← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
350. CRE's Yield Curve Conundrum, Residential Reality Check, Bank Transparency on Trial & Office Bright Spots
00:47:53
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- [00:06]
A
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 September 5, 2025. I'm Hayley Keen 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, economic data has kept investors on edge. Inflation is moderating but proving sticky while labor markets are softening. The latest Beige book showed enough weakness in activity and employment, including more reports of layoffs and headcount reductions, to support that outlook. July's PCE inflation held steady at 2.6% while core PCE ticked up to 2.9%, reinforcing expectations that the Fed may cut rates as soon as September. Meanwhile, revised GDP showed the economy grew at a stronger 3.3% pace in Q2. But hiring remains sluggish with Friday's jobs report expected to show just 75,000 new jobs added and unemployment ticking up to 4.3%. Add in surging long term bond yields and an antitrust win for Alphabet and you've got an increasingly bifurcated market where global rate volatility, shifting trade policy and supply chain realignments continue to shape the outlook. And in this episode we'll also cover some office leasing stories, notable financings, insights into the housing market, and we'll close with some of our latest TREP data from our property price index and what we're seeing for life insurance commercial mortgage returns. But first, let's get into the news and some of the data here. Steven, how are you interpreting the current steepness of the yield curve and how will this ultimately impact real estate?
- [02:00]
B
Well, first off, I am feeling pretty good right now in terms of what's happened in the shape of the yield curve over the last couple of weeks. Our active listeners will remember maybe about three, four weeks ago I mentioned that the current environment will remain conducive for a continued steepening in the yield curve. And sure enough we've gone from about the mid-40s, I should say mid to high 40s since then to the upper 50s touching I think a max of about 62 basis points steepness. And so that curve steepening really seems like it's going to hold in there right about upper 50s to 60 any movement steeper. In other words, if we continue pushing higher and we touch like say 75 basis points in steepness difference between the 10 year yield and the 2 year yield, that'll honestly surprise me a Little bit. I feel like that should be where we perhaps max out. And what that means for real estate markets is you're not going to get a ton of relief if we do cut rates, at least for fixed rate longer term debt. That's why you continue seeing the five year loan term be the most popular for for commercial real estate borrowers and the continued mix of really a heavier floating rate issuance and a good balance between fixed and floating rates debt issuance in the CMBS world. Interestingly, when we were looking at the yield curve this morning, the economic data hadn't broken yet. And what was really moving the curve lower across both twos and tens were comments from the Fed. So, so specifically Christopher Waller had come out saying that he expected the Fed to cut rates. He thought the environment was right for us to begin cutting in September and that helped move yields slightly lower. And then when we had the jolts Data break at 10:00am that fueled the rally more and you saw 10 year yields move down by about 5, 6 basis points and twos move down by about 3 basis points or so. So a little bit of curve flattening but you know, ultimately the steepness just continues to hold in there right in the upper 50s. So I'll be interested to see if any of that changes post Fed rate cut in September to quote one of our other favorite data points here, the CME Fed Watch tool now the probability of a 25 basis point cut in September had dropped to about as low as 80% here over the past month. We had been holding in at about like mid-80s% chance for what traders are pricing in for a September rate cut probability that now has bounced back to about 95% as of today. So it seems like traders and certain members of the Fed are very much in agreement that the time is right to cut in September. But Waller was pretty bullish on rate cuts. I mean he thought we should be about 100 to 150 basis points lower than where we're at currently. Currently he thought that's where about the neutral rate should settle. Now that seems to be a little bit at the more aggressive end on rate cuts. I'll be curious to see what we hear from other Fed members here in the coming weeks before we enter the blackout period. But you know, all in all it seems like now the pendulum is swung back in favor of it's time to cut. Ultimately though, Friday's data point this week will be the most important. The non farm payrolls and what we see in the unemployment rate will be very much the major factor this week in determining how many of the Fed officials will ultimately move into the rate cut camp. So I'm curious, Lonnie, what are your thoughts on what will actually spur real estate markets and will we get a cut in September?
- [05:38]
C
Yeah, so I've been pretty adamant, given the talk in Jackson Hole and even before that when they had the two dissenters at the last meeting, that we're going to see a rate cut. I think Waller's pretty much cemented that, at least at this point. Now maybe he's got a little crazy talk and saying that he thinks it needs to be 100 basis points lower. I mean, he's also probably vying to replace Jerome Powell and he knows what Trump's talk track has been. So, you know, I think you got to take some of that with a grain of salt. However, the reality is you're set up and the markets are set up at this point now to see a rate cut. Now, we'll say when you're talking about the yield curve there, Stephen, I was waiting on you to say we're going to have a mild cold front come through here because it sounded very much like a weather prediction for this next seven day outlook. The CRE markets are operating pretty well given where we're at. And I don't know that you're going to see a whole lot of change here. I mean, it's like we know a secret that everyone knows, but we're still pretending like it's a secret. I mean, the Fed said they're going to effectively pivot. The markets have priced it in, we've documented on this podcast and then you can read it online. There's no direct correlation between the federal funds rate and mortgage interest rates. And so I don't know that you're going to see any significant movement here. I mean, I think when Haley read the lead in, you know, the part that maybe gives me a little bit of caution and I was pretty optimistic in last week's show, is just when unemployment sticking up to 4.3%. I mean, are we getting to a point now where the labor market starts to become a concern more broadly? And are we starting to see some of those fears maybe trickle into decision making and so forth, especially as we round out the end of this year? I mean, September generally is a pretty volatile month in the markets and I don't think this year will be any exception to that. And so I think for me, I don't know. And then this week, quite honestly, it was not like a huge Newsweek for cre, I mean there were some transactions, but the last couple of weeks it seems like we've had a couple of billion dollar transactions every week or large portfolio deals or something that was super noteworthy. This week was a little less in demand I think partially because it's just the end of the summer, there's a lot of people on holiday, etc. But I'm keeping my eye on the, on the unemployment stuff. The GDP numbers were strong. We covered that at some level last week. And you know, we'll get into some of the data here around jobs openings and the Beige book, but I'm still feeling pretty good. Steven. I think the markets there's just not going to be a huge shock regardless of what the Fed does.
- [08:04]
B
So I'm curious to hear your response on this question I have coming your way. I participate in a survey of economists in predicting quarterly home price changes and one of the special questions that showed up on the last survey I filled out was a two part question. First, do you think there's a level at which mortgage rates will decline to that will spur home buying activity, will increase transaction volumes and if so, what's the rate? So first off, do you think there's a level at which mortgage rates can move to where we'd see a material change in transaction volumes, a pickup in transactions and buying activity?
- [08:43]
C
And what's the rate this is on single family.
- [08:47]
B
Yes.
- [08:48]
C
And you're talking about actual financing rate, so not Fed rate like the actual mortgage rate for borrowers.
- [08:53]
B
Yes.
- [08:54]
C
And right now I haven't looked but I would. I think right now we're probably still hovering in the mid sixes, kind of low seven range.
- [09:01]
B
Yep.
- [09:02]
C
I think to see a material change you're going to have to see rates get to a very low five handle. I think to see things like jump off the page if you get to a499, I think you would see a resurgence in the single family residential market that you haven't seen since rates were basically zero. So I think it's going to take that type of dramatic impact. I don't think if you go from six and three quarter to six that you see a whole lot of activity because people are still locked in at two and a half, 3%. But I think if you can get to four, nine nine, five and a quarter, I think you might see those people that are feeling locked in their current mortgage make the jump to maybe buy or trade up or do whatever because the Delta is not nearly as bad as it is today.
- [09:47]
B
I like it. My Response was basically, if you see rates decline to five and a half percent, that's when you'd see a noticeable pickup in transaction volume. And to your point, if you get to five to five and a quarter, that's when I feel like you would actually start seeing that second order change, the acceleration be statistically significant.
- [10:07]
C
What's interesting, Stephen, in that question is just, let's just play that out and let's say that you get to five and a half and it does materially change. I mean, I think we would agree that home prices today are still elevated. If the market takes off again, it's just going to push prices higher. Yes, that's the part that I just really struggle with. On the residential side, like, we're focused. This is a commercial real estate show, so we talk mostly commercial real estate and we'll get back to commercial real estate shortly. But it's, you know, we're, we're calling for capitulation from lenders and from sellers on the commercial side because there needs to be a resetting of the values. And it's, it's pretty well documented and we've done an extensive amount of research on this. You can get access to some of the data if you'd like. You know, email us@podcastrep.com, but I know we've been tracking office reappraisals as an example, Stephen, and the median value reduction on those troubled offices have been 40 to 50% for the last couple of years. Right. But in a single family market, you haven't seen any repricing. I mean, not, not real repricing. You might have someone that lowers the price 25,000 or 50,000, but some of these homes are probably 50, 60% overpriced relative to their intrinsic value, if you just look at the data.
- [11:20]
B
Yeah. One of the figures I saw was about 40% overpricing, which, which I agree with. But at the same time, when you look at the price indices, these are repeat sale indices that are positively selected. The people that are transacting in the market tend to have the most gains to harvest. And so when that plays into your price index. Yeah, it biases upward, the price index. So you get this really kind of conflicting signal with how you feel like things are going. Because at the same time, cancellations or repricings on the contract have really been elevated. From what I've been reading, you've seen a shocking number of contract terminations in residential space here in the last couple of months. And just a greater degree of caution across the board. So, you know, it does feel like we're on at a very tenuous point in the economy where some of the headline signals perhaps are painting a rosier picture than what's actually happening on the ground.
- [12:19]
C
Yeah, I mean, I think that's definitely true. The saving grace for them is just that while they're in a home that maybe isn't worth what they paid for it when they bought it, their mortgage rate is locked in, so their payment hasn't materially changed. So they maybe can't afford to go anywhere by reducing the price because they need that equity to buy into the new place. But even if their house doesn't sell, they're holding on okay, because it's a somewhat fixed payment.
- [12:45]
A
So, speaking of the topic of conflicting signals, we reported that the office CMBS delinquency rate hit its highest level of all time. We talked about that on last week's podcast. If you didn't listen to that, go check it out and hear all of the numbers and the takeaways. But now what I want us to dive into is specifically the large office loan that drove that rate higher and the volume of loans higher. And now we might see that it actually will return to a current status next month. So dig into this loan specifically and let's refresh our listeners about what happened with the rate last month.
- [13:22]
B
Yes, our friends and colleagues over at Siri Direct had a nice article highlighting what's going on with 1211 Avenue of the Americas. So this is a 2 million square foot office building with a loan of about just over $1 billion. This loan transitioned to non performing, matured balloon this last month. So obviously being a billion dollar loan, that's adding a sizable amount into the numerator here in the delinquency rate specifically for office loans. But we could see this loan transition back to performing status here in the near term given that the property's owner, a venture of RXR Realty and Ivanhoe Cambridge, have struck a preliminary agreement for a three year term extension taking its maturity out to August 2028. So this is a 40 property that's 92% occupied and last year generated $89.3 million of cash flow, which gives you a debt yield of roughly 8.63%. So still below the 10% threshold that typically like to see. And as of late, we've seen 11 and 12% debt yields be kind of the norm for newly issued CMBS office loans. So it's not great, but it's also not terrible. You tend to see Office properties with debt yields sub 4 to 6% tend to go the foreclosure route or receivership route. And so this loan is right in the sweet spot for modification and extension.
- [14:49]
C
Yeah, I think this is a, this has got to be a positive turn to that delinquency, Steven. It makes you wonder if the delinquency was just a formality in order to ensure the extension agreement. And it just goes to show, I mean, as we've seen, you know, this is another example of the extension game that's being played. You hope that this works out for both parties, but it highlights how one or two offices in this case can dramatically shift the delinquency rate. If you want the data behind the delinquency rate, we can usually provide that, and we do provide that to our clients. The mortgage data gets updated daily, so we give you the headline numbers on the podcast. As Haley mentioned, you can check out last week's episode or you can download the report online. But if you want some of the nuance, some of the inside information, you know, give us a call. We'd love to show you what our tools can do and how you can get access to that level of granular data and insight.
- [15:42]
A
So let's stick with office here. We saw an article in CNBC by our friend Diana Olich again, and she was covering a new report from Colliers that looked at Manhattan office leasing and reported that it's on track to hit the Highest volume since 2019.
- [15:58]
C
Steven, can you believe when you see a headline that says 2019, that that was pre Covid six years ago at this point? I mean, it's forever ago. It's, it's six months and six years at the same time. It's really crazy. But it is interesting that, you know, just hearkening back to those times, that's, that's kind of the benchmark that you would look at to say, like what is a reasonable office market or an office paradigm? So Manhattan office leasing increased more than 20% in August. That's compared with July to 3.7 million square feet was well above the 10 year monthly average of 2.72 million square feet. That's according, as Haley mentioned to a report from Colliers. If you extrapolate this out, if you say that demand continues at the same pace for the remainder of this calendar year. So through 2025, Manhattan's yearly volume would exceed 40 million square feet for the first time since 2019. So, I mean, there's still a lot of things to work out. I mean, Usually you see a little bit of a slowdown between now and the end of the year, but assuming things hold steady, exceeding 40 million would be a pretty big deal. The average asking rent for Manhattan office at the end of August was $74.73 per square foot, which was a modest 1% increase from July. So again, it's just another signal for me, Steven, this showcases how Manhattan's office market has really come roaring back. Now for those listening, we still know there's a lot of class B and obsolete offices that have not come back. But on the whole this is a really, really positive sign for the Manhattan office market.
- [17:27]
B
Yeah, this is perfectly in line with what we've been seeing, what we've been talking about. You know, the higher quality end of the office spectrum in Manhattan seems to be doing just fine. And perhaps, you know, sometime in the coming weeks or months we should highlight what's going on with concessions because you know, that was still fairly elevated in terms of what landlords were having to offer over the past two years to get tenants to sign leases. Even at like the Class AA space. I think the norm was TI's ranging from about 100 to 150 a foot and free rents ranging from as little as six months to as much as 18 months, just depending on how long the term was. But it was really common on a 10 year lease to see that extended out to 11 or 12 years with 12 to 18 months of free rent.
- [18:16]
C
Yeah, but that's a great sign. I remember covering stories during the height of the pandemic where we were seeing break even numbers at year four on some of these 10 year leases due to TI and build out stuff. So it's in concession. So, you know, I'm hopeful that we finally hit an inflection point here. And that's a pretty solid rent. I mean $75 a square foot roughly is a pretty good rent for Manhattan office on the whole. So we'll see if the end of the year holds true. And if that 40 million gets eclipsed, I think that'll be a really great headline. Heading into 26, even if it comes in somewhere 37, 38 million, I think it'll be a really solid year for 25 and you know, continue on the optimism that we've, we've started seeing take place across the US and sticking with.
- [18:59]
A
Positive office stories, we saw a good headline for the San Francisco office market.
- [19:04]
B
Yes, AI continues to drive leasing and transaction volume in San Francisco. So against all odds, it looks like San Francisco is on its way for an office comeback. So artificial intelligence firms have been leading revival in the San Francisco office market and which is the hard luck case of the nation's most troubled commercial real estate sector. The amount of office space being leased has rebounded strongly this year and is back to pre pandemic levels as some companies require employees to work more in the downtown area. Institutional investors including Blackstone have swooped in to buy office properties at enormous discounts relative to their pre pandemic levels. The latest sign of renewed market confidence is Houston based real estate investment manager Heinz launched a city review process of a planned 1200 foot tall office tower at the site of the old Pacific Gas and Electric headquarters. It would be the tallest building on the West coast and just 25ft shy of New York City's Empire State Building, which is absolutely crazy when you think about where we're talking about San Francisco, an earthquake prone area. So this is a very ambitious project from an engineering perspective.
- [20:20]
C
You want a little additional context on the AI stuff. Stephen. So just to give some, some ability to quantify the AI boom in San Francisco and the, the tech led demand in that market, the Bay area captured about 55 billion in AI venture capital funding in the first half of 2025, which was 78% of the nation's total. So 55 billion or 78% of the nation's total, which obviously created a huge wave of startups and service providers into the city. And so that comes to us from an article from BizNow, but it just highlights how, you know, this, this market in particular has been such a single source market for some time and really with COVID and everything that happened was decimated because of that concentration. But they're reaping the benefits of this AI boom here. And so you know, one other thing I wanted to get your thoughts on. You know, we talked about the GDP growth on the lead in a little bit, but if you back the AI spending out of everything, it would signal to you or to the market that we're probably recession ish or very close. Right. What are your thoughts on this? Especially as we read this story in San Francisco where you're actually seeing the fruits of this investment play out? I mean, is this something we should be believing in or is this something where we should still be skeptical? Because there's definitely, at least in what I've seen online, there's a stronger group of opposition saying that some of this AI stuff is getting bubble bubblicious, if you will.
- [21:50]
B
Yeah, I mean I get it on the one Hand, if you look at valuations and some of the technical analysis, sure, it's easy to start getting concerned that you have a bubble growing. But on the other hand, if you look at the, the real world productivity implications of this technology, I'm a lot less concerned. I mean, from early on, you saw the early adopters like Coca Cola completely transform their business operations, doing exponentially more with significantly less. You know, Coca Cola completely revamped their marketing process through the integration of AI. So when you think about the productivity gains that can be realized through firmwide integration of AI technologies, I'm a lot more skeptical of the bubble narrative. But I do get it. The trajectory does look a bit concerning. But gosh, for us in real estate, especially in commercial real estate, I think it's pretty easy to see the sort of gains that we could reap out of AI integration. We've always been, as an industry, slow adopters of technology and slightly slower to evolve. And so when you think about all of the different aspects of your job and the productivity gains you could realize through integration. I mean, you read the testimonials on LinkedIn time and time again. You know, the work that I just got done in the last hour would have taken days and multiple analysts to complete. And I can just feed it through this new program that I developed. Right. It's not like they're using out of the box software. You do have to read deeper into the commentary to realize just how much time they've spent in tuning these AI models and crafting them for their current setting or current context. But the productivity gains are real.
- [23:30]
C
So I'm glad you said that. Let me just give some data to back that up. Leasing volume was 3.4 million square feet in Q1 or 25 in San Francisco, 2.7 million in Q2. So these are levels just like New York that haven't been seen since 2019, putting total leasing activity up 40 plus percent compared to 2024. And if you look at rental rate, we just said that the New York Manhattan office market was $74.73 a square foot. The Bay Area, you're seeing rents at about $72 a square foot. So, I mean, right in line, we're not going to see 40 million square feet of office leasing in the Bay Area in San Francisco proper. But if you get to 10 million, 7 million, it's going to be an enormous year for them. And if those rents hold true at $72 a square foot, you're talking about New York type rents for that marketplace. And so you know, you're seeing leases with Google, JP Morgan, Lyft, Databricks, like these are all companies that have done leases this year in that marketplace. So. And if Heinz is getting back in the business of looking at speculative development, that's a pretty good indication that they think the fundamentals are supporting that type of effort. I mean, these guys don't really make a lot of mistakes. They know what they're doing and they seem to feel like maybe now's the time to get back into, into the market.
- [24:48]
B
Yeah, anybody who bought an office building at an 80% discount to pre pandemic levels is probably feeling pretty good about their investment thesis at this point.
- [24:58]
A
So I want us to pivot here to talk a little bit about banks and what they're doing with commercial real estate loans. Lonnie, you were on a Twitter or an X spaces earlier today with our friends at Macro Edge and our friend Melody Wright prompted you with some questions around bank distress and loan modifications. And I think that leads us to a topic that we haven't had a chance to cover yet on this podcast, which is the new reporting rules for banks. So let's talk a little bit about what has changed and what this will do for commercial real estate loan portfolios.
- [25:33]
C
Yeah, so this is a great topic for us to get into. We've been meaning to talk about this the last couple of weeks, but with the spaces that we did today, it was top of mind. You know, US banks starting this fall, they don't have to disclose total outstanding amount of loans where the terms have been modified to help borrowers avoid defaults. Now they just have to report an aggregate loans modified within the past 12 months. So if you go back, the previous reporting standard was established in the 1970s where effectively any modified loan had to be flagged for its entire life life, which made it a lot easier to track troubled assets. And so you had a much clearer path or visibility, transparency, whatever you want to call it, into kind of where certain assets sat on banks balance sheets. You might say, well what does this matter? Like if they're still reporting modifications or just reporting them slightly differently and you can make a case that maybe it doesn't matter, but if you wanted to take the side of why it does, it definitely reduces transparency. So it makes it harder for analysts, investors, regulators, or anyone that's trying to monitor or get some insight into financial stress. You know, using loan modifications as a proxy, it makes it more difficult in today's environment where you're seeing an enormous amount of loan modifications it could be used as a signal to kind of indicate rising credit risk and potential bank distress. Those things could all be readily available or easily identifiable. Now that you're limiting disclosure to just one year, you effectively, you know, mask some of that cumulative risk. And this is really unique timing in the sense that given where we are in the cycle, where there is maybe peak distress actually playing out at some level, the fact that now you're kind of rolling back transparency into this market seems a little bit counterproductive. You could argue that this has been long time coming. I mean, there's definitely powerful lobbyists working on behalf of the major banks that have been pushing for this type of change for a while, and they were finally able just to get it pushed across. Now, you know, I would liken it at some level to the SEC reporting requirements for publicly traded rates, where a lot of REITs will report individual property level data, so sales, transaction price, leasing activity, occupancy, etc. Others report those numbers in an aggregate fashion so they still comply with the intent to disclose, but they do it in a little bit more opaque way. In both scenarios, they're in compliance and the market hasn't moved away from being able to use that data, et cetera. But I think for me being a data guy, I want more visibility, more transparency, and especially when the market seems to be a little bit fragile, I don't know that I'm super supportive of this transition. I don't know what your thoughts are, Steven.
- [28:22]
B
I'm not convinced right off the bat that, you know, on the whole this regulation is a negative thing and will be drastically more opaque than current regulations. Let's think about this from just a simplistic data perspective. And maybe this is overly simplistic, but the way I think of this is if I'm having to report my cumulative amount of loans ever modified during their lifetime, a loan that I modified two, three years ago that's been performing ever since is still going to that bucket. And perhaps that's diluting or masking some of the noise that's happening in my more recent status changes for loans. And so perhaps by shortening the window of time, we'll get a more accurate signal as to what's happening on the bank's balance sheet. And think about this also, this change is happening at a certain point in time. So once this change goes into effect, in theory, for all outstanding banks, you could daisy chain the data and come up with still a pretty meaningful picture of the bank's balance sheets. So I'm not Thoroughly convinced right off the bat that this is a dramatically negative change in shareholder interests. Also, to your point on the REITs and what they disclose, any bank that reports only the aggregate and does this in a way that does mask risk, shareholders typically will not be naive to this. Analysts will pick up on it and the bank will trade at a discount. And so if the bank's goal is to maximize share price, maximize firm value, it'll be in their best interest to disclose a little bit more. Right. And that little bit more will keep up until we hit whatever the information equilibrium is. Right. And the shares trade at the level that's acceptable. So I don't know. I believe ultimately banks will disclose a sufficient amount to satisfy analysts and shareholders. And if this ends up being inadequate, then we'll see a renewed push for more disclosure, even if that is in the discretionary disclosure side of things.
- [30:26]
C
Yeah, I tend to agree with that, Stephen, and I think the markets will react, as you've said, when people are masking through omission or trying to intentionally be opaque, then they're obviously going to read between the lines there. So I, you know, I don't think this is a huge something that should be sounding the alarm bells, but it is, it is interesting just to see in a part of the cycle where you think more transparency provides more insight into where things actually sit, creating less transparency is a little bit odd, but, you know, I think the markets will just move on down the road and it'll be just fine.
- [31:02]
B
Yeah, I mean, the bank reporting really goes through cycles and seasons. While banks are not required by regulators to report property type allocations within their commercial real estate book, they were doing so on a willing basis in their quarterly earnings presentations. So about a year ago, I dug through easily 100 individual banks, the hundred largest banks by CRE portfolio size, and found for a strong majority, they were willingly disclosing their property type allocations and being extremely transparent on book health to again counter that that share discount, if they had omitted that information. Remember how much concern there was in markets about commercial real estate books at banks? And so they were willingly disclosing more information than what they had to by law or by regulation. So the market attacks these problems many times head on. And I think sometimes CFO CEOs are beat up unduly when all people really need to do is, you know, go to the actual presentations for quarterly and annual financials and, you know, you'll see the information sometimes that you're, you're wanting to see.
- [32:11]
A
Okay, so let's Move on and talk about the world of apartments. We had a lot of coverage this week in our daily newsletter, the CRE Rundown, where we covered apartments changing hands, apartment sales, apartment financing. So dig into some of these multifamily stories and if you're not already subscribed, subscribe to our daily newsletter. Send a note to podcastrep.com and we would be happy to get you signed up.
- [32:38]
C
So I think on these three stories that I'm going to read, Steven, the one thing that's in common is they're all over $100 million. So we'll get your thoughts on that when we finish them. So there's a suburban Chicago apartment property that closed at 136 million or 212,500 per unit. This was purchased by an affiliate of Solomon Organization, 640 unit 1598 apartments in the Chicago suburb of Naperville. That comes to us from Crane's Chicago Business. The Summit, New Jersey investor acquired the property from FPA Multifamily which had bought it back in 2017 for 98.5 million. So nice gain on sale for the seller. Brocadia provided the financing on this deal at 90.8 million with a Fannie Mae loan to facilitate the latest transaction. If we move to a little bit farther south, we're going to check in on a story here at FCP. Purchased the 427 unit District West Gables apartment complex in West Miami for 111 million or 259,000 per unit. That comes to us from the South Florida Business Journal. This property was purchased from Waterton Associates out of Chicago in a deal brokered by Newmark. Property was built in 2015 and 2017, sits on four acres and has up to three bedrooms ranging from 550 square feet for studios, up to 1250 square feet for three bedroom apartments. And then our last story for the week, Stephen. TA Realty, they've been active this year. Paid 100 million or 333,000 per unit for Gateway, Arvada Ridge. Quick math check, Stephen. They paid 100 million or 333,000 per unit. How many units are there in this property? Property.
- [34:18]
B
About 300, I guess.
- [34:19]
C
Yeah, 300. Ding ding ding. So this is a 300 unit apartment property in Arvada, Colorado, about 11 miles northwest of downtown Denver. This one comes to us from Denver Business Journal. This property was purchased from Revantage, a subsidiary of Blackstone, which bought the property in 2022. Take it here. 131 million. It's about a 31 million dollar write down on this transaction. This a fairly new construction Property opened in 2019 has one and two bedroom units that range from 605 to 1272 square feet. What are your thoughts Stephen?
- [34:52]
B
Oh, well first up, let's take that first transaction. I just did a little bit of back of the envelope math on the rate of return on that initial purchase price and well, you know it's a huge deal like pretty decent sales price. The annual rate of appreciation, if you look at the 2017 purchase price relative to where it transacted today, it works out to about a 4% gain per year in value. So all in all that's a pretty modest rate of appreciation. Nothing too dramatic there. So a solid middle of the fairway deal getting financed at just under a 67% LTV rate. So again that's the middle of the fairway deal. I like to see it especially for a property of that size. 640 units. I mean it is no joke to manage property of that scale of that size. Where for that last transaction I thought that was interesting, booking a loss of about just over 23% relative to the 2022 purchase price. Again, the fact that you had capitulation, a deal was actually done when you're operating in the red. I like to see it. I guess I don't love to see anybody taking a loss but I love to see deals getting done and for us to get some transparency back into the market. So all in all, yeah, I would say it's, it's a good week.
- [36:12]
C
Yeah, I mean we're seeing transaction volume continue to increase. Some of these are going to be lost leaders and you know what they all have in common is that 2021, 2022 vintage on the transaction, whether it be for the debt side where their lenders are taking the loss or just the acquisition pricing being considerably less now compared to what they were during those high run up periods.
- [36:33]
A
Okay, so I promised on the intro that we would get into two topics that we don't always cover on this show and those are about the life insurance commercial mortgage market and also property prices. So we cover a lot of different data sets. At Tripp, you hear us talk about our CMBS data all the time, but we also have CRE clos, Fannie Freddie agency data, public data, life insurance data, bank loan data, CLO data. So there's a lot that we have. This week we are releasing two reports and one of them is about the life insurance market. So let's dig into that quickly here first and then our listeners can reach out to us if you want to see the full report. But we manage a consortium called Life Comps that tracks performance from life insurers, CRE mortgage portfolios and that's typically an opaque market, but this gives us some insight into the performance of life insurance loans, what's happening with returns, originations and other areas of that market. So let's dig into some of our findings. Our latest Data is from Q2 2025.
- [37:47]
C
Thanks for the great intro on what we cover Haley there and the Life Comps report that just came out. Some of the highlights here the participants reported a total return of 1.90% in Q2 of 25 comprised of 1.21% income and 0.69% appreciation returns. If you look at the property specific returns, all sectors maintain positive returns with most posting moderate deceleration from the first quarter. Similar to the overall index, office sector returned 1.81% lower than the 2.63% in Q1 of 25. Similar trends were seen for multifamily 1.99 versus 2.7, retail 1.92 versus 2.55, industrial 1.83 versus 2.85 and hotel 2.11 versus 2.85. The appreciation component drove the sector's return lower across all asset classes. Life insurance companies are outperforming core real estate equity by 87 basis points. The total return outpaced NCREIF's open end diversified core equity index by 87 basis points. As mentioned, this is excluding potential tax benefits from ownership, suggesting that returns on high quality commercial real estate credit remain relatively attractive to similar quality. Equity delinquency rates remain extremely low across all property types, while the higher for longer rate environment is creating persistent attractive spreads for conservative lenders. So if we break down the originations after a modest decline in new loan pricings in the first quarter, the consortia's origination volume returned to mid late 2024 levels as both borrowers and lenders priced through tariff related uncertainty in the beginning of the quarter. Net new funding, so this is new originations plus additional funding was 6.12 billion, up significantly from 4.34 billion in the first quarter. There were 62 new originations priced in the second quarter with a median tenor of five years and a median coupon of 5.98%. So if we wrap all this up and put a bow on it, life insurers have found the sweet spot in today's market. Solid returns with senior debt protection backed by exceptional credit quality in an environment that favors their conservative approach. If you want to get a copy of the report, you can email us@podcastrep.com and we'll be happy to send it to you.
- [40:06]
B
Yeah, so just a quick take on those life insurance numbers. This is exactly what you want to see when you have yield curve moving lower. You know, if I was in the position of head of a commercial mortgage group at Lifeco over the past couple of years, I mean I would have been absolutely loading the boat with any 50 to 60% LTV mortgage requests I could get across my desk when the 10 year was at, you know, say 4 1/3 percent. Absolutely at 5%. So hopefully you had some life insurers taking advantage of those peak rates and had plenty of cash to put to work. Obviously loan demand plays a non negligible role in these numbers. So as you can see, you know, Lonnie highlighted just how much new funding you had going out the door in second quarter. That's clearly a signal that transaction volume is picked up and you continue to see things moving in the right direction. So hopefully that holds through the second half of the year. But all in all, I would say this just highlights exactly how valuable the life comps data is on the insights that we can provide out of it because this is typically a very opaque market and the loan level data that we have and the insights we can provide are extremely valuable.
- [41:18]
C
So Hayley, I know you had mentioned our TPPI index that came out this this week and we were going to talk about that on this week's show, but we've run out of time. So for those listening and wanting to know what what's going on with tppi, we will do a full overview of that on next week's edition of the.
- [41:36]
A
Trepwire podcast and a few other quick programming notes. Reminder that we'll have a team at the CREI summit in Palm Desert September 10th through 12th and then we have a lot of other conferences coming up. Send us a note. We've already had several of you reach out to us letting us know you'll be at some of the upcoming commercial real estate and structured finance conferences. And we're excited to meet with you and so many of you guys were interested in our TREP training solutions. So thank you so much. It's great to see. We have had a lot of students and professionals go through those courses already and got great feedback. As a reminder, we offered a special discount code LABORDAY25 to those who reached out to us or let us know that discount code is expiring on September 5, so if you are an early listener you still have time to use it. Send us a note. Either way, we'd be happy to work with you to sign you up for those courses. We have one specifically for the commercial real estate market and then another that goes even deeper into cmbs, digging into deal structures, bond analytics, cash flows and more. So please reach out to us if you're interested in digging deeper and setting yourself up to know more about commercial real estate and cmbs. And some quick shout outs here. I know we're running long today. Tomer S was interested in our delinquency report and our Market Pulse webinar. Mikel W was interested in our courses and he gave us some good feedback on our podcast and said anyone who says CRE is boring needs to tune into our show and get on board. We got some feedback again from our friend and colleague Andy B and said that you guys had a great balance of capital formation as a leading signal and caveating that the delinquency rate is a trailing signal and he gave us kudos for that. Siddharth C was interested in our TREP courses. Charles B is a loyal CMBS client of ours and was also interested in our courses. Lazar has been a regular listener of our podcast and has found it both insightful and enjoyable. He wanted to get more from trep. He said, you guys talk about webinars and content. How can I get myself signed up? So we sent a bunch of that information over and we get a lot of you asking those questions, so don't hesitate to reach out. We're always happy to share our resources, connect you with others in the industry and just tell you how to get more from trep. Charles C was sharing our Maturity Drag report and gave some color around the loan maturities and said that the numbers are staggering. Miller C gave us a shout out and said he was catching up on the latest episode of the Tripwire podcast and loved hearing that the CMBS delinquency rate was down 48 basis points for the retail sector. He said Tripp puts out great content once or twice a week on the POD and he highly recommends it to anyone in the CRE industry who aren't current listeners. So thank you Miller. We know your name and have loved hearing from you over the years. George F gave us a shout out for one of our recent TREP research reports, so thank you for sharing that and some of the insights on LinkedIn. Heidi J also shared some details into some of our hotel data that we've released. We talked about that this was an analysis that you did Stephen, about lodging, capex and delinquencies. We talked about that on the podcast episode a few weeks ago and we have a detailed blog that goes into your findings if anyone else was interested. David G gave us a shout out for our review of $133 billion in fixed rate private label CMBS that are seeing Slippage and we already gave a shout out to our friends at Macro Edge but again we always have to give kudos and a shout out. Melody Wright and her team, Ulysses, Don Miami and others and they were sharing our delinquency report this week.
- [45:41]
C
I was going to give a quick shout out to Sovo M from San Jose that invited me out to the CCIM event that I was able to speak at last week. She got me the most incredible speaker gift I've ever received as a speaker. So I wanted to give her a quick shout out and say I really appreciate the friendship for inviting me out and the incredible gift for coming out to speak. It was a privilege and got to meet some really cool folks out there. So looking forward to continuing to work with her and her teams and you know, made some, some hopefully some good friends from the folks in the San Jose area that can continue to give us some insights into what's happening in the Bay Area market.
- [46:17]
A
Oh, and I can't close without saying that we were recognized as number two on the CREI Summit's top podcast list again. So thank you to the team there for highlighting us. Ken Ashley and his team does a great job of recognizing leaders and voices and people who have different perspectives on the commercial real estate market. So we were so excited to be named. You'll see that on our LinkedIn and you'll see some of our employees sharing that this week. But I have to give a special shout out to our team behind the scenes that are editing this podcast every single week, Mariana Sabrana and Carly Cento. This podcast is usually recorded and released within 24 hours and if you've ever done a podcast, you know that that is not very easy to do. So thank you to our team behind the team that's keeping this show running and of course to all of our listeners who make this show possible. We wouldn't do this every week if nobody listened to it, so thank you as always. Send thoughts, comments, concerns, anything you want to podcastrep.com rate and review us on Apple or Spotify and we'll see you next week. So with that, we'll close. Thanks to our producer today, Mariana Sobrana. 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.
- [47:45]
C
All right.