pleasure.
Dr. Peter Linneman: Always a pleasure.
Willy Walker: Have a great day.
