The Fed, Rate Cuts, and the CRE Reset with former Fed Insider Tyler Wiggers

The timing for this conversation couldn’t have been better. 

Former Federal Reserve insider Tyler Wiggers gives us a break down on what the Fed is thinking right now about monetary policy especially in the wake of the tariff turmoil and market volatility.  He shares why rate cuts may be further off than the market (and the Trump administration) hopes, and how the Fed is tracking stress points in real time, including CRE loan concentrations and the surge of hot money. Buckle up for a good history lesson on comparisons to the Great Financial Crisis and CMBS TALF (Term Asset backed Securities Loan Facility) the Fed’s bold move in 2008-2009 to help unfreeze the credit markets. From tariff-fueled inflation pressures to the signals hidden in the 10-year yield and redemption queues, Tyler offers a clear-eyed view of where the risks are mounting. He also weighs in on a big strategic question: is this a moment to play offense or tighten up and defend? Don’t miss his take on what could be the canary in the coal mine for U.S. assets—and what Fed Chairman before Jay Powell really wants to see before the Fed pivots.

02:45 Market Volatility & CRE Risk at Regional Banks

08:10 Signals the Fed Watches (That You Might Not)

13:00 Lending Strategies During Uncertainty

16:45 Rate Cuts & the Tariff Effect

23:30 The Rise of Private CRE Lending & Its Risks

28:00 Structural vs. Cyclical Reset in CRE

34:50 Behind the Scenes of CMBS TALF & GFC Recovery

Have questions for the pod team? Send them to Podcast@LightBoxRE.com. 

www.lightboxre.com

Transcript

The CRE Weekly Digest

Episode 42: The Fed, Rate Cuts, and the CRE Reset with former Fed Insider Tyler Wiggers - April 18, 2025

Martha Coacher: This is the CRE Weekly Digest LightBox, a firm transforming the commercial real estate landscape by connecting every step of the CRE process with comprehensive tools and data. I'm Martha Coacher with Manus Clancy for the week ending April 18th. We're diving into the crossroads of commercial real estate and monetary policy with Tyler Wiggers, a former member of both the Federal Reserve Board and the New York Fed.

At the Fed, Tyler advised board members and other senior leadership in the Federal Reserve system on trends and risk in real estate, capital markets and corporate debt positions. He is currently on the faculty at Miami University's Farmer School of Business. We're going to talk about market volatility, liquidity, and what investors might be getting wrong about the Fed, but we probably should spend a few minutes, give a little bit of background because Tyler brings some crisis tested policy experience to the mic.

He was part of the New York Fed senior staff and was responsible for conceiving and implementing the CMBS term asset-backed securities program, usually referred to CMBS TALF, which was credited with helping the debt capital market stabilize during the great financial crisis. Tyler also spent some time at Broadway Partners where he was part of a team that structured $9 billion in acquisition debt.

Welcome, Tyler. 

Tyler Wiggers: Thank you. It's great to be here. Thank you, Martha, and thank you Manus. 

Martha Coacher: And it is very timely. Since the size of tariffs were announced on April 2nd. The market has seen extraordinary volatility. We've seen the back and forth on tariffs, the retaliation, some reprieves. We've not seen this kind of tariff back and forth before. But Tyler, you have seen this type of volatility. 

Tyler Wiggers: Certainly during the rate financial crisis, there was a whole lot of volatility happening in the markets. A lot of times the Fed is very concerned about making sure the capital is flowing. They need to make sure that all market participants have access to the capital that they originally intended to have. They want to make sure that basically the markets are clearing, smoothly. And lastly, they're very interested in making sure that there's no risks that are building up in the banking sector. And this is where commercial real estate really comes into play because there's such a large commercial real estate exposure, particularly at the smaller community or regional banks.

If you take a look at all the commercial real estate debt that is out about just a little under 50% sits in the banking system and of that banking system's exposure, about two thirds sits in these smaller banks I mentioned, and if you think about banks that have a lot of resources to weather stress and volatility and that are good at what I call risking loans. The smaller regional and community banks don't have what a JP Morgan and Wells Fargo do, but with two thirds of that CRE debt sits with those types of banks. And so it's always a concern. We don't want, or the Fed is very concerned about those lending institutions basically freezing up and not being able to extend credit to any type of net MPV request for funds that comes in their door, whether it be commercial real estate or something else.

Manus Clancy: In times like this, you hear a lot of anecdotal stories for people that are more bullish, they're coming out and saying, I was sourcing a loan today. I got 30 bids. For people that are bearish, they might say the markets are locked up, right? I only got two bids where normally I'm getting 15. The pieces of data that the average market watcher can look at, call reports, things like that are trailing indicators. What are the things that the Fed was looking at or might be looking at now that would be evidence of things slowing down, markets, locking up, liquidity, disappearing. What was your experience with that in the past? 

Tyler Wiggers: The data that you're citing and the metrics that you and I might look at from a market participant perspective are a little bit different than what the Fed looks at. They don't have access to all that data, and quite honestly, they probably want to focus on the data that they're collecting you, you mentioned the call reports. So they're very interested in making sure from a banking system perspective that you don't have too much what they call commercial real estate concentration. And if you do have a bank or an institution that does have this commercial concentration they look at something that's called hot money. And the hot money concept is money that is just backing up the assets of the institution, which in this case are loans that can move around quickly. They're looking for the highest yield, so internet deposits, brokered accounts. And so if a bank or an institution has a concentration in commercial real estate, which is a very illiquid asset, but they also have a high concentration of what they call hot money or fast money, then they will try to dive deeper into that bank when they do one of their periodic exams to make sure that, again, all the risks are being accounted for.

Manus Clancy: Take us back to the great financial crisis. Obviously we went from bad underwriting to distressed assets to a really illiquidity period. What was the piece of data or what was the moment where you said, this is not like past downturns that this is something. What was the data point, the inflection point that really got your attention then?

Tyler Wiggers: I wouldn't say it was a data point, I would say it was conversations with bankers. So I was on the phone all day long while we were developing this CMBS TALF program, trying to use what we call moral suasion to try to have the banks extend credit. And a lot of the feedback that I got it made me realize that this is basically a crisis of confidence. The market participants didn't know what was going to happen and the government had basically stepped in or said, listen, we're going to institute this program. And so people said, I don't want to put too many chips on the table because I never know what's going to happen, so I'm going to wait to find out what happens and then I'll basically make some moves. So it wasn't a particular data point per se. Certainly you could look at, and you correct me if I'm wrong, Manus, I think AAA spreads blew out to like 1400 over or 1600 over. So that certainly was an indicator that there were big problems but when I would call up the heads of the banking divisions at JP Morgan and Wells to say, listen, you guys need to start making loans. And their response was, well, I'd love to make a loan, but I don't want to put my job on the line because my board will absolutely kill me if I try to make another commercial real estate sale loan. And so that's sort of the indication me is like, okay, this is a different beast. We have a crisis of confidence going on and we have to basically rectify that. 

Manus Clancy: I know we want to get into what the Fed might be thinking, but I want to ask one more question along this thread, which is, the reason banks had lack of confidence was the belief that either their counterparty, the people they were going to make loans to were overextended or were not money good, right? This was a crisis of credit, really back then. What we have right now, is a crisis of the unknown it would seem. My thesis is that for the last couple years, banks have not been reckless in their lending hygiene. They've been getting fairly decent risk returns for the risk that they're taking. This is not 2007 all over again. This is something where you just don't know where the future becomes, like will retailers be hit by the inability to sell because prices are so high? Right? Will industrial property see lower demand? Does that ever lead to a loss of confidence? Is there a point where you say, I don't want to lend to this guy, because I think in the future we have no idea where retail is going and this is a time to pull in the horns.

Tyler Wiggers: Yeah, so I'll put my lender hat on. So I used to work for JP Morgan as well as Barclays in the CRE lending division, and so certainly when we would see the types of things, even though it's a little bit different now with the tariffs, but certainly when we see high stress moments, you absolutely, basically pull in. At least the amount that you make available to your clients as well as you lower your LTVs. So it's basically just less exposure. You're trying to batten down the hatches to a certain extent. And typically the loans that you do make are for your clients that you have very good relationships with. They'll have a loan maturing, they can't find anybody else in the market, and they go back to their bank and they say, listen, I got my original loan from you, we got a great relationship, I need this, or it's going to go under, it's not really my fault it's sort of what's happening in the market. And typically the bank will make that loan. But as far as like new borrowers in this type of environment, it's very, very tough. 

Martha Coacher: Tyler, almost every day there's a discussion about the Fed, their position and whether it's time for rate cuts and the media, especially the business media, is obsessed with whether the next meeting is the meeting where they're going to resume rate cuts. Is there a disconnect between what the Fed's view is and the short term obsession with rate cuts? 

Tyler Wiggers: I do think that there is a little bit of a misconception, and I tell my students all the time that, that when I read the headlines and the press about the Fed, I think they're overly optimistic. They want to see the positive and the good. And when I hear people at the Fed and then read some of their speeches, I don't take that away. They're very reliant upon the numbers like they've said, and they might be willing to sacrifice growth to keep inflation down. 

Manus Clancy: So let's paint a picture here of what you're saying. In the past, under normal circumstances, pre April 2nd, CPIs coming down, PPIs coming down, PCEs coming down. What you're saying is, the Fed might be a little bit slower to cut rates than the markets may be expecting because they want to be patient. What does the tariff impact and the threat of higher prices do to that? Does that make them wait even longer? Does it make them more patient? Or is there a chance that they see these stock markets blow up, they see basis trades unwinding and they say, we're getting a little bit dicey here things are looking illiquid, somebody's going to blow up, it's time to cut? 

Tyler Wiggers: So, no, I think it's sort of the former, because I think that the Fed is okay with staying where they are. The tariffs, so like I'd be in conversations with Jay, where Jay basically said, listen, and this is before the inflation. His thought process was, why wouldn't I cut rates if inflation's not biting me in the butt? So I'm going to lower rates until that happens and we'll find a happy medium. And it basically, it did end up biting us in the butt and we're still trying to get rid of it. The tariffs, just add more fuel to the, well, this is pro inflationary.

What's not talked about and I don't know how much resonance this has with the Fed is that, with our demographics, we have a larger majority of our population are in retirement ages, and so they're basically stepping out of the workforce that has sort of a pro inflationary effect as well. So I think that there's a lot of things that the market is basically dismissing or they might say something like, oh, that, that's crazy talk, let's just focus on the sunshine and flowers. I don't, maybe it's my background but I don't see it. I think that there's too many things that the Fed can't ignore and won't ignore. And so, the people who think, wow, we're going to have a couple cuts this year. I'm, at this point, I'm not seeing it. There's too many things pointing the other way. 

Manus Clancy: For those that missed it, the Jay that Tyler's referring to is, of course, the Fed chair, Jerome Powell. Tyler has advised Fed Chair Powell, Treasury Secretary Yellen and several others for the last decade and a half, including the head of the New York Fed when we were in the throes of the crisis back in 2008 to 2010. A really knowledgeable guest and we're so grateful to have him at a time where there is so much market uncertainty and all the eyes are on the Fed.

Tyler Wiggers: You can get away with calling Jay just about everything except for Chairman Powell. I was in a meeting once where he said I always have this suspicion if somebody's calling me Chairman Powell, their sort of like some court intrigue and they're going to stab me in the back. So of course another smart ass board member said, oh, well Chairman Powell, why don't you take your seat and we can start talking. So there's a lot of chuckling there.

Martha Coacher: What metrics or signals are you watching closely that would change your mind and in general, give you a health of the CRE market?

Tyler Wiggers: Well, maybe that's two different separate camps. If I'm taking a look from an inflationary perspective, I'd want to see the gas prices coming down. And I think that they, depending upon what OPEC does, I think that will happen. The tariffs, again, that's a huge wild card. Part of me in my more optimistic days, wants to think this is sort of a part of the deal negotiation strategy and will settle maybe at a more reasonable 10% across the board, maybe excluding China, but maybe China gets 10% as well. If that's the case, and I think we're talking more sort of cyclical and we can get on with business. But if it sort of remains where it is, and particularly we have these tariff levels that are severely punitive to the world's second largest economy and that stays around for a while, it's not just sort of a short blip. I think that's more of a structural shift. And that's again, pro inflationary. I don't think there's much we can do about the demographics at this point, but those are some of the things I'm taking a look at from an inflationary perspective.

I think the 10-year tells us a lot. That's very, very important. In fact, almost every single class I have always start off the class session with, okay, where's the 10-year at? Why'd it move? I also like to take a look at the Odyssey Redemption queue. That sort of gives me an indication of how many people, from an equity side of things, how many people are wanting to basically take their chips off the table from a commercial real estate perspective? Those are some of the things that I take a look at to get a gauge of how the commercial real estate industry is doing. 

Manus Clancy: One of the big growth areas in the last five or six years has been the entry of private equity being a major lender in CRE. That part of the market a little bit less transparent or maybe even a lot less transparent than the banking market, the CMBS market and so forth. How does that change your calculus at all as to how you would look at this market right now? Is there any chance that we get hit in the back of the head that something we didn't see coming because somebody either loses their warehouse funding is over levered, is impacted by too much of one asset class. Give us your thoughts on that part of the market. 

Tyler Wiggers: That's one that all the regulators, so the OCC, the FDIC and the Fed sort of struggle with, because there's not a whole lot of transparency there. And I can remember, I mean, I guess private commercial real estate lending has been around for a long while, but I forget what year it was but the regulators came out with the HVCRE regulation and that was totally confusing to the market but I had just joined the board, but I wasn't on the sort of the committee that helped write that. And I remember going to some of the conferences that spring and all my friends who were private lenders wanted to buy me a drink. And I'm like, well, why is that? And they go, do you realize how much money you're throwing our way, how much business we're getting because you guys have confused the market? So because of that and other things, there is a lot of private lending that, as you've mentioned going on. There's not a whole lot of transparency and that does make me and current regulators worried because they don't have insight into it. And I can tell you that when the Fed, the board used to get together with a lot of bank presidents and have meetings the guy who was always pounding the table was the CEO of PNC. He's like, this is absolutely not fair. They are not being regulated. They don't have the costs that we do, and you don't have insight into them. When are you going to make them a CFI or a significantly important financial institution and regulate them? And I've always scratched my head why Blackstone was not automatically basically waved into a CFI and regulated, and I would imagine as they get bigger and bigger, that's got to come. But yeah, it does worry me a little bit because that's a part of the lending market, even though it's small at this point, you don't have a good idea what's going on. You don't know how aggressive those loans are being. The rumors is when you talk to the bankers and any other lenders is, those are the guys who are being the most aggressive. It's always their competition. Who doesn't have the same sort of cost structure that they do. But as far as like being able to back that up, it is sort of a question mark and could be something that comes back to bite the market.

Martha Coacher: We've seen in the last couple of years, commercial real estate has been in a reset moment. Are we looking at something that's cyclical, in downturn or more of a structural shift? 

Tyler Wiggers: As any good economist, I'm going to say it depends. What I think what's happening right now is very cyclical, but a lot of it depends upon how lasting the current administration's positions are. So if tariffs stay high and they stay for a long time, that could be a structural change. If the whole, hey, the United States was a great trading partner or a great ally and you had independent Federal Reserve, et cetera, et cetera, if that goes away, that would be a structural change. But right now, if we're able to get past this, I think we're looking at a cyclical event, albeit it's probably a big cyclical event but I don't think that we'll have too many structural changes. But again, in my mind, a lot of it's dependent upon how long the current administration's positions are in place.

Manus Clancy: This might be a tough question to ask, but coming out of the great financial crisis in 2010, it was a terrific time to lend. It was a terrific time to play offense. There was very few lenders out there. The people that did lend, did very, very well. You might say the same thing in coming out of Covid, the very first people to move probably made the best money. After Silicon Valley Bank liquidated and lenders pulled back it was another great time, spreads were rich, competition was limited. What would it take for you in the current market to say it's now time to play offense? It seems like we've had a lot of volatility. Are you playing offense or defense as a lender at this point, given the current conditions?

Tyler Wiggers: That's a tough question. If I were a lender, would I be playing offense at this point? I would not. Because and I'll fall back to the TALF days. There's too many things going on with the 800 pound gorilla, the government, that in the market right now, I don't know. A lot of times when I would talk to people, I'd say listen, I don't care if the policies are left leaning or right leaning, as long as I know what the rules are of the road. Then I know where to put my chips. Right now, I don't think that we know what the rules of the road are. So I would, if I were a lender, I'd basically be retrenching, probably making loans still to my good customers. But as far as like looking for exposure or to increase my exposure, I don't know if I would be doing that. I'd want to see where everything settles, or at least have a feel for like, okay, there's a high probability this is what the environment's going to be like, okay, now I can get back in. 

Manus Clancy: Most people are thinking like you do, it's time to play defense. Liquidity gets a little bit tighter. That's got to impact valuations as well as distress, right? People that are facing maturing loans that might be flat or have some negative equity or just barely positive equity. Am I seeing this right? This can't be a healthy sign if most people are thinking like you do. It's time to play defense. 

Tyler Wiggers: Yeah. Anytime we take leverage out of any market, you're going to see values drop. Now for commercial real estate it's a little bit unique. The question in my mind is, when do you actually realize those losses? Because again, the uniqueness of commercial real estate with most property types, having a longer term lease, a lot of the equation is well, hopefully my leases get me through or get the property through this tough time period and everything will be fine on the end. So prices will go down. My experience has been both as a borrower as well as a lender. And I saw it again while I was sort of on the policy side with the New York Fed and the board was that unless some sort of capital event forces the hand of a borrower, they're going to basically try to ride it out as long as possible and not realize those losses. And so if there's a capital event, like maybe a refinancing is coming up or something happens to the property and I need to put in a whole lot of money to fix the facade or redo the lobby or the roof, I think that people are just going to try to ride it out, but knowing in the back of their mind that listen, prices are or values are basically lower than what I want and if I basically realize that I might go out of business. So what's interesting is that from a banking perspective or banking systems perspective, the regulators at this point have become very accommodative in the regulations. And it started with what's called SR097, which is basically a supervisory and regulatory letter, published in 2009, that's where the nine comes from. It was the seventh letter that they published, and that was during Covid, and so it was very accommodative and when I was at the board, we rewrote that in SR235, so it came out in 2023. We basically took the accommodative language we had in 2009 during the covid and basically just packaged it, made a couple of slight changes and packaged up and continued that accommodative regulation. So what the accommodative regulation said, or allowed the banks to do was basically to kick the can down the road. And what it said is, hey listen, if you are a banker or you are a regulator and the collateral value has dropped below the loan value, but the borrower is still able to make their monthly payments, you do not have to criticize that loan. And so if you criticize a loan, you basically have to hold a higher amount of capital against the loan, which basically means that this loan is more expensive for the lender to have on their books or the bank to have on their books. So basically they're saying, listen, no matter what the collateral value does, as long as your lender, as long as your borrower's able to make those monthly payments, you don't have to criticize this.

And that was great coming out of Covid because what did the Fed do? The Fed dropped rates to historical lows. So it was, if you couldn't make your monthly payments, then you probably shouldn't have been in business. Now we're in a different rate environment, right? So not only do we have higher rates, but from historical perspective, we're not really high, but certainly higher than what we were for the past couple of years. Now we have also this potential shock. So what worries me a little bit is that I've got overvalued collateral on the bank's balance sheets that, that basically they haven't had to mark to market, if you will, with the regulators and because of this accommodated regulation. And all of a sudden you've got the stress that comes and there'll be a higher proportion of loans that basically default or find the stress because they as the regulators didn't do their job way back in 2009, 10, 11, 12 and basically since covid. So that's sort of a long-winded answer, but hopefully that's insightful. 

Manus Clancy: Periodically on social media, you'll see stories. They're usually CRE in nature, on X or other places, LinkedIn and there's people out there that always think that CRE exposure means that the sky is falling. We're going to see 50 or a hundred or 150 banks fail. Are you in that camp at all, or do you think you know that's an outlier? 

Tyler Wiggers: I think that prices still have room to come down. So the prices that, that you and I see where the market sees are basically the properties that the owners capitulated. So that's a little bit of an outlier of what the market is. So you take a look at those prices. I think there's probably a little bit of room to move down, but I don't think that we have another 50, hopefully not another 50 percent drop in values to go. 

Martha Coacher: We talked a little bit about the work you did to help put TALF program in place in 2009. Tell us a little bit about that situation, what the problem was that you had to solve and how it worked out in the end. 

Tyler Wiggers: That's a long answer. But I'll try to make it as abbreviated as possible. So there was definitely, from my opinion the crisis basically originated on the resi side, on the residential side, and morphed over to the CMBS because of, again, a lot of the markets, maybe Joe and Sally, six pack on Main Street. When they hear real estate, they don't make the differentiation between resi and commercial. And so it, there was a contagion of that crisis into commercial real estate. And I'm sure Manus will remember this. One of the big things was, oh my gosh, we're using pro forma underwriting. That's so horrible.

And because of that, our values are overvalued or too high, et cetera. And so that basically was a contagion into commercial real estate industry. The Fed decided, and I don't know even if Manus knows this, but because he helped out he helped the TALF program. Originally the Fed was not going to support the commercial real estate industry, so the Fed was with the help of the treasure, the back from treasury.

They're going around creating these liquidity facilities and sometimes funds to help support different industries. So real estate was not on the original list, but I think that there was a strong lobby from commercial real estate and rightly so, that said, listen, we are tremendously important to this economy, and there's thousands, hundreds of thousands of jobs are related. If you let this, basically, if you don't support the commercial real estate industry, you're looking at even a larger catastrophe. So I think that the Fed rightly heard that story and said, wow, how can we support the commercial real estate industry?

And so they decided they had already created this TALF program. The term asset backed lending facility. And they said, well, let's see if we can do something for commercial real estate. Now that's a little bit different of an asset type than what they'd already were supporting. So they needed somebody with, I don't want to pat myself on the back, but somebody who had experience or an expert in commercial real estate to come in and help design that program.

So what we were trying to do was through the CMBS industry, support the overall commercial estate industry. And so I talked about liquidity before about the capital needs to be flowing or things just basically shut down. So capital had from a commercial estate debt perspective had stopped flowing.

So we knew that, hey, listen, we can get the CMBS market rolling again. Maybe the, basically the non CMBS lenders would start as well. So we were like, that's great. But one of the first problems we encountered was, well, if the program that I'm going to design is going to give investors for new issue, for new issuance, and that's what we were worried about. We wanted new liquidity, new issuance to happen. We were going to, we're designing a program that would yield maybe a 12 or 14% return. When the market participants can go into the market and buy legacy, what they call legacy CMBS or CMBS that has already been issued years ago, and they could, get 20, 30, 40, 50% on some of that stuff.

There's absolutely no reason why a market participant, if they wanted exposure to CMBS to go into the new issuance side, which is what we wanted to do from a policy perspective, they would sit and basically invest on the legacy side. So, we talked about leverage. We wanted to bring basically the yields down, and to do that you needed to increase prices.

So we said, hey, we are going to introduce leverage on the legacy CMBS side, and that's going to increase competition, that will increase prices. And we had that basically, I tell this to my students all the time, that negative relationship between prices and return. We jacked up prices, the yields came down to something that was comparable to what we were going to offer the market on the new issuance side.

And then we basically did one new issuance deal, and that was to a borrower that no longer name exists. It's, it was DDR, developers diversified real estate. Out Cleveland, Ohio. That was sponsored by Goldman. And I think that the word got around that the Fed was such a pain in the ass to deal with the new is issue on CMBS, that once the rest of the market participants saw that Goldman and DDR had a successful deal, they said, well, I'm not going to deal with the Fed, I can go out and do this on my own. And that's exactly what we wanted. So a lot of the press, it was interesting, a lot of the press after the program was sort of negative. Oh, they only did one deal, I mean, look at all these other TALF programs, they did millions and billions of deals, the new issuance TALF only did one deal. But the way we looked at it was that was highly successful. There was a lot of risk aversion inside the Fed and the Treasury to a certain extent. Remember, the Fed is a central bank. It's not a commercial bank, it's not an investment bank. This is not their forte. So there are a lot of people who sat on the board, both New York Fed as well as in DC, that didn't really want to have commercial real estate exposure because it sort of was viewed very negatively. So we had to fight that battle. But once we basically issued the one deal, we came back and said, this is highly successful. We got the market to rebound. We resuscitated the market with only putting the Fed and the treasuries, a balance sheet at risk of, a couple hundred million dollars. Some of the press didn't see it that way.

Manus Clancy: I would say it was a great success across the board. I would say, aside from the one deal we saw the reinflation of commercial real estate values, we saw the reinflation of bond prices. And this is not so much a question as it is a set of facts that I'll give just to give people a sense of how awful things were in 2008 and 2009.

Tyler referred to this a little while ago, and maybe for people that were kind of clutching their pearls last week when the NASDAQ was down 15% wait till you hear these numbers. So there were AAA bonds that at the peak of the market in 2007 were issued at a spread of 25 basis points over. The corresponding treasury at that point in time.

Tyler referred to this at the top of the conversation. The spread on those bonds in the secondary market less than two years later ballooned to about 1500 basis points above the 10-year treasury, meaning they were selling for 50 cents on the dollar. So that meant the most secure CMBS bonds, and in this particular case, the most liquid CMBS bond was trading for 50 cents on the dollar. Other bonds that were not as liquid were selling at 40 cents, 30 cents, 20 cents. People who jumped into that market at that time made a fortune, Appaloosa and others. And part of it was the programs put in by the Fed that restored confidence to the market. So I don't know if there's a reaction there, Tyler, or I'll let you kind of riff on any thoughts you had about that time period? 

Tyler Wiggers: You mentioned Appaloosa hedge fund and I remember calling up some of the traders on Deutsche Bank or Goldman and I'm like, are you guys making, even making a market and this stuff and like, no, we're sort of sitting out. Appaloosa, if you remember, had to step in and they were the market maker for a certain time period between a lot of CMBS bonds.

And so it was good to see that the private sector stepped up in that way. But bad sort of for all the trading desks of the banks who are basically so, risk averse that they basically stepped out of the market for a short time. But this sort of comes back to the comment I made before, it's like, this truly was a crisis.

I believe it was a crisis of confidence. As soon as the market participants, saw Goldman and DDR do a deal, they saw trading happen with Appaloosa. They're like, okay, well, I think I could probably do this. And it's already been done once successfully, then I'll basically replicate it.

I remember before the DDR and Goldman deal happened. I was on the phone with the, those lending desks. Like, listen, guys, you got to start making loans. The buy side or the people who are buying these bonds. All they want is a simple conservative deal. They say that they will snap that up, they will buy that all.

You got to do that. And I'm not sure, I'm not sure, but it took one deal and they're like, okay, we looks like the buy side's there. We've got a template, what we can do with Goldman and DDR. Boom, we're off to the races. 

Manus Clancy: One of the things that I guess heartens me about the current period right now versus back then, and again, you could just comment as you see fit going into the crisis in 2007.

People were getting a spread of 25 basis points for AAA CMBS and about 70 basis points for BBB-. Since that crisis, I don't think we've ever been inside maybe 75 basis points on AAA and maybe 325 basis points on BBB-. People are much better at getting rewarded for the risk that they're taking. In addition, we're seeing less leverage lower LTV, higher DSER. It just seems like people have learned their lesson, have they? 

Tyler Wiggers: I would like to think that they have, but memories are short. Basically, Manus, what you're saying is this time is different. And I've got to say that history tells us over and over again that we don't learn our lessons. Maybe it's generational knowledge that slips out as people retire or move out of the industry. No, I think that it might not be this round or this vintage of loans, but no, when you and I are talking about our grandkids and sipping a nice cold beer someplace in the Carolinas, another crisis will happen because of stuff that you and I saw way back when.

Manus Clancy: I have to say, to me, it was an unmitigated success we had not just the TALF program, but the steps that were taken, we reinflated commercial real estate prices with lower rates. The Fed itself didn't take any losses on this program. The paper that was pledged as collateral to the Fed was highly rated and never took any losses.

And ultimately any CMBS losses that were taken, were taken by the private sector. And that's what you really hope for in this. And once we got past Lehman, none of the losses that were taken were. Due to over leverage or too much exposure at the banking level once we guys got past September, 2008. So, I don't know, I think a lot of credit goes there.

Tyler Wiggers: One of the things that we were proud of, and I'll give a shout out to the two guys that I work with that help with the CMBS TALF, Adam Ashcraft, who I think is at Bank of America now, and then Sunil Gangwani, who I think is still at the New York Fed.

We basically came up with this whole CMBS 2.0 and we knew sort of where the glitches were in the loan docs and how the structures were, and we fought tooth and nail to basically try to make some of those changes for the market. And at that point the Fed was the only game in town.

So, they basically, the market had to accept what we had. Now, I don't know how many of those things still exist, of those changes we made. But the whole CMBS 2.0, we were proud as well. Not only do we provide the market, but we're trying to hand something almost like a public good hand that off to the markets.

Okay. Listen, I've heard the buy side and the sell side complain about all these things. Okay, well, we've got the power to. Might not make everybody happy, but hopefully the industry as a whole can move forward with this public good, if you will, of CMBS 2.0. But I don't know how much of that still exists in the docs and the structures.

Martha Coacher: We've talked a lot about the great financial crisis, what led to that, and often there is something that no one's expecting to happen. It happened with Covid, it happened with the GFC. What is the thing that nobody's watching right now that could be the canary in the coal mine? 

Tyler Wiggers: The thing that pops to mind, but I can't truly say that nobody's watching it is the hit on an inter international perspective that the United States reputation is taking and the desire by foreigners to hold assets in the US including commercial real estate.

So again, that comes down to the whole we talked about was their cyclical, structural, if this is a structural shift where people are like. Well, I'm not so sure that this, the US is a safe haven that I thought it was. It wasn't but a week ago, I think that a lot of investors are piling into basically the Deutsche Bund and some treasuries over in Japan, presumably taking them out of the US Treasury.

So if that continues, that could have a really bad effect for the United States. We'd lose sort of the currency as the denominator for the world. We'd have you know, less demand for the assets. That's something that's sort of like, a nuclear result. That would be very, very bad.

And again, I know people are aware of it, but it's, even though you're aware of it, it's tough to see that a lot of times to put the pieces together. So that, that's probably how I'd answer that question. On a cheerful note. 

Martha Coacher: You teach fundamentals of real estate investing. And by the way, you two nerding out on TALF is very fun to listen to. Do your students ever surprise you how they see the future of the industry? 

Tyler Wiggers: So I've been at Miami for two years, so I teach real estate fundamentals like you mentioned in the real estate finance and investment, and I'm the Director of the Real Estate Center of Miami's Real Estate Center, and I have been surprised about the high quality of students and we piggyback a lot on the strong finance program that we have at Miami. Myself and actually another professor we just hired about a year ago, his name is Professor Simon Camilo Buchler. We hired him away from MIT's real estate program. So between Simon and I, we've got this really talented pool of students and it is surprising, like one of the things I do in my classes, I call it the future of commercial real estate exercise, and it's a presentation they have to give to a panel of alumni. And I put the class into teams and I assign each team one of the, what I call the five main food groups of property types. So office, industrial, retail, hospitality, and multifamily. And then I pair that property type with a trend, a current trend or a new technology. I'll give you an example. Industrial, I paired with 3D printing. So I asked them, I said, okay, I want you to think about those two things. Put your thinking cap on and find out how that technology or trend is going to disrupt that property type. Then put your owner cap on and choose one of the disruption, the first or the first two disruptions that you think that a current owner might be able to grab the most value from and then I want you to come up with a commercialization idea based upon that, and then pitch that to a mock capital source. So you're flying to New York, you're flying to London or Chicago and trying to basically raise money for this idea and some of the creativity that these students come up with, it is just, it's phenomenal.

It's sort of blown me away. So I've been very happy with definitely the students and we're just getting the program off running. It'd be something that's nationally recognized. 

Manus Clancy: As somebody who is a student of Tyler's in a way in 2008, hearing his discussion of what the Fed could and couldn't do. He has a terrific way of taking dense subject matter and boiling it down to something simple. So I can only imagine how great it is for the students of Miami to have you as a professor and how lucky we were today to have you on board with us. It was a great hour. 

Tyler Wiggers: I appreciate you guys talking about the topic because I'm really passionate about it and I think it's important and I'm great that LightBox is here to shine a light on it because I think it's definitely worthy of the light. So thank you guys. 

Martha Coacher: Thank you, Tyler for joining us today. Thanks to our producer Josh Bruyning. Please join us every week as our LightBox team shares CRE news and data in context.

You can listen and subscribe on any of your favorite podcast channels and send any comments or questions to podcast@lightboxre.com. Thank you for listening and have a great week. 

Manus Clancy: Let's go.