JLL’s U.S. retail outlook report for third-quarter 2023 stated that 145 million square feet of retail space has been demolished in the past five years. What has been the result of this change?

The reality is we are in a sub-5% vacancy environment right now. There’s literally no new space to lease. At the same time, there is a significant amount of retail demand for growth and expansion, and that is putting a lot of upward pressure on rents.

This year, we’ve seen rent growth in retail, something that hasn’t been achieved for a really long time. Compounding that is just the lack of new retail construction. If you go back to the 2006 through 2008 time frame, we were delivering about 150 million square feet of new retail space each year. But in the past couple of years, it’s been closer to 15 million square feet.

Do you see retail construction increasing this year?

In the short term, the answer is no. There are limited construction starts that are permitted and approved, or are already in the ground for 2024 and 2025. Given that there has been a reset in land values over the past 12 to 18 months, perhaps there will be an increase in retail construction. But it will have to be in 2026 and beyond. Costs have significantly increased, so it’s just really hard to make the economics work for new retail construction in primary and secondary market locations.

What do you see for the retail sector in 2024?

Rents are going to continue to rise in 2024, but the growth in retail is going to slow down a bit. I think we are still coming out of the pandemic-fueled environment, with retailers having great balance sheets and a lot of pent-up demand from consumers. But the consumer is coming under a little more pressure today, so I think that retail is going to continue to be really healthy, but consumers will be less exuberant and more realistic in their buying.

How will retailers handle the lack of new space?

Healthy retailers are going to be looking for creative ways to expand their footprint. They may retrofit vacant spaces that aren’t their typical prototype in order to build new stores. They may go into secondary and tertiary markets where they otherwise might not have gone before. You are likely to see some consolidation of retailers and that, perhaps, will create some opportunities either for expansion or addition through subtraction. If rates cooperate and we are in a lower interest rate environment — and given the amount of new capital that wants to be in retail — there is going to be a ton of investment activity in the retail space.

The JLL retail report showed that malls were still suffering due to negative absorption in 2023. What do you see happening with malls this year?

What’s happening in the mall space is continued bifurcation between models that are thriving and properties that require reinvention. The best-in-class, fortress-style malls are actually seeing increased productivity and really strong same-store sales growth. In most instances, the best of the best assets are performing as well, if not better, than they ever have.

How are malls reinventing themselves?

In some cities, you continue to see multifamily developments at malls. You will also see more medical offices. Malls are sort of living, breathing organisms, and I think they drive a lot of traffic. So, they have the ability to sustain and generate other uses at the mall as well.

A lot of the better-quality malls have more outward-facing food, beverage and entertainment elements to them. It’s not just pass through a door and enter a cavernous mall space today. There is a lot of activity in terms of repositioning and redevelopment, including creating exterior spaces around entrances. It is not just an inward-facing product anymore. ●

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One reason for this is the homeownership gap between Black and white families, with homes accounting for so much personal wealth. The homeownership rate for Black families is about 45% compared to nearly 75% for white families.

“If the cost of compliance is too high, we are going to see banks cutting growth again to stay below that threshold.”

The National Association of Real Estate Brokers (NAREB), a network of Black real estate professionals, recently released its 10th annual State of Housing in Black America (SHIBA) report. NAREB president Courtney Rose Johnson spoke to Scotsman Guide about the report and her group’s Building Black Wealth Tour, which includes events in 100 cities on April 13 to highlight Black homeownership potential.

The Black homeownership rate reached nearly 50% before the Great Recession. Will it surpass this mark in the near future?

It’s definitely possible, but some things would have to change. First, we have a tremendous housing inventory shortage. Our ability to be able to place a buyer in a home that’s affordable is a challenge.Second, there’s a lot more education and financial literacy that has to happen. The SHIBA report has shown continuously that there are over 2 million potential Black mortgage-ready homebuyers. Why haven’t they purchased? Is it the downpayment? Is it that they don’t know that they’re mortgage ready?

Federal policies helped to create this situation and you’re calling for federal policies to fix it. What are you hoping happens?

We all know a lot of discrimination was basically policy driven. So, we’re asking, for example, for Fannie Mae and Freddie Mac to look at their pricing grids and move toward more accurate, up-to-date credit-score models. Using just one type of credit-score model is not necessarily advantageous for Black and brown borrowers. If you look at the average African American, the VantageScore versus FICO is usually higher because of some of the things that VantageScore uses.

There’s a lot of things that the federal government could do to increase housing stock. How are cities using their Community Development Block Grants? Can some of the regulations, zoning and building requirements in certain cities be made more flexible? A lot of things that can happen from the government side would make homeownership more achievable for us.

Are you surprised that housing is not more of a conversation in an election year?

Housing affects everybody. As the pricing goes up around the country, the conversation about affordable housing isn’t just about low- to moderate-income families. I like to use the phrase “workforce housing,” meaning somebody that goes to work every day — teachers, firefighters, police officers, etc. — being able to buy housing in their price range. Housing production, interest rates, all these things are not just affecting Black and brown communities but affecting all of the communities out there.

Another worrisome issue is the number of homes purchased by Black borrowers that are vulnerable to climate change, right?

This is our second year in a row bringing this issue up. There’s a map in the report that shows the Black population in the country is in more highly populated areas in the South, Northeast, etc. Those same areas fall along the coastline, areas more susceptible to flooding and things of that nature. So, it’s something we are very conscious of as we push to increase homeownership. We’re also focused on home preservation, setting up Black homeowners in situations where they can sustain themselves as global warming and environmental challenges increase.

What are you hopeful for in the future?

We have launched the NAREB Building Black Wealth Tour as a response to the State of Housing in Black America. We’ve also launched the NAREB Black Developers Academy to help our members that are real estate developers scale and increase their production to be able to help with the housing shortage. We’re excited that Black consumers are coming out to get the information to figure out how they can become homeowners. ●

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Where does Cushman & Wakefield stand on the potential for a recession in 2024?

We have not been in the soft-landing camp for some time and that is still our position. We believe that the material change in monetary policy will continue to filter through the economy and that eventually we will see a contraction in output. Our forecast is that as we head into the second quarter, we will be reaching that tipping point. That being said, it’s a very uncertain business to predict turning points.

What are some of the market indicators you’re watching?

There are a number of indicators pointing to resilience and strength in the economy, and those tend to be tied to the consumer economy. They include factors such as the labor market, which is strong. We keep adding jobs but at a slower and slower pace. So, those are great signals of resilience, but they are not forward-looking. They don’t tell you anything about the future, but there are a number of leading indicators pointing to a turning point in the economy. They include the 10-year yield curve, which has been inverted for some time. Inverted yield curves tend to be very accurate predictors of recessions.

There are a lot of recessions where the yield curve is inverted about a year in advance. There are other instances where the inversion happened 24 months in advance. Given the sheer fiscal support and monetary accommodations across the economy in recent years, it’s going to take time to work through that. But we are seeing some interest rate-sensitive sectors already in contraction. And on top of higher credit costs, the availability of credit is significantly lower than it was 18 months ago. The tightening of credit standards tends to lead the economy by six to nine months.

What do you see for commercial real estate in the new year?

Both the multifamily and industrial sectors have tremendous supply waves coming. In both sectors, we expect demand to soften, but it will be positive. We estimate between 140 million and 150 million square feet of absorption in the industrial sector, with vacancy rates peaking at about 6.2%. We expect about 320,000 multifamily units to be absorbed and for vacancies to rise to about 9% at their peak.

How about the retail and office sectors?

Our data shows that the vacancy rate for retail is sitting at a 40-year low of about 5%. While we expect demand to soften and turn mildly negative next year, we still see vacancy rates only rising to the low-6% range, which is consistent with mildly positive rent growth.

The greatest challenge is in the office sector. We still believe the sector will be recording negative demand in 2024. This masks a tremendous amount of variation, though, around the country. We’ve seen incredible resilience in many smaller markets, especially in the South. In cities like Miami, vacancies have barely budged since the pandemic.

Then you have San Francisco and New York City, which are experiencing record-setting vacancy rates. Manhattan’s vacancy rate is about 22% right now. We think it will go up to about 24%. But even here we are seeing a lot of variation. We track roughly 1,400 office buildings in Manhattan. There are about 105 or so that have vacancy rates of 50% or higher. If you take them out of the equation, the vacancy rate falls to about 15%. So, there is an uneven concentration of weakness across markets and assets. ●

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“If the cost of compliance is too high, we are going to see banks cutting growth again to stay below that threshold.”

Regulators aim to help people, but rule setting could affect the behaviors of institutions and individuals, said Jacelly Cespedes, an assistant professor of finance at the University of Minnesota. She has studied previous revisions of the 1977 law.

“Any regulation is going to help some people, but the regulations are going to also distort the behavior of the banks,” Cespedes said. “I’m very interested in how those distortions, or those unintended consequences, hurt the communities that banks serve.”

Banks are still digesting the final rule, which runs nearly 1,500 pages. The effective date for the new rule is Jan. 1, 2026, but reporting requirements won’t begin until Jan. 1, 2027. Cespedes spoke to Scotsman Guide about what could happen with the revisions.

Is this solely for banks or will it affect nonbank lenders?

The CRA applies only for banks. Right now, more than 50% of mortgages are originated by nonbanks, so people (early in the process) were expecting that the new CRA was going to was going to address nonbanks. But nonbanks are exempt from the CRA. Intermediate banks are going to be subject to more comprehensive lending tasks. Those are banks with assets higher than $600 million. The second major thing is that now they are providing more metrics about what the CRA means and what sufficient lending to underserved neighborhoods means.

Intermediate banks are facing CRA scrutiny now?

Yes. There are three categories: small banks, which are banks with assets lower than $600 million; intermediate banks, which are banks with assets between $600 million and $2 billion; and large banks are the ones with assets higher than $2 billion. The main difference with the 2005 reform is that now intermediate banks are subject to a more comprehensive lending test.

Could community banks choose to stay small rather than grow and be governed by these regulations?

I have a paper looking at the 1995 reform in which a $250 million threshold was imposed. What we found is that some banks close to that threshold decided to stay small. They started cutting their assets. Those banks that tried to stay small to avoid a more strict evaluation had a smaller share of business. This had a negative effect on mortgages and also independent innovation. They will need to build the infrastructure to assess loans to comply with the CRA, so that is going to be a cost. Those banks close to $600 million in assets are going to weigh the benefits and the costs of being intermediate. If the cost of compliance is too high, we are going to see banks cutting growth again to stay below that threshold.

Are the revisions doing anything else?

They are changing how assessment areas are determined. It’s not only where banks have their branches but also where they are lending. This is just to address online lending and the increase in online banking.

How else could the Fed encourage more lending in low- and moderate-income communities without these changes?

I don’t have a clear answer for that because what we have seen is that, probably, without the CRA, some communities would be underserved. So, it’s not that the CRA is completely bad, it’s just that the rule, as with any regulation, can create distortions. ●

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“I don’t see anything changing unless and until there is a material shift in the economy. In fact, I see the trend getting stronger and I see downsizing by downtown office users continuing.”

One of the hardest-hit areas has been Chicago, which posted a suburban office vacancy rate of nearly 30% at the end of September, up from 27.3% a year earlier, according to real estate services firm JLL. One reason for the high number of vacancies may be that workers are digging in and demanding to work from home.

One recent estimate shows that 13% of full-time employees work exclusively from home, while 28% use a hybrid model. These estimates come after many months of corporate efforts to get employees back in the office. Scotsman Guide recently spoke with Richard Traub, partner at the real estate practice of Smith, Gambrell & Russell LLP, for his perspective on the suburban office dilemma and what it might take to break this paradigm shift of employees working from home.

What is your perspective on the suburbs being new centers for satellite offices?

I think the original assumption was that, following the pandemic, many employers realized that their employees didn’t want the long commute involved with coming back to the office. So, they thought, ‘We’ll bring the jobs to the employees by opening suburban offices.’ But I don’t think the employees have materialized, and now some suburban office owners are caught up in the same paradigm shift that office owners in the city are facing.

The idea of employees wanting to work from home seems to have either gotten stronger or held its ground. I think that instead of even commuting a shorter distance to a suburban office, people want the efficiency and flexibility of working from home.

What will it take to lure employees back to the office?

The problem is that you try and mandate or enforce a return-to-the-office policy, even one that could be considered flexible and not onerous, and people are simply going to vote with their feet and leave. They are saying, ‘If you mandate that I come back to the office, even if it’s in a more convenient location in the suburbs, I’m simply not going to do it.’ Perhaps a satellite office with all the latest and greatest amenities would change the equation. But with the unemployment rate at about 3.8% and businesses fighting for skilled workers, the employee still has a lot of negotiating power.

How do you expect businesses to deal with this paradigm shift?

You know, I’ve been wrong 4 billion times in the last few years. When COVID hit, I thought we’d be back in the office in three months, once I realized it was going to be with us for a while. Then I thought the vaccine would bring everybody back. When that didn’t work, I thought there would be a flight to the suburbs and satellite offices. None of those things have completely proven to be true.

My theory is that a portion of the employees of the world have the leverage right now to dictate where office work will take place. And they are voting that it take place at home. I think it’s going to take a seismic shift in the marketplace to change that dynamic, such as the unemployment rate has to rise dramatically and technology jobs have to disappear. Then the companies will be able to dictate that employees have to be in the office, or they won’t have a future with their company.

How companies deal with this issue really depends on which industry they are in and the power of the company. J.P. Morgan Chase, for instance, is demanding employees come back to their downtown offices. They are a major financial corporation, have immense power and can do that. But a law firm, for instance, has to be very careful about the demands they place on the members who pretty easily can move to a different firm or city.

What do you see happening in the coming year?

I don’t see anything changing unless and until there is a material shift in the economy. In fact, I see the trend getting stronger and I see downsizing by downtown office users continuing. I see more businesses shifting to newer buildings with more amenities in downtown Chicago, where I’m located. As I’ve said, the whole office situation is just a reflection of the overall economy and the power of the employee right now. We’ll see if and when that changes. ●

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“We’ve been in such a super low-rate environment and to get to this point this quickly is what’s so painful for the industry.”

What could ease this tension is a decline in interest rates, said Marty Green, principal with Polunsky Beitel Green LLP, a law firm that provides legal support to residential mortgage lenders. Once rates drop, the dam could finally break open.

“We’d see some sellers get back in the market and that might improve our inventory a lot, which would be a good thing for the market,” Green said.

Green, in his role representing mortgage lenders, is a close observer of the Federal Reserve. He spoke to Scotsman Guide about when he thinks interest rates could drop, whether there will be a recession and what could happen that would roil the financial picture.

Do you think interest rates will continue to rise?

They’re going to continue to bounce. That’s how I would describe it. The general trend line is going to be pretty flat. We’ll see a few times where they’ll bounce up very uncomfortably. We’ll see some opportunities where they’ll bounce downward until we finally get into a downward trend at a more steady pace, probably in mid-2024.

Why would it happen then?

One, inflation will be much more in the rearview mirror, which may give the Fed latitude to moderate their position with respect to rates and maybe even drop it a little bit. The other thing that will happen is that once everyone becomes much more comfortable that inflation is in the rearview mirror and we’re not going to see additional increases, the premium that we currently see between mortgage rates and Treasurys will melt away.

Is the angst in the mortgage industry and among potential homebuyers about elevated rates justified?

It is. It’s changed the behavior of buyers and sellers along the way. To some extent, the rate itself is not the problem. It’s where you’ve been. That’s the issue. We’ve been in such a super low-rate environment and to get to this point this quickly is what’s so painful for the industry. What it has done is sort of frozen a lot of homebuyers and home sellers.

What have the rate increases done to the housing and mortgage markets?

Sellers may be ready to downsize or ready to do something else, but when they look at the delta between what they are paying now and what they will pay on a new mortgage, it just creates a paralysis situation where the timing just doesn’t seem right. On the mortgage side, the higher rates have really stressed margins so that mortgage companies are not making much money at all.

Does it seem like the housing and mortgage industries are ‘taking it for the team’ for the benefit of the entire economy?

No question. We may have benefited unduly during the pandemic and the boom that we saw there in terms of the increase of activity. We’re certainly paying for it now.

Has the Fed’s attempt to rein in inflation been effective?

Largely it has. If you look at the inflation rate today versus what it was six months or a year ago, we’re in much better shape now than we were then. Is raising rates the perfect tool for (taming inflation)? Perhaps not, but it’s had the intended effect of slowing down the economy and bringing inflation down significantly.

Do you think there will be a recession or a soft landing?

It’s either going to be a very, very mild recession or a soft landing. Certainly, different industries have felt the brunt of it differently. Housing is one that has been in recession and probably will be for the next several months.

What can change this financial picture?

Some of the geopolitical things have helped moderate some of the increases, frankly, with the flight to safety. There are things that could happen outside of the Fed that could influence the mortgage market. What’s happening with Israel actually could help moderate rate increases, but there’s some speculation that if it causes an oil spike with unrest over there, as well as what’s going on in Russia, that could actually feed inflation, meaning interest rates stay higher for longer. ●

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“There’s some tweaking that could be done in terms of the mortgage rates, because we think they’re out of whack.”

CHLA advocates on behalf of the smaller and midsized IMBs, the lenders doing somewhere in the range of hundreds of millions of dollars to tens of billions of dollars in loans per year. These lenders have endured what has turned out to be a difficult year in the mortgage market, said Scott Olson, CHLA’s executive director.

“I think optimism reigns supreme, and it is struggle, but I think we’re looking forward to a better year in 2024,” Olson said.

Olson talked about the challenges his member institutions face and what could brighten the skies. He also talked about last year’s merger between the Community Mortgage Lenders of America (CMLA) and the Community Home Lenders Association, which created the current organization.

How are smaller and midsized community mortgage lenders weathering the current market?

Obviously, the volume has gone down significantly in the last year and a half because the rates have more than doubled. The overall trend is IMBs, over the last 16 months, have had to make job cuts to rightsize and reconfigure their companies. A few have gone out of business, some have merged, but I think our firms are weathering the storm.

What are the other biggest issues facing smaller lenders?

For those that originate Fannie Mae and Freddie Mac loans, we’ve seen concerns on our members’ part about the level of repurchase demands on loans that are performing. Older loans have lower coupon rates. So, if you’re forced to repurchase a loan, you’re not only assuming the risk, but you have a huge loss.

That’s when Fannie and Freddie find something wrong with the loan and make it go back on the lender’s books, right?

We’ve been really clear, if the loan is defective, that’s fine. That’s different. A lot of times we see these are differences in appraisals. It’s not a clear-cut error. It’s the difference of opinion. So, we just think that they’ve been a little bit on the aggressive side.

What’s being done about that?

We’ve been really pleased that the (Federal Housing Finance Agency) director and, to some extent, the (government-sponsored enterprises), have been responsive. We’ve been saying, ‘Look, whatever you feel that the risk is, do this as an indemnification.’ We’ll pay a relatively small fee, which we think represents the risk of what is still a performing loan.

Large banks are shying away from loans on low-cost homes. Are smaller lenders the answer?

The FHA has been trying to look at ways that we can incentivize smaller loans. It’s just harder. Some of the fixed costs of doing loans are going to be the same whether it’s a $90,000 home or a $650,000 loan. I think you’re right: IMBs and particularly smaller community IMBs are really interested in doing this. With volume declining, people are looking for business.

Any bright spots on the horizon?

We’d love to look forward to rates going down. Our members believe that interest rates are about 100 basis points, a full percentage point, over where they should be historically versus comparable bond yields. The Fed’s going to deal with monetary policy overall to control inflation. That’s a good thing. But there’s some tweaking that could be done in terms of the mortgage rates, because we think they’re out of whack. If rates came down, some of the clouds would lift.

What are the lessons that have been learned with last year’s CHLA-CMLA merger?

We probably regret we didn’t do it four years earlier. We’re really a bottom-up organization in the sense that members set the tone. I think we have more clout. The cultures have mixed well. We were pretty similar organizations to begin with.

We just had so many things in the last year that were big priorities that we’ve gotten across the finish line. Cutting FHA premiums, that was big for us. We weighed in to protect smaller members in the promulgation of capital requirements for Ginnie Mae and FHFA. I think we’ve kind of had a banner year. ●

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“The banks do not want to take the properties back like they did in 2008.”

The report offers a sobering picture of the current office environment and offers ideas for how long it may take before a recovery begins. Scotsman Guide spoke with Ressler in September to get his perspective on the office sector’s current woes, along with what can be expected in 2024.

Office experts are throwing around words such as ‘apocalypse’ to describe the U.S. office sector. Are these terms appropriate?

Well, I don’t think it’s an apocalypse like some people want to paint it. I don’t believe it’s that bad. There’s no question the office market is in a downward trend. But at the same, the banks do not want to take the properties back like they did in 2008. The institutions are trying to work out deals to extend the loans as they come due. Now, that won’t occur for 100% of the properties, but we believe that most buildings will find a financial solution. However, a loan extension doesn’t mean that the property owners won’t have to put more equity into the deal to make it work.

Your national office report states that the U.S. vacancy rate has reached 17.54%, a record surpassing 2008 levels. And one of the hardest-hit places is the Bay Area?

That is correct. We are seeing that the cybersecurity and banking folks are populating San Francisco offices more routinely. That doesn’t mean they are in their offices Monday through Friday, but they are back in the office more because their work can only be done from a central core office. Then you have the general technology sector, which has been really hammered hard with many remote workers. We anticipate it’s probably going to stay down, especially if we experience a recession in the near term. So, you have roughly 30% of the folks going back because their jobs demand it and another 30% of tech workers who don’t want to go back to the office. And then there is everyone else who is saying they feel empowered and really want to be in the office less than five days a week.

You say the return-to-the-office push isn’t over yet. Who is still holding out?

The next two years will be stabilizing periods, with each market being unique in terms of occupancy return statistics. Financial institutions and information technology companies have resumed a return-to-work policy, including a major push by Amazon.com. The federal government has indicated that employees need to go back, but even prior to the pandemic, the government was planning to downsize many offices. When the pandemic hit, obviously we saw a diaspora of government workers outside the office. The federal government hasn’t mandated in the way that Google or Disney has, for instance, but they have indicated that they want employees back in the office.

Large metro areas with the most office space in the supply pipeline include Boston, Seattle, San Francisco and Manhattan. What will be the impact?

We really think the urban cores are going to get hit hard. Boston might be an exception, but the urban cores of New York City, Philadelphia, San Francisco and many others are going to be hit harder than anywhere else because they just haven’t been populated like other urban cores, and that will slow recovery. It’s economics 101: More supply drives down demand and prices.

Your report also points out that Class A+ and A buildings have dropped in value.

That information was from a study by Trepp. They found that buildings rated ‘A+’ or ‘A’ traded for $361 per square foot in 2022, but only $233 per square foot in 2023, a decrease of 35%. The results surprised them. Keep in mind there were only a few transactions on which to base these results. But still, I don’t think there’s any givens in the office market right now.

You believe that quarterly property transactions will stay extremely low until 2025 or 2026?

That’s right — because these issues must be worked through. First, the buyers and sellers must have a sense of when the Federal Reserve will stop raising rates. Also, there’s what I call the ‘Godot recession.’ We are still waiting for it. There is the issue of surplus inventory that must be worked through, so you’ve got a combination of negatives that are knocking the heck out of the industry.

How long will it take to work through these? There is a lag effect for sure, so right now we are saying 2025 to 2026. A lot of people have said that eight to nine months after interest rates stop rising, things will take off. That rule of thumb doesn’t apply anymore. Next year is not going to be great. It just isn’t going to happen. Not the way we see it. ●

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Keynova Group has been doing a survey on mortgages and home equity since 2005. Initially, the company focused on banks but expanded to nonbanks about five years ago after Rocket Mortgage, then Quicken Loans, began offering the first end-to-end online mortgage.

“We’ll see a continuing build-out of educational resources like articles and calculators.”

“Our bank customers were really curious about what they were doing,” said Beth Robertson, Keynova’s managing director. “So, we decided to add several of the large nonbank firms to the benchmark.”

In the 2023 survey, Keynova evaluated 350 criteria, from the mortgage application process to customer support features. Surveyed institutions included Bank of America, Chase, Citi, Citizens, PNC, Truist, U.S. Bank and Wells Fargo, as well as nonbank home lenders Freedom Mortgage, Guaranteed Rate, LoanDepot and Rocket Mortgage. Robertson spoke to Scotsman Guide about industry trends uncovered this year and how financial institutions could use this information.

Nonbanks are increasingly looking at home equity lending to replace refinance and purchase originations, right?

Since last year, Guaranteed Rate, LoanDepot and Rocket have all introduced or ramped up their capabilities relative to home equity. You can see that with Guaranteed Rate and LoanDepot. Rocket, at least at the time of our review, still was doing a lot in terms of educational content.

More lenders are also offering Spanish-language mortgage applications. Is that new?

That is something, again, that we’re seeing mostly from the nonbanks. Again, the same ones that I mentioned, Guaranteed Rate, LoanDepot and Rocket Mortgage. It’s something that’s good to see. It’s definitely going to make mortgages much more accessible to Spanish-speaking individuals.

Do you think that companies are just now realizing the size of that particular market?

Many of the firms — not just mortgage lenders but other digital firms — were talking a couple of years ago about browsers having the ability to translate from English to Spanish. They didn’t see the need, necessarily, for adding Spanish-language content.

That’s really changed as the (Hispanic and Latino) population has expanded significantly. When you get to something like a mortgage application, the information that is gathered is very important and it’s highly confidential. It’s important that it be translated correctly.

Why did more lenders offer digital goal-setting and planning tools?

Banks and nonbanks are trying to act as more of a partner with the individual and help them plan for all of their financial servicing needs. All of that has resulted in us seeing more of these goal-setting tools.

Did anything in this year’s survey surprise you?

There is starting to be more use of soft credit pulls. I think we’ll continue to see that early in the mortgage processes. You may see a soft credit pull, rather than anything that affects the borrower’s credit score, until they’re ready to go with something that’s more formal.

Do companies, both the ones surveyed as well as others, adjust their strategies based on the survey findings?

It’s important to see what others are doing. It doesn’t necessarily mean that you’re going to adjust your own strategy. You can look at what others are doing and maybe use it to justify internally your own initiatives, or to help you plan new initiatives.

Any expectations for what you’ll find in the future?

That’s somewhat harder to say, but I do think we’re going to see a lot more Spanish capabilities in terms of the lending content and educational resources. We’ll also see more Spanish language in customer support tools like virtual assistance, as well as dedicated Spanish dial-in lines.

We’ll also see some more rollout of soft credit pulls, because that encourages somebody to find out if they’re eligible without affecting their credit rating. We’ll see a continuing build-out of educational resources like articles and calculators, and other sorts of tools that can be integrated more broadly across a digital property.

Do you think that nonbanks looking at home equity lending is a blip on the map?

Once they’ve gone through the product rollout and the support that they need for home equity, the nonbanks will likely stay there. Then they can offer a wider array of products to meet customer needs depending on the current market situation. ●

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A top supporter of this form of retail is Gary D. Rappaport, whose company, Rappaport, has been developing and operating shopping centers for nearly 40 years. Rappaport and his team have invested more than $1 billion in retail properties throughout the District of Columbia, Maryland and Virginia. He is also the author of “Investing in Retail Properties: A Guide to Structuring Partnerships for Sharing Capital Appreciation and Cash Flow,” with the third edition published by Forbes Books last month.

“Retail real estate, I believe, is the most complicated sector of commercial real estate.”

Rappaport spoke with Scotsman Guide earlier this year about the unique strength of the neighborhood shopping center. He also offered advice to investors who are interested in the sector.

What are some of the main trends you see in the shopping center sector?

Grocery-anchored shopping centers continue to be the most stable property subsector in retail, as well as one of the strongest property types in all of commercial real estate. Whereas most retail categories have a few creditworthy tenants, the grocery category — more specifically in the Washington, D.C., market where most of our operations are located — has multiple creditworthy tenants all seeking to expand. There have been very few neighborhood and large community, open-air shopping centers built during the past 10 years. Because of this, occupancy and demand for space have remained relatively high.

What are the key factors investors interested in this sector should keep in mind?

Location is very important, but so is the creditworthiness of tenants and the length of their leases. The type of financing we place on these acquisitions is also key. For example, fixed or floating loans and the length of time, which we use to obtain the projected returns versus the evaluated risk. The grocery-anchored product tends to have a significant, reliable cash-flow growth potential that investors can have confidence in. The yield of this type of real estate can start at a much higher point relative to office, industrial or multifamily.

Why has this type of real estate been so successful?

Shopping centers attract retailers that cater to consumer needs for essential products and services. I describe it as necessity retail that is mostly internet-proof. You can buy groceries online and have them delivered, but most people want to see the food for themselves. The centers also tend to act as last-mile merchandise providers because they are closer to where consumers live than the regional malls. At the same time, the open-air centers are less costly to operate and so can offer lower total occupancy costs than enclosed malls. The centers are attracting anchors and specialty retailers such as Kohl’s, Lululemon, Athletica, Express, Apple and Foot Locker. These retailers have been pivoting away from malls for more than a decade.

What do you look for in a shopping center property?

There is virtually no new supply being built and while difficult to find, we are always looking for a shopping center where we can use our expertise to create value through re-leasing, remerchandising, renovation, and professional management and marketing. I believe there is nothing like local knowledge and relationships to give us an advantage over other buyers. We have a reputation as strong community members who add value to a shopping center and the whole close-by community.

What are some of the mistakes that investors need to avoid with these kinds of projects?

Retail real estate, I believe, is the most complicated sector of commercial real estate and the sector in which the expertise of the sponsor is most important. In retail, one needs to understand cross-shopping and tenant mix to maximize sales across the property. One needs to understand tenant leases with clauses, such as exclusive and broad leasing rights, co-tenancy requirements, no-build areas, percentage rents and other restrictions that could materially affect the long-term success of a retail property.

Some developers are quite successful buying a shopping center that needs a capital investment and expertise, as we would provide, and then when the property stabilizes, they sell. I do not sell. I believe owning real estate for the long term is the way to create material assets for one’s partners and one’s family. Investors wishing to place funds in a partnership — as opposed to purchasing shares in publicly traded REITs — should be aware that this is a long-term investment and they need to have a long-term horizon for their investment. They must be content with receiving fairly reliable, tax-advantaged annual distributions that equal about 8% of their initial investment. ●

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