Market Insights from Dennis Lockhart: U.S. Economic Outlook, Fed Policy, and Commercial Real Estate Trends
Peachtree Group CEO Greg Friedman and CFO Jatin Desai hosted Dennis Lockhart, former President of the Atlanta Federal Reserve for a fireside chat conversation during Peachtree Group's annual Investor Day. Lockhart spoke on the US economic outlook, Federal Reserve policy, geopolitical risks and commercial real estate trends.
Here are key highlights from their discussion.

Summary of the Economy:
- The U.S. economy is performing well with steady growth. First-quarter growth was around 1.3-1.4% annualized GDP, but underlying indicators suggest stronger performance, with the Atlanta Fed projecting 3.1% annualized GDP growth for Q2 2024.
- Unemployment is low at 4%, with recent job gains of 272,000. The private sector, especially healthcare, is driving job growth, leading to a more sustainable employment market and supporting consumer spending.
- Strong employment ensures income stability for consumers, driving sustained consumption, which constitutes about 70% of GDP.
- Inflation has decreased from its peak but remains above the Federal Reserve's target. The Fed prefers the Personal Consumption Expenditure (PCE) Index over the Consumer Price Index (CPI), with the current core PCE inflation rate at 2.7-2.8%, still above the 2% target. While adjusting the target inflation rate from 2% seems highly unlikely due to the Fed’s strong commitment and public trust in this goal, a more flexible approach within a defined range might be possible. This allows the Fed to address inflation without formally changing the target, leveraging the current economic strength to be patient and let inflation decline over time.
Federal Open Market Committee’s Perspective:
- The Federal Open Market Committee (FOMC) is committed to making decisions on interest rates and monetary policy without political influence. Over a decade of attending meetings, Dennis has rarely seen political considerations come up. However, by tradition, the FOMC avoids action in the meeting immediately before a national election to prevent any appearance of political bias. Under Jay Powell's leadership, if necessary, the FOMC would act in September, but current conditions likely won't force action until after the election.
- While different policies implemented by the elected candidate could shape the economy in the long term, the election itself is not anticipated to have an immediate impact. However, if post-election circumstances lead to significant disruptions, it could give the Federal Reserve pause at their November meeting.
- If inflation doesn't improve or disinflation stalls at around 2.7-2.8%, the Fed may need to raise rates further. Conversely, consistent positive disinflation data could lead to rate cuts by year-end. There are several scenarios to consider:
- Sticky Inflation: If inflation remains high, the Fed might raise rates toward the end of the year or early 2025.
- Disinflation Resumption: Positive disinflation data could lead to rate cuts in November or December.
- Economic Slowdown: If the economy shows signs of faltering and businesses anticipate a recession, resulting in layoffs and reduced consumer spending, the Fed might cut rates to stabilize the situation.
- Financial Instability: A financial stability event, similar to the Silicon Valley Bank incident last year, could prompt the Fed to cut rates to address underlying banking system issues, especially in commercial real estate.
- The FOMC's narrative is that the economy is gradually slowing down. The employment picture remains very positive and strong, though it is rebalancing and not as robust as in 2022 and 2023. Inflation is still elevated, but the FOMC believes disinflation will resume, allowing them to begin easing policy restrictions by the end of the year. However, all of this depends on how the data comes in and the overall economic picture painted by the upcoming months. Upcoming Fed meetings are scheduled for July, September, November, and December. Policymaking remains cautious, with an emphasis on waiting for clear trends in inflation data before making further changes.
Geopolitical Risks:
- Geopolitical events can significantly impact financial markets and potentially change the economic outlook for the U.S., at least temporarily. These events, often unexpected, can disrupt equity markets and influence the economy. However, the Federal Reserve tends to be largely oblivious to geopolitics. Despite being close to the State Department, the Fed staff, mostly PhD economists, focus primarily on domestic issues and rarely consult with experts on geopolitical matters. This domestic focus means that while geopolitical events are serious and can influence the economy, they are not heavily factored into the Fed's policy decisions or economic projections.
Monetary Policy:
- The balance sheet is a central tool for monetary policy. When interest rates hit zero during the Great Recession and the pandemic, the Fed used quantitative easing (QE) to stimulate the economy by increasing bank reserves, which supports lending and adds liquidity to financial markets. This led to the significant expansion of the Fed's balance sheet.
- Currently, the Fed is slowly reducing its balance sheet to withdraw stimulus from the economy. This process, known as quantitative tightening, aims to find a new balance that provides ample bank reserves and liquidity without disrupting credit markets. The Fed approaches this carefully to avoid financial instability, such as the incident that occurred during a previous tightening attempt. This balance sheet adjustment is a critical but often behind-the-scenes aspect of monetary policy.
Fiscal Policy:
- Fiscal policy, especially deficit spending, boosts demand and contributes to inflation. During the pandemic, significant stimulus measures supported households and businesses but also added to inflationary pressures. However, inflation is a global issue and not solely caused by domestic fiscal policy.
- Federal Reserve Chairman Jay Powell acknowledges the unsustainable fiscal situation due to high debt levels but avoids criticizing Congress. The Fed factors in fiscal policy as one of many economic influences, recognizing its role in supporting growth, which can conflict with the Fed's inflation control efforts.
- The Treasury's debt issuance strategy affects the bond market and banks holding these securities. Fiscal and monetary policies often create conflicting pressures, but the Fed incorporates these effects into their economic assessments and decisions.
Banking Sector:
- Banks, particularly regional and community banks, have significant exposure to commercial real estate, making up around 40% of the market. While national banks have less exposure, the real estate market downturn has affected all banks, with properties like office spaces experiencing severe value declines and multifamily properties down by nearly 30% from their peak values due to high interest rates. Despite Federal Reserve Chair Powell's reassurances about the banking system's stability, there are concerns about the real-time recognition of crises. Historical precedent suggests that crises often go unnoticed until they are well underway.
- The upcoming maturities of approximately $850 billion in commercial real estate loans present a potential risk. The exposure is dispersed across various financial entities, which is somewhat reassuring. However, small and regional banks are particularly vulnerable. The failure of a significant regional bank due to real estate exposure could have severe economic repercussions, unlike the manageable impact of community bank failures.
- Banks are currently managing the situation by extending loan maturities, effectively buying time to stabilize individual properties. While this approach can mitigate immediate issues, it also reduces banks' lending appetite. A significant reduction in credit availability, particularly for small businesses that rely on smaller banks, could trigger a recession. This dynamic highlights the delicate balance between managing existing problems and maintaining sufficient credit flow to support economic activity.
Commercial Real Estate:
- The near-term and long-term valuations of commercial real estate, particularly in hospitality, will depend on market fundamentals. The office sector faces significant challenges due to the rise of remote work, which could reduce long-term demand for office space. Companies are still figuring out their office policies, with some adopting hybrid models.
- The retail sector is affected by online shopping, and the hospitality sector is recovering from the pandemic but hasn't fully rebounded. There are no major issues expected in hospitality unless there is overbuilding.
- Office spaces were already saturated pre-pandemic, and suburban offices now struggle to find tenants. Many offices remain underutilized, with some businesses likely to stay remote. Converting office buildings to apartments is often not feasible due to technical constraints.
- The multifamily housing sector continues to show strong demand and remains a stable area in commercial real estate.
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This idea rings especially true in today's market, where uncertainty, volatility and shifting economic conditions create both risks and opportunities. The most successful investors recognize that these periods often present the most compelling investment opportunities.
We, too, see these moments as catalysts for strategic capital deployment. The evolving commercial real estate landscape is creating precisely the kind of dislocation where disciplined, well-capitalized investors can thrive.
As our team assesses the commercial real estate landscape, recent developments in the credit markets continue to present compelling opportunities.
The latest banking data reveals a noteworthy shift: while demand for C&I loans rises for the first time in two years, banks continue tightening the grip around commercial real estate.
Despite increasing demand for liquidity, traditional lenders remain highly selective, offering lower loan-to-value ratios and requiring stronger borrower covenants. As a result, many commercial real estate owners and developers face significant refinancing challenges, particularly with the substantial level of debt maturities in 2025 and beyond. We are talking about trillions of dollars in loan maturing.
This dynamic reinforces a growing reliance on private credit lending, a space where our firm not only has a long track record but is also well-positioned to capitalize on ongoing market dislocations to deliver attractive, risk-adjusted returns.
Our firm's ability to pivot across the capital stack—originating loans, acquiring debt or investing opportunistically - positions us to capitalize on this dislocation.
With rising debt costs and limited refinancing options, many commercial real estate owners will be forced to make tough decisions. While this warning has been repeated over the past few years, we are now at the proverbial end of the line. As a result, we anticipate an increase in asset sale opportunities, acquiring first mortgages and recapitalizations.
Our experience in navigating prior downturns, coupled with our underwriting expertise, allows us to approach these opportunities with discipline, ensuring we secure assets and debt positions at favorable valuations.
Positioning for the Future
As we move through this evolving economic cycle, our focus remains on the disciplined deployment of capital into opportunities that offer strong upside potential while minimizing the downside.
We recognize that market dislocations create compelling entry points for special situation investments. As liquidity constraints tighten across key sectors, we are strategically positioned to deploy capital into high-value opportunities. In hospitality, the deferral of brand-mandated renovations is reaching a breaking point, driving distress and accelerating transactions—further reinforcing the need for flexible, well-capitalized investors to step in.
Our experience in stressed investing and structured finance enables us to use creative solutions when traditional capital sources are unavailable. By maintaining a flexible approach and strong liquidity reserves, we are positioned to act decisively as the market turns, capturing value where others cannot.
The favorable landscape for private credit lending will remain with us for years, but as it evolves, it is also creating new opportunities that we are poised to seize. Our ability to deploy capital where others cannot continue to drive outsized value for our stakeholders.

Finding Opportunity in Commercial Real Estate’s Great Reset
In this episode of Peachtree's Point of View, Greg Friedman welcomes David Bitner, Global Head of Research and Executive Managing Director at Newmark, for an in-depth discussion on the commercial real estate landscape. They cover key economic and market trends, including the impact of sustained higher interest rates, the evolving debt market, and investment opportunities in a rapidly shifting environment. A major theme of the discussion is how higher interest rates continue to reshape commercial real estate valuations.
Commercial real estate investors and operators are facing a fundamental shift in market dynamics, with the era of ultra-low interest rates firmly in the rearview mirror. In a revealing conversation with Greg Friedman, David Bitner, Global Head of Research at Newmark, emphasizes that this change isn't temporary – it's a permanent feature of the investment landscape that requires a complete recalibration of expectations and strategies.
Looking ahead this year, Bitner anticipates continued volatility in interest rates, with the 10-year Treasury likely to run between 3.8% and the mid-5% range. This volatility, coupled with ongoing economic uncertainty, will significantly impact transaction activity and asset valuations across all property types.
Despite these challenges, there are bright spots emerging. Office markets showed their first positive net absorption in 18 quarters during Q4 2023, suggesting a potential turning point. The industrial sector is poised for recovery, particularly in secondary and tertiary markets, driven by near shoring trends and over $530 billion in planned manufacturing investments. Multifamily properties, especially new construction, show attractive pricing dynamics relative to existing stock.
For investors looking to deploy capital, David suggests a balanced approach with a significant allocation to debt investments, where spreads appear more attractive than equity returns. He particularly highlights opportunities in direct lending and mezzanine debt, where returns can reach 14%. On the equity side, he points to value-add opportunities in trophy office conversions, though emphasizing the critical importance of submarket selection.
The wall of debt maturities remains a significant concern, with approximately $2 trillion in commercial real estate loans maturing over the next couple of years. While banks have largely employed an "extend and pretend" strategy thus far, David suggests regulatory pressure and dwindling extension options could force more resolutions in 2025, leading to increased transaction activity and price discovery.
The podcast also touches on potential policy impacts from the new administration, including proposed tariffs and deregulation efforts, which could create both challenges and opportunities for commercial real estate markets.
For investors and operators in commercial real estate, 2025 promises to be a year of continued adaptation to new market realities. Success will require embracing volatility, adjusting return expectations, and taking amore targeted approach to investments across both debt and equity opportunities.

Peachtree Point of View explores today’s complex investment landscape, offering expert insights and actionable strategies to navigate dislocated markets and capitalize on mispriced risk. Each episode dives deep into market dynamics, equipping you with the knowledge to better understand and navigate the ever-changing financial world. Whether you're looking to invest, raise capital, or partner, we’ll reveal the tools and strategies needed to generate superior risk-adjusted returns.
Don’t miss an episode—catch up on past discussions and stay ahead of the curve. [Listen Now]
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House Views for 2025: Insights from Peachtree Group Senior Leaders
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This year marks a watershed moment for commercial real estate stakeholders. The erratic nature of the market demands a deep understanding of financial tools and the willingness to embrace alternative approaches. Success hinges on adaptability, innovation and a thorough grasp of market dynamics. While the headwinds are expected to persist, this environment offers unique opportunities for those who are prepared.
Peachtree Group CEO Greg Friedman wrote about those challenges in this blog post: 2025 CRE Market Forecast: Adapting to Disruption.
Below, the Peachtree Group team shares their insights into how the market is evolving and their strategies for overcoming challenges and capitalizing on the opportunities in this transformative period for the commercial real estate industry.
“2025 could mark the end of the 'kicking the can' era in commercial real estate, as outside pressures - banks, brands and partnerships - force transactions that can no longer be delayed. We've already seen the shift begin in late 2024, with assets that stalled during prior marketing cycles resurfacing under note sales and distress-driven deals. As equity takes a backseat and control shifts to outside parties, prepared investors will find unique opportunities in this evolving landscape.”
Michael Bernath, SVP Acquisitions & Dispositions
"With debt maturities as the primary catalyst for capital events, the elevated interest rate environment and shifting property fundamentals are driving investors toward alternative strategies such as rescue capital, preferred equity and special situations. Borrower indecision and bank disagreements are fueling loan sales, while partnerships face stress from owner fatigue and capital calls, creating opportunities for M&A and large-scale equity trades. Against a backdrop of geopolitical risk, inflation and rising fixed costs, innovative and strategic approaches are essential for achieving growth."
Michael Ritz, EVP, Investments
“Banks, buoyed by strong reserves, are expected to sell commercial real estate loans as they manage risk exposure, address tighter regulatory requirements and free up capital. This trend will likely increase note transactions, offering investors access to discounted or even distressed assets. The market is also witnessing a significant rise in hybrid credit structures, blending debt and equity characteristics to provide flexible capital to borrowers while delivering attractive risk-adjusted returns to investors. The shifting environment in which traditional financing avenues are evolving presents opportunities for those equipped to navigate this chaotic market."
Jeremy Stoler, EVP, Debt Capital Markets
“In anticipation that public equities markets will generate lower annual returns over the next decade than in the decade prior, investors will increasingly seek alpha through alternative investments. Foreign capital partners in certain geographies and markets will continue to turn to U.S. commercial real estate to hedge against currency and geopolitical risks. Meanwhile, sponsor and LP fatigue will create a fertile environment for secondaries, special situations and structured finance deals, where fundamentally strong assets with challenged capital structures may be acquired or recapped at attractive valuations.”
Daniel Savage, VP Investments & Strategy, Equity Capital Markets
“The EB-5 program offers commercial real estate developers a distinctive advantage by providing lower-cost capital that enhances investment returns while creating jobs and driving economic growth. By including EB-5 financing into their capital stack, developers can better navigate stricter lending conditions and rising construction costs. This approach not only maximizes value but also positions the property for long-term success.”
Adam Greene, EVP, EB-5 Program
“Lenders holding post-COVID distressed loans, recognizing they won't recover cash flow, are preparing to liquidate in 2025, creating opportunities for strategic buyers. However, a 'higher-for-longer' interest rate environment continues to stall the transaction market, as sellers resist trading at elevated cap rates, prolonging the bid-ask gap."
Jared Schlosser, EVP, Hotel Lending & Head of CPACE
“The commercial real estate development landscape continues to evolve, and the fundamentals of the hospitality industry enable it to standout as a strong and flexible sector ready to take advantage of new opportunities. With generally higher cap rates, supply growth well under the long-run average and strong investor appetite in areas supported by the federally backed Opportunity Zone program, the hotel industry is well-positioned to lead new projects, especially in infill locations. This growth shows how development will move forward, even as other real estate sectors face tougher challenges and economic struggles.”
Will Woodworth, VP, Investments