← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
348. Office Origination, Stagflation, Job Data Misinformation & Retail Earnings Fluctuation
00:49:17
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- [00:00]
A
Foreign welcome to the Tripwire Podcast, the show where commercial real estate meets data and insights. This is our Week in review for the week ending August 22, 2025. I'm Hayley Kean with Trep, a data modeling and analytics firm for the CMBS Commercial Real Estate and CLO Markets. I'm with Lonnie Hendry, Chief Product Officer, and Steven Bushbaum, Research director. This week, markets were flooded with conflicting signals. On one hand, July's producer price index came in hotter than expected, cooling hopes for a big Fed rate cut next month. On the other, consumer inflation stayed in check, retail sales met forecasts, and while sentiment slipped a bit, household budgets haven't shown a dramatic pullback. We also saw some of the major retailers report earnings, Home Depot posted some of its best numbers in years, Lowe's raised its outlook and Target stumbled despite an earnings beat, which again highlights the uneven consumer environment. Housing starts surprised to the upside, but building permits and homebuilder confidence moved lower, underscoring more uncertainty in the broad real estate picture. Add to that that Fed minutes showed more concern about inflation than jobs and Jay Powell is set to speak in Jackson Hole this week. So the outlook for rates and growth remains anything but settled. And while we debate stagflation risks in this episode, we'll also cover new office originations hitting the market, some data for the office market, and some signs of life in New York City. But let's start at the top here. So Steven, is stagflation on your mind?
- [01:44]
B
Absolutely. Stagflation is the risk that has really unsettled my gut for a couple months now. And I mean, if we just look at all of the factors in play, if we look at the reaction functions of the market following data releases, I mean, we have anything but certainty in the market today. So let's start with the Fed minutes. Those just came out this week and highlighted that the Fed, prior to last week's jobs release, was more concerned about up risks to inflation than they worried about downside risks to employment. And then all of a sudden we got this really, I don't want to say overly negative, but it was, let's make no mistake, that was a negative jobs print that we got. And so throwing that into the mix makes me adjust my lens and I want to zoom into some interesting employment numbers here that highlight just why, just how much I'm worried about stagflation because it's unambiguous that we have price pressures, right? The tariffs and continuing pressures for affordability in the housing market, the confluence of Factors make inflation a persistent issue that we really don't have any problem arguing about. Right. We all agree price pressure is there. And then on the employment data we get much more mixed bag. But let's zoom into some unemployment numbers. We keep hearing from the Fed. There's not a whole lot of concern about employment because we're at historically low employment levels. But where you see some creep is in the prime working age cohort. And this has me worried about growth prospects. If we have underemployment happening at the prime working age cohort, 18 years of age, up to 24 years of age. If we look only at the past year of data, In July of 2024, we had the 18 to 19 year old cohort have unemployment of 13.4%. So not good, but not terrible. In July of 24, well, that's crept up to 16.4% in June, it was 15.8% in July. So we're up by more than 2 percentage points in unemployment for that 18 to 19 year cohort. Then if you look at 20 to 24 years old. So this is the prime entering the workforce cohort, the unemployment rate was 8.1% last year. It's moved up to the mid 8% level this year. I mean, that is a very telling sign of just how difficult it is for our recent graduates to enter the workforce. And that's not going to get any easier with AI. So I do worry that we're in this weird dynamic where our growth is going to stall out, we're going to be able to muddle by because these advances in AI will increase productivity, but we're not going to see the same wage gains that we need to counterbalance the inflationary forces. And so with tariffs continuing to gradually roll in to focus and will continue to roll into focus over the next 12 to 18 months. It's this persistent price pressure with a lukewarm employment picture and I don't love it. Now, maybe this is just my pessimism. Clemson just started back classes this week and so maybe I'm just a little bit biased for looking at that young cohort and all of the stresses that come with school starting back up. Lonnie, do you feel more positive? I need some positive energy here.
- [05:07]
C
Well, you know, Stephen, I'm usually good for some positive perspective and I think you're maybe being a little bit negative, but the numbers don't lie. I mean, for that cohort, it's really challenging. It's not the first time though. I mean, there are some similarities here. If you look back at the last time we had a significant real estate disruption in the GFC where it was really difficult for college aged folks to, to find jobs. And I think at some level you're seeing this play out and you know, you can, you know, look online, read articles all day that talk about job titles with the term analyst in them are effectively at scale being replaced by some form of LLM or AI or some agent. Now for every one of those articles you're, you know, you're seeing a smattering of other articles saying that companies that have invested in gen AI use cases etc today have not seen significant lifts in revenue or other things. So, you know, maybe this is just a byproduct of a short term phenomenon. However, I do think it causes some challenge. You know, you've probably seen this too Stephen, a lot of talk around going into the trades and maybe not going straight to college after high school and other things. If that were true, you would think that those numbers would be better for those cohorts. So, you know, I'm a little bit conflicted on that. I think, you know, we'll get some insight from, from where Powell feels things are when he's in Jackson Hole this week. I mean, I know that's always a huge media, you know, promotion that gets put on there. And so I think this year will be obviously even bigger given this is going to be the last time that he's in Jackson Hole and you know, all of the political pressure he's been facing. So I, I think the challenges are real, the uncertainty is real. You know, at this point the uncertainty I think is really just reflective of nobody knows when the tariffs are going to start impacting things. You know, I think Rachel's done a great job on our Market Pulse webinars and other things of kind of tempering my deal making mindset of saying, look, the markets have said that they're not worried about tariffs, they've already moved on originations, pick back up post Liberation Day, et cetera. And she keeps warning like, yes, but tariffs take time to actually work their way through the system and we haven't seen that impact yet. So I would say maybe a little bit slightly more optimistic than you Steven, but not overwhelmingly optimistic. I think there's a lot of headwinds still and if the Fed doesn't lower rates, which I think the CME Fed watch tool last week was a 95 plus percent that there was going to be a rate cut. When I checked yesterday it was down to 84%.
- [07:27]
B
Yeah, I'm glad you bring that up, Lonnie, because it's actually gone lower again today. We're down to 82.9% today. So you're right. I mean, it peaked at gosh last week it was up to 99%, but the average across the week was like about 95%. Which is interesting because if you look at the yield curve, I mean, the yield curve is more in favor of pricing in those rate cuts nearer term. Now, it's hard to interpret that for any specific Fed meeting. So you kind of got to take some liberties here with how you translate a steepening yield curve due to lower front end yields to what that means for the next Fed meetings. But the yield curve has steeped pretty considerably and I feel like we're going to continue seeing that play out for like the next six months. I don't see any reasons at this exact moment for the yield curve to flatten more. Right. The front end of the yield curve is hopefully going to continue to grind slightly lower, but we'll continue to see those pressures on the higher end, which is particularly painful for those fixed rate commercial real estate loans. You know, fortunately there's a lot of creativity that you can use to your benefit as a borrower these days. I mean, shoot, if, if you want to still try and take advantage of lower rates. I saw somebody this week on Twitter talking about potentially using a collar strategy for your floating rate loan. So there's a lot of interesting ways you can still try and capitalize on some lower rate potential here in commercial real estate. But yeah, that higher pressure on the long end is, is not great.
- [08:58]
C
I don't know if you saw this. This week our friend Jay Parsons put out a really nice post about the census data that was released on U.S. multifamily housing starts. And he took a pretty strong position saying that it's time for them to revisit the methodology. And so I think as we're talking about some of the uncertainty and just the data around PPI and other things, like at some level people are just starting to question the validity of some of these outputs that are used to kind of be a barometer for where we are in the market. So, like, what he was saying here is census is saying that multifamily starts in July soared to the second highest number for any July in nearly four decades. Reported non seasonal monthly total of 42,000 units or an annualized starts of 470,000 surpasses the actual peak seen in 20, 21 and 22 when we saw Incredibly cheap debt and increasing, you know, record demand follows the Census reporting that June 25th were the fifth highest for any June since 1990. So if you look at the construction pipeline, and we know what's happening with high land cost, cost of capital, and all this stuff, construction starts have plummeted. But if you were to read this report in a vacuum, you would effectively think that everything is on fire here. And it's. He goes through and he lists some really nice points of how and what they could do to try to remedy some of this. But it's. It's just really challenging if you're somebody looking to, you know, rely on some of these, you know, standardized reporting mechanisms to, like, have faith in the data at this point. It's, you know, obviously we're in the data business. We know a little bit about data. It actually highlights the fact why trip data is really, you know, something you can rely on and build forecasts off of because it's actual data provided by the property owner. But in this example, something that should be reasonably supported seems to just be significantly overstated.
- [10:49]
B
You know, it's interesting you bring up the data quality issue, because speaking of data quality, there was recently talk about potentially reducing the frequency of jobs data. So the prospective new head of the bls, which, you know, who knows if he'll actually pass the nomination process and become the head of the bls, he has long trashed the quality of the monthly jobs data and at one point tossed out a proposal that we could, you know, just maybe move to a quarterly release system, because the quarterly jobs numbers are what's of the highest quality. And so we'd be essentially purging some of the noise from our process. But that proposal has a lot of people spooked. And some of the quotes that we saw in this article highlighted just how concerning that would be. So in this article from Biznow, one of the folks they quoted is a professor of real estate at the Wharton School of Business, and he highlighted the fact that a lot of brokers use models that are based on jobs data to basically forecast future demand that then plays into their leasing terms and concessions they offer. So if we were to completely just revamp and trash the old system that was releasing monthly data, you're going to throw a wrench in what is some of the critical workings of the commercial real estate industry. And I don't know about you, Lonnie, but that's the last thing I want to see, is to throw a wrench in how leasing operations are modeled.
- [12:22]
C
Yeah, but it just speaks to a bigger question, Steven, that like a large portion of our industry is built off antiquated processes and antiquated data. I mean, that it's an inherent challenge for us. Great, we got to keep the old crappy data because it's going to break our models and we can't continue to run them. Like that's, that's not a strong position to say why you should keep something. It personifies kind of the challenge that I think commercial real estate has broadly of people's lack of willingness to adapt technology and incorporate new workflows into their existing process. Because we've always been a relationship, business forecast have always been modeled a certain way. But the markets have changed, the times have changed, technology has changed, expectations have changed. People actually have a better sense of what's happening just from their own experience on the ground and the accessibility of data that's now available to them. They don't really have to rely on these reports like they did, albeit they still do for a lot of things. But at some level you can't. I have a saying I've worked through some transformation projects in my career and it's like you can't have a workaround for a core process. You can have workarounds for things that in version 1.0 don't work exactly how they were designed. And so you work around it for a few months while they finish it out. But if it's core to your process, it can't be a workaround. And at some level, these just data reports that come out that are just so far off, it just makes it to where you're trying to work around a core process. And I think that's really hard to do. So what we know is that these are long term investments. The market participants have their own proprietary data sets that they more heavily rely upon. The practitioners, at least more of the academics than others, look at some of these things more broadly. I think we'll be slow to see change, but I think it's good for Jay and others to kind of speak up on this topic just because at this point the discrepancies are getting to a level where it really begs the question, is the data good enough to build any models off of?
- [14:25]
B
Well, and the good part about where we're at right now is it's incredibly low cost these days to rebuild a model from the ground up. I mean, yes, you still have a good bit of work ahead of you, but you know, the data cleaning and the coding process is so much easier with things like Copilot that the lift is probably overstated, which I think you alluded to that a little bit here. But what's still just, I don't know what still frustrates me to no end is I have a hard time accepting the fact that we can't get better data. Like really with all the technology in place these days, we can't improve from where we're at currently. And that just, that's a perpetual, you know, talk track. But speaking of good data, we had a piece that was published this week in the rundown talking about retail earnings. And that is an example of some new data that gives you the ability to get some really interesting insights. So, Lonnie, do you want to talk a little bit about what's happening with the American consumer and retail sales right now?
- [15:29]
C
Yeah, this has been a really good story and it continues to be. And we've been surprised to the upside for the last couple of years just how strong consumer spending has been and how retail sales have continued to hold steady. And this, this week we got some very similar news. I mean, American consumer continues to remain healthy. There's not been any demonstrated pullback in spending. Last month retail sales total just over 726 billion, which was up 5.10of a percent from June. That's according to the US Census Bureau, which we just got through, you know, dismantling their, their multifamily housing report. But you know, we'll take this at face value. Sales for three months through July were up 3.9% from a year ago. And July sales were up 4.3% from a year ago. So no matter how you slice it, the data looks really, really strong. So you may ask yourself, you know, where were these consumer spending? And so this comes from Colliers. They compiled a neat list. They said that apparel stores saw sales jump by 7.4%, maybe to your description, Stephen, of back to school shopping and some of these other things. Some apparel stores saw the benefit of almost an 8% jump which, which was tied mostly to promotions on back to school furniture. And home stores also saw 5.8% increase, which is a really strong set of sales for those groups as well. Hobby Lobby, Staples and Ollie's Bargain Outlet saw the biggest year over year gains in foot traffic. They saw increases of, you know, 15.6, 14.6 and 11.2% respectively. So major retailers have started reporting their earnings. Home Depot was among the first had a mixed picture. We didn't buy as many tools it looks like or maybe wrenches. As expected last month Revenue came in slightly less than expectations as the high interest rates held back consumers and considering large home improvement projects. But Home Depot expressed confidence that same store sales, which were up by 1.4% from a year ago, would also be up 1% for the full year. So that's where the mixed bag comes in. So you know, stepping away from just the retail earnings and looking at some retail properties, Steven, you know, you could say that some of the earnings are just background noise. Retail properties are doing quite well. There's been a lack of development across the sector. If you look at UrbanEdge properties, they own 72 properties with 17.1 million square feet, mostly grocery anchored stores in Boston D.C. corridor. Their portfolio is almost 97% occupied. And properties are in dense markets which have little vacancy across those, those metros. They have had a few tenant bankruptcies, but their chief operating officer says that that's just part of the business and they're not worried about it. They think they can embrace them as a reality and turn them into an opportunity, which we've talked about at, on this podcast. So, you know, if you lose somebody like Party City or at home, you're pretty well positioned to retenant those fairly quickly and they've been able to do that within their portfolio.
- [18:30]
B
Yeah, that, that piece in particular is one I'm very, very interested in seeing how it plays out. Because if you look at like footprint size, sure, retending a Bed, Bath and Beyond seems a little bit more straightforward. I feel like you have a much deeper well to draw from and retenting that space. But Kohl's, I don't know for, for some reason I feel like that potentially could be a little bit more difficult. So I'll be interested to see how the retenanting plays out on about a dozen of these locations that I expect to be in very desirable locations. Probably the other half, I haven't seen the list, but it wouldn't surprise me if it's going to take a little bit longer to backfill. But we'll, we'll see how this plays out.
- [19:12]
C
Yeah, I think for Kohl's, I've seen a couple of those turned into those urban air type of trampoline parks. But to your point, they're pretty big footprint and it's, it's difficult. I have seen a couple get subdivided up and then you have home goods move into a component of it or maybe even like a home goods and a TJ Maxx Cross store. So it'll be interesting to see how that plays out. But I agree with you. Those, those larger single tenant footprints like that, sometimes, especially Kohl's, a lot of times a standalone does make it a little bit more difficult to re tenant them.
- [19:43]
B
Well, if you can get them out soon, as in this month, there's one tenant in particular that comes front of mind to retent that space with. Can you tell me what that is, Lonnie?
- [19:53]
C
Oh, the old Halloween Halloween store. I don't know what I'm.
- [19:58]
B
Siri.
- [19:58]
C
Yeah, whatever. What is the official name?
- [20:01]
B
Spirit of Halloween.
- [20:02]
C
Oh, yeah, Spirit of. Spirit of Halloween. Yeah, we need to get a meme for this podcast for that.
- [20:08]
B
Oh, I can't wait. It's my favorite time of year. Pumpkin lattes and seasonal tenants.
- [20:15]
A
Okay, let's transition us here to some big stories we saw this week. For the past several months, we've been talking about new originations and issuance, specifically in cmbs. And several months back, we looked at New York City and originations that are occurring there. Some that are much larger than we've seen in the past. Let's talk about an article we saw in the Wall Street Journal this week titled New York City Offices are Back. Nothing proves it more than JP Morgan's three Billion Dollar Tower. And then I want you guys to just get into some of the other stats we're seeing for origination and New York City cmbs.
- [20:52]
B
Yes, this is a development that is very, very close to the TREP headquarters office in New York City. So it's near and dear to us. We've been watching it take shape for years. And I mean, Lonnie, you've talked about this development numerous times over the past couple of years, just how long it takes to develop a building of this scale in New York City, especially when you're dealing with a tear down as well. So after more than six years of development, the bank is preparing to move thousands of employees into its new 2.5 million square foot headquarters at 270 Park Avenue. And that should be coming later this month before its official grand opening here in October. The 60 story building is a roughly $3 billion bet that new York is definitely back after years of uncertainty about whether it would maintain its leadership in business and finance. So to quote the New York power broker Catherine Wild, who's the head of the partnership for New York City, she says, quote, it's a very big deal. It's a statement about the future of New York City. So as the city rallies, the rest of the country is slowly clawing its way back. New York City office visits or foot traffic exceeded 2019 level the first time in July. According to Place youe AI data, it was the only major city to hit that milestone. Office visits nationally though were down 22% in July compared to that same month in 2019. So we talked a little bit about this last week and have covered the topic numerous times. But to me this is a great milestone to see hit that we're finally back past 2019 levels for office visits in New York City. That's, that's a meaningful benchmark. At least I feel like it is. Lonnie, do you have a different opinion on that?
- [22:33]
C
They started this project with the demolition of the existing building back in what, 2018? I think latter part of 2018. So it exemplifies how development projects work. If they had started this project or been slated to start this project in 2020, I'd be hard pressed to think that they would have moved forward with this. They were kind of midstream when Covid hit midstream with work from home and all of the challenges. They still had two, three, four years post, five years post Covid to kind of get things returned to office and back to normal. The timing of this actually comes at a really great time for them in the sense of the grand opening is this October. The New York City market is pretty much back on fire for these high end class A buildings and they're going to be able to consolidate their footprint and move people into their flight flagship building. It's a great story for New York City. The location of this is great. It's a three billion dollar building that is, I mean it's a world class building. It's incredible when you walk past it at the design, the structure. Everything about this is, you know, it's, it's definitely on par with one Vanderbilt and some of the other just incredible buildings in New York City. So I think it's, it's good from that perspective. I think it's, you know, I don't know that I would necessarily say New York offices are back and nothing proves it more than this $3 billion tower in the sense that this was kind of a project that had started many, many years before the office market took its dive. I think if you look at the sales transactions that came out this week, we had a billion dollar deal in New York City and a few other things. Those are probably maybe more indicative of the strength of the market from a timing perspective than this. But I'm excited to see this open up. It'll be nice to have the construction gone and it'll be great just to see the building. And I think for local retailers and the restaurants and everything that are right around where this location is, they're going to be huge benefactors from having all of those people concentrated in that one building.
- [24:30]
B
Now, one thing that has also helped in this office equation is the fact that we've had a massive amount of office to residential conversions, at least in the New York City area. So in New York City, analysts have forecast about 40 million square feet of offices will be converted into residential and other uses over the next five to 10 years. And that's double the forecast from two years ago. So if you look at the chart that the Wall Street Journal has on the office conversions that have been either announced underway or completed by the estimated year of completion, it's pretty wild to see that far right hand side of the chart. The number of announced deals scheduled to be complete in 2027. 225, I mean, absolutely mind boggling, especially when you consider that the peak delivery year thus far. So projects that have already been delivered, the peak was 2024, when you had 94 projects delivered. So 225 announced. We'll be tracking these closely to see how many of these actually come to fruition and are able to get completed on schedule and certainly on budget is the big question mark for these conversions.
- [25:43]
C
Yeah. Do you think there's a risk on any of these, Stephen, where they just, they get about 60% of the way there and then things just fall apart for them. They're so costly. It's unlike, you know, multifamily, you know, that's just being renovated. You're basically, you know, taking things down and rebuilding them. But within the static frame of an office building. I'm hopeful and optimistic. If these things play out as you've outlined, like, that's a really significant number that I think moves the needle in a positive direction. But I do have a little bit of concern that if you're not well capitalized for these, if you run into any snags, if you run into any challenges, I could see some of these projects stalling out.
- [26:23]
B
Yeah, that's my big concern with these, is that you get 60% of the way through, you hit some unforeseen issues that just blow your budget forecasts completely out of the water. And you're just, you're dead on the spot, like no chance of survival here. And these projects, at least from what I understand, they're very unforgiving on timeline. I mean, come on, like, this is like basic Math here. If you think about the way these projects proceed, you're cash flow negative for a good amount of time. And so you have all the incentive in the world to push as hard as you can to get the project done and as quick of a timeline as you can, which is very difficult when you're working with the construction logistics of New York City. So I am cautiously optimistic, but we'll let the data ultimately tell the tale at the end of the day, because, I mean, this is a very ambitious pipeline. I should also mention that a big reason why these projects have penciled out is that you're getting like a 90% tax abatement after the conversion. So that is a huge, huge benefit that. I mean, honestly, without it, I don't think most of these projects would come close to penciling.
- [27:34]
C
Well, that's what we've been saying this entire time. I mean, these office residential conversions and major metros require some form of public private partnership or some form of incentive or abatement. I mean, it just. It's a requirement. But look, the benefit is if they can convert these buildings, it creates economic upside outside of just property taxes. I mean, you have sales tax revenue, you have all this other stuff that's going to be generated from having those people living in those locations that otherwise wouldn't. I think there's still economic benefit to. To doing the conversions. But, yeah, it's. It's just another component, Stephen, of. Of risk. And we've seen, you know, with some of the talk around, you know, the mayor election and all of the other stuff that's happening, do you think those tax abatements at some point become questioned, or do they become a subject of somebody trying to come after them? And we've already seen New York City kind of go through that process once. Does this create challenges, unforeseen challenges for some of these that are midstream as well?
- [28:34]
B
Oh, absolutely. I couldn't think of a factor perhaps more important to the viability and, you know, success determination of these projects in the political landscape. I don't see how either. I shouldn't say either party because it's a little bit unclear exactly how many parties we have in the race here in New York City. But I can't imagine any candidates pulling the rug out from underneath developers and thinking they stand a chance of success. So it would have to be a case where the hand is forced.
- [29:04]
C
It's not just New York that's seen some increased activity. Let me just. We had gone through a couple months ago and talked through Some office origination data. And we were pretty New York centric in that walkthrough. So I don't want to go through that too much more other than just to say year to date, office origination for New York City is up over 11.4 billion, which is significant. But if you look at some of these other states, we're starting to see them up as well. So California, it looks paltry compared to New York, but it had about 1.8 billion worth of origination from January to now. Now what's interesting is for New York to get to over 11 billion only took 35 properties. California has had 37 office loans taken out and to the tune of 1.8 billion. And if you break that down into location, San Francisco leads the way. 15 properties, 1.1 billion in origination. In San Francisco. LA's had 12 deals, 629 million. And then San Diego rounds it out at about 45 billion. You have a few other one off in San Jose and Riverside, but I think this is a pretty positive story, Stephen, to have over a billion dollars of office origination in San Francisco. I also saw this week that San Francisco on the multifamily side has had the highest rent growth of any of the major metros across the US for the last couple of months. So I'm hopeful that maybe San Francisco started to turn a corner. I know they elected a new mayor and it feels like San Francisco is finally coming back a little bit into the positive territory. The other interesting location for office origination is dc. DC sits over a billion dollars worth of office origination year to date. I would have lost some money if I had placed a bet. Given what we knew about Doge and everything with the new administration, I would have thought D.C. would have fallen off the map from an office perspective, but it's actually the third highest market at just over a billion. Illinois, 857 million. Massachusetts, 650 million. Texas rounds it out at about 500 million. So overall office origination year to date across the US sits at 17.6 billion. So pretty significant number relative to what we've seen the last couple of years.
- [31:15]
A
We track a lot of different data in the office market and something you may have seen US release recently was a multifamily line item operating expense report. We will have a similar analysis for the office market. We'll dig into all of the office financials. We get this data annually and we can really get granular and dig into every single line item and tell you about the changes year over year. So we'll talk about this a little bit on our Market Pulse webinar that's coming up at the end of this month. If you want to sign up for that webinar, send an email to podcastrepp.com and you'll get a tease of some of the office data there. And then stay tuned because we'll be able to dig even further into that data in an upcoming report. If you want to see it sooner, you can always email us@podcastrep.com and we will show you all the data we have available for your market or your property type. So let's turn to our deals and data. The property type stories we have this week we have some big ones. We released five trading alerts for our clients, four office stories and one in retail. And these are large loans, so over a hundred million. But that doesn't mean that that's all the data that we track. We wanted to remind our listeners that we track loan status changes, delinquency changes, appraisal changes on loans of all sizes, anything from single digit million dollar deals to billion dollar deals. So let's start here in the office segment with a trading alert that we saw for an Austin, Texas office loan that entered Special servicing.
- [32:54]
B
Our August data has shown that the $177 million 7700 Palmer loan has transferred to Special Servicing for Eminence Bloom Slash maturity default. The loan matures this upcoming December. It has not been delinquent during its lifetime, but the most recent servicer commentary that we have from July indicates that the servicer reached out to the borrower to get an update on their plans for payoff and is still awaiting a response. The subject collateral consists of a 912,000 square foot Class A office park located in Austin, Texas. The five building campus was built in 1998 and sits on 128 acres and Austin's premier technology district. Top tenants include Google who takes 33% of square footage on a lease running through September 2027 as well as Electronic Arts who takes 19% on a lease running through August of 26 eBay on a lease accounting for 10% of space that runs through May of 2028. So taken together you have a lot of large tenants with near term lease roll. That is a very difficult situation for any office building, let alone one of this size. During the first half of 2025 the loan posted a debt service coverage ratio based on net cash flow of 1.96 times with occupancy at 74%. And this loan is split among a number of different deals that were issued between 2015 and 2016. So this was a loan that was cut toward the end of 2015.
- [34:23]
C
So, Stephen, this is a pretty significant property in Williamson County. This is just outside of Austin. It's called Austin, but this is really on the outskirts of Austin on the north side. Some interesting tidbits about this property. So you mentioned that the occupancy was challenged. They had some lease rollover in effect. Back in 2023, this property had occupancy at 99%. 2025, 74%. EBay reduced its space by about 50%. Dun and Bradstreet vacated entirely. They also had seen, you know, tenants such as PayPal, Electronic Arts and Polycom leave as well as if you look at 2026 and beyond, according to the prospectus that was provided back when this deal was originally done, they're sitting on about 3.9 million worth of potential base rent expirations in 2026 and beyond. Now what's interesting is when this deal closed, they had put in about $19.8 million worth of upfront escrow in reserves for outstanding tenant improvements, leasing commissions and other things. So, you know, they, they definitely have spent some money on this project. And before the acquisition, if you go all the way back to 2014, this property was at 55% occupancy. So it's kind of seen this ebb and flow over the years. Some of the downward pressure here is that, you know, Austin had been considered, you know, Silicon Hills and a nice replacement for some of the Silicon Valley type of employers. And remains to be seen if they can continue to hold that type of moniker into the future. And this, this building will be a pretty good bellwether of, of whether we're seeing some companies really pull back from that tech, you know, location in Austin, or if they're able to backfill some of these spaces. They're just going through, you know, some short term challenges with, with just typical tenant rollover.
- [36:20]
B
Yeah, I'm really rooting for Austin here and I'm hoping that it's just a rotation and they'll be able to really kind of move beyond these temporary issues. But, you know, back to the comments I was making earlier about the difficulties faced by that young age cohort, there's no longer the same level of demand and need for young computer programmers and coders in this day and age. And so that maybe has taken some of the luster and appeal out of Austin as location. But honestly, on whole, doing business in Texas is still much, much more favorable to these tech companies. I mean, the taxes, business frictions, it's I would say on whole, very, very positive. So I think if I had to pick a direction, I'm still tilted more positive on this one.
- [37:07]
C
Yeah, I think so too. I mean, the main challenge for Austin right now is just infrastructure. The traffic is terrible there and cost of living has been really expensive. Although you started to see a really big pullback in house prices. And so I think I'm still bullish on Austin. If you look at all the underlying fundamentals there, State capital, great university, law school, medical school, a lot of really good economic drivers. They have a lot of tech spaces that will continue to be prevalent. I think this is kind of a short term blip. The ownership group of this property is also well positioned. So hopefully this is something that gets an extension modification. There's something that happens here on the positive. They backfill those spaces and this continues to, you know, be a nice, you know, office complex in that northern part of the city.
- [37:52]
B
So next up we have another large special servicing transfer. According to August data, the $166 million one channel center garage loan transferred to Special Servicing for eminent default. The loan has been current on payments throughout its term and now shows a status of less than one month delinquent. The loan matures in December. The collateral is a trophy office building and the Channel Center Garage located in the Seaport submarket of Boston, Massachusetts and is well located within walking distance of South Station and the MBTA Red Line station at Broadway. The property was built in 2014 and the space's sole tenant is State Street. And the State street lease runs through 2029. During the full year 2024, the loan posted a DSCR based on net cash flow of 2.16 times with occupancy of 100%. Obviously, because it's a sole tenant and for some securitization context, this is a SASB loan. It is the sole collateral behind a 2016 SASB deal.
- [38:50]
C
So, Stephen, you mentioned this is a single tenant facility. Looks like State street has announced plans that they're going to move out of One Channel center later this year, well ahead of its lease expiration in 2029. It looks like they plan on departing sometime in the fall. They've announced that it's going to impact about 1500 staff and they'll relocate across three different locations. Their new State street headquarters, which is 1 Congress street, the North Quincy location, and Burlington. Their reasons for moving were that they were going to consolidate their workforce to centralize operations and reduce cost. And their return to office strategy was reinforced by mandate requiring employees be back in the office at least four days a week. And creating this efficiency of consolidation allows them to have co located teams back into a single building. You know, we'll see what this means for this building. As you mentioned, it's a SASB deal and as a single tenant, you know these are binary risk. You either have 100% occupancy or you have zero. Now I'm sure there's going to be some guaranteed rent payments or buyout or something else that maybe softens the blow, but given where we are in today's office market cycle, it's going to be really difficult to backfill this size office in what would be considered a reasonable time period without having negative financial consequence. Which is why I would assume the servicer stepped in on this one.
- [40:08]
B
Yep, and just did a little bit more digging. Looks like the 8th through 11th floors are up for sublease and well, as you probably guess, the term goes out to December 2029. So there is a sizable chunk of this building that is actively being marketed for sublease. Now there's some additional nuances that we should probably bring up here. The one channel center office building is also subject to a 15 year ground lease that was signed in 20. Now this ground lease was designated by the initial developer in order to satisfy some legal requirements that exist under Massachusetts Chapter 121, a program which is a designation assigned to developments or I should say projects that generate economic development that results in negotiated alternative tax payments in place of real and personal property taxes. And so the ground rent payments I believe are about 300,000 per year that are required for this project. So a little bit of a funky structure here that could also throw a wrench in things.
- [41:13]
A
So let's wrap up the podcast here with our trading alert. In the retail segment, we started talking about retail sales and retail earnings. Now I want you guys to talk about a New Hampshire mall loan that we saw head to Special Servicing with our latest August data.
- [41:30]
B
Yes, so August data indicated that the $150 million Mall of New Hampshire loan transferred to Special Servicing for balloon payment maturity default. The loan hit maturity in July and initially showed a status of non performing matured balloon before flipping to matured performing balloon in August. Special Servicer commentary reveals that discussions with the sponsor are ongoing, so stay tuned as we will have more details in future months as we get additional details regarding negotiations. The loan collateral consists of a almost 400,000 square foot regional mall. It's 398,952 square feet, so I'm just going to round that up to a nice round 400,000 square feet. This is a regional mall in Manchester, New Hampshire built in 1977 and renovated in 1998. Top tenants include Best Buy with 10% of square footage on a lease that runs through January 2034 Old Navy with 5% running through January 2027 Boot Barn with 3% running through March 2035. The collateral's appraised value is $256 million at securitization in 2015 full year 24. Financials showed a DSCR based on net cash flow of 1.65 times with occupancy at 88%. And this loan is split among a number of 2015 deals and both of them are in CMBX9.
- [42:55]
A
And if you want more from the Trep team, we have some programming notes. Today we have our Market Pulse webinar, which I mentioned earlier. On that webinar you'll also hear more on the topic of maturity distress. This time digging into the resolution. We'll look at trends, payoff rates and sector level outcomes. We'll talk about housing affordability without rent restrictions and look at some multifamily trends in high growth MSAs. And we'll dig into the lodging sector. So you may have heard us talk about lodging delinquency trends and capex challenges. If you join our webinar, you'll be able to see some of the charts and data that go along with that analysis. So this webinar will be on August 28th at 2pm Eastern. Send us a note and we'll make sure you're on the list to sign up TREP clients. You will get an exclusive targeted training on Tuesday, September 9, so check your email inbox for an invite. This is going to be a TREP CRE101 training. So whether you're new to the product or new to the team that you're working on, or just feel like you need a refresher on how to get the most out of our tools and data, sign up for our Trep CRE targeted training. We will walk you through all of our search tools, how to make the most out of our loan listing pages, how to interpret our trip data, and how to do more than just look at an individual loan or property and dig into some market analysis. So send us an email if you're not sure how to sign up for that. If you're not sure if your company is a client, send us a note. We'll let you know and make sure that you can get access. But we'd love to see you all on our webinars every month. We always have time to answer your questions, dig in deeper with you, and if the webinar is not enough, we can always do some custom trainings or get on the phone with you and your team. So if you're looking for more from us, always reach out and we're happy to work with you. Turning to Shout Outs, Justin R. Is an active listener. He said our show provides great insight into the market and is a useful resource for their clients. Adam B. Really enjoys the weekly show and he was interested in some of our delinquency and distress reports for the multifamily and office sectors. We heard from John B. Or Dr. Jet Yield, who we will be organizing a guest podcast with in the near future, and he sent us an article that he thought we might be interested in and we always are interested in what Dr. Jet yield has to say. So we are going to dig into this story and give you some details from our data on next week's show. Jayvon S enjoys listening to the show and was interested in our Maturity Drag report. We got a lot of interest in that piece and we'll have a second part that we'll talk about on the Market Post webinar, which I just mentioned, and we'll be releasing in the next few days or weeks. So make sure that you're getting our research and emails to your inbox. If you're not, send us an email to podcastrepp.com and we'll subscribe. You also follow us on social we're very active on LinkedIn @TREP Inc. And on Twitter or XRepWire. We share stories, we share reports, we share all the happenings. So give us a follow, give us some likes on our posts, and if you listen and you're active on any of those channels, send a post out that you're listening. We love to hear it. We love to hear from you and engage with your posts as well. Wiley F. Was reaching out to see the data and report that was referenced in the Bloomberg article about the Maturity Dragon. They enjoy the CRE updates every week and thanked us for putting the show together and Paul B. Said we have great content.
- [46:42]
C
So Hayley, this week I was fortunate enough to go out to Colorado, to Denver, which is always a great time. It was a quick trip. I flew out Monday evening and came home Tuesday evening But I was able to present at the Colorado Real Estate Journal event. They do a semi annual event and I was asked to be the keynote for the multifamily portion. And so I got to work with John Stern of the Colorado Real Estate Journal, which was really great to meet him in person and hope to work with him going forward on some collaborative stuff we can do across our research and their publication. And then our friend Dave Link, I was able to grab breakfast with him in the morning and then meet with him while we were before I did my presentation. Friend of the firm, been at Northmark for over 20 years. Really great insights. Or maybe get him on the podcast here in the next couple of months. But it was a great event, great insights. I learned a lot about the Denver market and I gotta say they've had a lot of new inventory added in Denver and some really cool multi family projects that have taken place there. And it's great to see the the community thriving the way that it is and so really active market. I was surprised when I was doing my research for the presentation. Quite a bit of industrial activity in the Denver metro, significant amount of multifamily and just a really great great time. So hope the folks there enjoyed the presentation. It was great for us to get out there and showcase some of our data and it's good to see a market outside of New York or Chicago or whatever, you know, making some positive headlines.
- [48:07]
B
I just want to give a shout out to all of the new students that I have in my real estate Principals class at Clemson. I have right about 190 of you. So it is great to have all of the new faces on campus this fall and look forward to engaging more. Plus this will be a fun test to see how many of you actually listen to the podcast this week.
- [48:28]
C
You're gonna have to start working that in for extra credit. Steven, I try to sneak a few words in occasionally. I did want to mention too, Haley. I'm going to join Coldwell Banker Commercial with Dan Spiegel next week on their podcast. So I'm not sure if that'll go out next week or sometime soon, but looking forward to catching up with with Dan and chopping it up on some commercial real estate topics.
- [48:50]
A
And as always, thank you for listening. With that we'll close. Thanks to our producer Mariana Sabrana. Join us next week as we look at what's happened during the week and how it may be impacting you. If you have a question or just a comment, send an email to podcastrep.com and subscribe to the Trepwire Podcast with your favorite provider. Thank you for listening and stay well.
- [49:10]
C
All right.