← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
352. Nearly 1M Jobs Vanish, Industrial Demand Cools, Return-to-Office Mandates, D.C.'s Office-to-Resi Tax Incentives, & More
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- [00:00]
A
Foreign welcome to the Tripwire Podcast, the show where commercial real estate needs data and insights. This is our Week in Review for the week ending September 12, 2025. I'm Hayley Keane 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 Buschbaum, Research Director. This week, markets are digesting fresh signs of labor market softness after the BLS revised down job growth by 911,000 for the 12 months ending in March. August Producer Price Index came in cooler than expected with core PPI falling to 2.8%, helping push bond yields lower and fueling a broad equity rally. All three major indices, the Dow S&P 500 and Nasdaq closed at record highs on Monday. With inflation moderating and labor data softening. The CME Fed Watch tool now shows a 91.8% probability of a 25 basis point rate cut at next week's FOMC meeting. As CPI data looms Thursday, investors are watching whether tariff driven price pressures begin to pass through more broadly to consumers. And if there's one name that keeps popping up this week, it's Bessant. Treasury Secretary Scott Besant delivered a flurry of bold statements from alarming tariff refund projections and calls to overhaul the Fed to doubling down on tariff legality. So Steven, now that we have an updated view of how the labor market is performing, does the current state of the economy look slightly different to you and what will you be looking for in the next Fed meeting?
- [01:42]
B
Great question. And in a way I would say the view is still more or less the same, but now we have some data that kind of reinforces some of my suspicions. So in other words, I feel a little bit more sane for my outlook given the revisions to the data. I'm glad you threw out the stats on the Fed Watch Tool. You know we've stayed right around that low 80s, sorry, high 80s to low 90s percent chance of a 25 basis point rate cut for the last month here. But the change over the last week and specifically since that non farm payrolls revision came out showing us dramatically weaker job growth than what we had previously seen. It's actually shifted the probability from a hold back to a 50 basis point cut. So in other words, you know, we had been thinking there was like a 5 to 12% chance of a hold that was where the tail of the distribution was. Now that's flip flopped and now there's about an 8% chance of a 50 basis point cut. So it's amazing how much this revised labor data has played into rate path projections. So I should toss out. This massive revision that the BLS put out to the US Government's job numbers was a topic that we talked about on the podcast and in Market Pulse, I want to say somewhere between 12 to 16 months ago. And specifically what we highlighted back then was how sensitive these job numbers are to revisions to the birth death model. So that's not something that gets a lot of press, but it is a very important element to understand for the BLS's statistics. So in their monthly labor data, the BLS has to do this adjustment for birth and death of firms. So what they do is they have a five year look back on what's happened with the birth and death of firms, because that creates the noisiest aspect of of these labor datas. To be a little bit more clear here, the government needs to know how many jobs have been lost due to businesses closing down and how many jobs have been added due to new business formation. And as you could imagine, it takes a little while to get certainty around that data. And so there's an estimate or a proxy that happens statistically. So there's a model estimate that gets factored into these monthly numbers to account for that data, but we only adjust that model on an annual basis. So that's really what, at least to me, was the biggest and most important aspect of this week's announcement. So let's dig in just a little bit to this. So specifically, the BLS now says the US economy added about 911,000 fewer jobs from March 2025 going back through the previous 12 months. So 2024 through March 2025, which means that the job growth was about half as strong as what was reported, which is we averaged about 70,000 jobs per month instead of the 147,000 that had been reported. And the biggest sectors that were impacted by these revisions were leisure and hospitality, retail and professional services. So those sectors are closely tied to real estate demand. So so far this year, the revisions we've seen to labor market data since March 2025 through the most recent report have slowed even further down from that 70,000 number. So in other words, the labor market is looking a lot weaker than what the data had been telling us. And a big part of this is because of that birth death adjustment. Covid threw an absolute wrecking ball into the model. As you could imagine, we lost a ton of jobs through the death of firms. But then coming out of COVID we had a massive number of jobs created. And importantly, what's probably the most important thing to know about this birth death adjustment is that it tends to overestimate the number of jobs added to the economy when you reach an economic inflection point and we entered recession and that's about where we're at right now. The economy has cooled, it slowed down. And so our bias is to the positive with this model estimate. And really this is going to continue for probably another one to two years. Given that five year look back, we're going to continue having a lot of noise, enter the data and it's hard to say this is really anybody's fault. It's just a statistical anomaly. It is what it is, but it's something to just be aware of and to factor into how we interpret the data that's being released. So all in all, the short of it is there's definitely grounds for the Fed to cut rates by at least 25 basis points at their meeting next week. And we'll probably even have some Fed members arguing for a 50 basis point cut to try and get ahead of that labor weakness. So I'm curious what you think, Lonnie, about this revised labor data and if that has changed your view on rate cuts, if you think will still hold True at a 25 basis point cut or maybe if there's grounds to cut rates by 50 basis points to get ahead of the weakness.
- [06:41]
C
Yeah, I mean, I think it's, it's worthy of debate. I don't think it moves the needle for the Fed this upcoming meeting. I think they stick to 25 basis points, they try to get another reading on where things are before their next meeting and then maybe they're a little more aggressive if they have to be in their subsequent meeting. I'm shocked at the revision. Like the number jumps off the page. I mean, when you go through the stats, Stephen, and you say in actuality it's 70,000 jobs per month instead of 147,000 and the headline number is almost a million less. I just don't understand how people think that we're going to continue to believe any of the data that gets reported out. And I understand that you can make the argument that this is a model based calculation. There's going to be some statistical anomalies, there's a refactoring that happens based on timing. All of those things are valid. But just logic says like you can't have Mrs. That are this big, especially when you're in an information age now where Data is effectively available real time 24 7. And it just, you know, we talked about this at detail, in detail when we were looking at the, you know, rise of inflation and the way the inflation is calculated and some of the antiquated metrics and processes that are in place for that. And it just highlights again for me, you know, there has to be a better way in today's world for us to get more accurate, real time reporting. The fact that we're still using these methods that have been adopted for decades, it just doesn't make sense. You know, you could maybe stomach it when the numbers come out and at least are believable, but at this point I don't think there's anything that comes out that shouldn't have a healthy amount of skepticism because, you know, both positive and negative, we've seen upward revisions on, on some things that are significant and we've seen downward revisions. And you have folks like the Fed and others that are making economic decisions based on data or even, you know, Jerome Powell's been highlighting the fact that he wants to look at the data, but the data is incorrect and incorrect to some, you know, significant margin. It, it does have ramifications. And you know, the challenge for the markets here is just what are you going to do? I mean, like they got rid of the person that was like running, you know, some of the, the BLS stuff, but all of those trades, all of the stuff that's taking place based off of those numbers are baked at this point, you know, and, and you can't help but think that some of this was just timing was favorable to highlight a strong economy going into the election cycle and if they revise it after the fact and it is what it is, you know, and so it just, from my perspective, it's a little disheartening in the sense that it just, you know, we're, we're straying a little bit from having anything that we can truly believe in. These are supposed to be nonpartisan type of just like factual reported numbers, you know, based on models that are, you know, know, deemed to be accurate. And I, I just, I feel like we're, we're past the point of believing it. And so I'm hopeful, you know, maybe the, the silver lining here is that people will start questioning this enough that we get some alternative methods or we get some new frame in place to kind of deliver better results real time. Maybe it's not possible just given, you know, the way that they have to calculate this, but it, it is frustrating.
- [09:40]
B
The, the hilarious Aspect of this to me is that probably three to six months from now we'll forget about the birth death adjustment, we'll be in the throes of the data and then a year from now when the revisions come out again, we'll say, oh yeah, that's right. Remember how much we, you know, discussed that birth death adjustment and how noisy it was at that time? Well, it's gotten worse or better since then.
- [10:00]
C
Yeah, I think that's fair. But it's still. Is there no way to, to modify that on a, on a cadence that's more appropriate? Right. I mean, like, who's to say that that only has to be adjusted once a year? Wouldn't the markets and people making financial decisions benefit from having more real time updates or recalibrations? If you would. So I think all of this stuff should be questioned at this point from a healthy dialogue perspective. Not saying that we needed to completely disrupt the system. We should try to minimize or limit some of these gross errors or recalibrations. Yeah.
- [10:36]
B
One other aspect of this data that complicates things is the response rate. Pre Covid, I think the response rate was around 6, 60%. And then post Covid we've hung in there about like the, the mid-40s percent I believe. And the response drop I think has been biased toward the smaller company side. And so you now have much less of a balanced response rate. So for me, I think part of the solution lies in how we can incentivize companies to, you know, be part of the solution, to contribute some of the signal and help us remove some of the noise. In my opinion, that's where we should be focusing a lot of our efforts from the top down. Now how we do that, that's definitely up for debate. But come on, we live in a very creative age. We should be able to find some solutions for this problem.
- [11:29]
C
Juan Haley mentioned on the Leader and Steven, the Scott Bessant stuff this week too, which I think is a nice segue. He's effectively proposing some fairly significant changes in his op ed to the way the Fed operates. And know alludes to the fact that, you know, post GFC in 2008 that they've really transformed what they perform and have strayed from just the dual mandate and really at some level, I think he called it a gain of function monetary policy experiment and you know, highlights the fact that, you know, if the Fed doesn't change course, some of the challenges that we've seen pop up. You know, wealth inequality and some of these other challenges qe, you know, quantitative easing being used at a whim might continue. And it's just going to create an unsustainable marketplace. And so, you know, I saw, you know, just online there was a lot of people that maybe disagree with the Trump administration broadly that actually felt like this was a fairly well grounded take on kind of where things were. I don't know necessarily that some of his suggested, you know, things to be implemented will actually have a chance to be implemented. But, you know, ideally, he says they should be an independent, nonpartisan review. They should strip bank supervision powers, limit bond purchases, and reduce institutional bloat. So I don't know what your thoughts were on this, but it feels like, you know, if you go through what he wrote at some level, especially in the real estate markets, you know, the manipulation of the marketplace through QE and some of these other bond purchases really have created the haves and the have nots in terms of wealth inequality. If you owned a property and kind of benefited from some of this, or if you didn't.
- [13:06]
B
Yeah, I mean, this was a blistering op ed. And for any of our listeners out there who want to dig deeper on this, the Wall Street Journal op ed that the Treasury Secretary put out there is an abbreviated version of a longer article he wrote for the magazine International Economy. So that's a free article out there. If you just Google International Economy, Scott Besant, it'll take you to their homepage landing page and you'll see a link to that gain of function article that he wrote. So let me see if I can boil this down as simply as possible. First, I'll toss out the six main criticisms that came out in that article. First was gain of function monetary policy, which I gotta say, I love, absolutely love this cute term that he coined here. I don't know if he coined it, but I love that gain of function monetary policy. The second was overconfidence plus bad forecast. The third was distributional side effects or inequality. The fourth was blurred lines with fiscal policy. Fifth was regulatory overreach and conflicts of interest. And then the sixth was credibility and independence is at risk. So in summary, you've had this creep by the Federal Reserve post 2008. And honestly, for me, one of the biggest things that the Treasury Secretary was calling out was, was the quantitative easing, the bond purchases. And that effectively created the system of have and have nots. And the distributional consequences of that QE action have just widened the inequality divide in America. And I can tell you from firsthand, when the Fed was doing These asset purchases. I remember vividly at the time thinking like, this is really, really odd. You know, I'm out here as a bond seller and one of my counterparties on the other side is potentially the Fed. And so part of my portfolio strategy is to kind of game the system and figure out what bonds is the Fed buying. Those prices on those bonds are going to be bid up because you know, the Fed effectively represents new demand entering the marketplace. And so that's going to push down required rates of return, it's going to push down yields because that's effectively what the Fed was trying to do. They were trying to, right. Lower interest rates. That would in theory boost economic output, it would encourage spending. Again, we try and boost the economy. And so in CMBS space, that's a very unique space, the price of those bonds should be tied to the fundamentals and the intrinsic value of the underlying collateral. But when the Fed was out there buying, I have a hard time believing that they were going through that sort of fundamental review and pricing these bonds in a judicious manner. To me it seemed more like indiscriminatory buying that's lifting all ships. And I get it. At the time they were trying to provide a floor. But here we are 15 years later and the economic divide between the haves and have nots is at historically wide levels. And you think about what's happened Post Covid, a 55 year old with a fixed rate mortgage saw their home equity surge, absolutely surge over that five year time span compared to say a 28 year old renter who faced rising rents and now complete lack of housing affordability. It's absolutely brutal out there. So hopefully we do take this criticism that the Treasury Secretary has tossed out there and take it to heart and have an open and honest discussion about the role of the Fed and potential changes that can be made to a regulatory framework that can help normalize our economy and normalize asset prices for, you know, our everyday people on Main Street.
- [16:56]
C
I have a really strange concept, Stephen. Maybe just let the markets work like they're supposed to. And sometimes when people are over levered or people have challenges because they put themselves in a bad spot, they have to deal with those things real time instead of having, you know, the government step in and intervene. I mean, every instance, and we've talked about this multiple times on the podcast and I've talked about it on multiple different podcasts that I've been on. You know, every time there's been a sniff of some sort of economic downturn related to the real estate market or the broader financial markets. The Fed has jumped to the rescue every time. And you know, we've gotten away. In 2008, everyone was super upset about the bailouts. And you know, the term bailout had such a negative connotation. And they've gotten away from it. They've been more strategic in the way they've operated over the last couple of, you know, call it 10 or 12 years or so, but it's effectively the same thing. And so it's, it's, we're in an interesting, you know, this is where I think the transparency of data and all the stuff that we were talking about on the lead in, you know, comes home to roost a little bit here, is that people are not stupid. People can see what's happening here. And to your point, like someone that owned a home in 2019 compared to someone that didn't, you fast forward to 2022 or 2023, completely different trajectories just because of some of the, the government intervention. And so, you know, it'll be interesting to see what happens here. I mean, I think it, it definitely caused a stir this week. I mean, there's a lot of people talking about it. Talk doesn't always equate to action. But I think given where we are in this market cycle and with the Fed, you know, Powell about to depart and kind of everything that's happening there, it'll be very interesting to see because it actually some of his points run contrary to what we've seen with the political pressure from the current administration. So, you know, it's, it'll be interesting just how this finally plays out. But I think it's definitely worthy of additional discussion. And you know, we talked about recalibration of the model and some of the other numbers in the lead in, but sometimes you need to look at just overall practice and, you know, it's not a bad thing to recalibrate some of these functions as needed.
- [18:53]
B
Yeah, I mean, I know we've, we've gotten close to the edge a couple of times from, you know, just a market wide standpoint. One of the events specifically that comes to mind is the UK guilt crisis when we, you know, thought there was a possibility of some major UK pension funds collapsing as bond yields surged. So, yeah, in situations like that, sure, there's absolutely a valid reason and support for regulators and Fed officials to step in and support markets. But you know, on the whole, I'm with you, Lonnie. Like, failure is not necessarily a bad thing. We learn the most when we're allowed to fail and when you prevent failure, that can hinder the learning experience and ultimately result in a sub optimal outcome. I mean we see this, I don't want to get too preachy and off topic, but we see this with the grade inflation and K through 12 plus higher head by inflating grades and taking the line of we don't want anybody to fail that has resulted in suboptimal learning outcomes. And it's not just K through 12 and higher ed where we see it. This is an obvious example that the Treasury Secretary spelled out of that same paradigm existing in financial markets.
- [20:08]
C
Listen, this is, I mean the grade stuff is very applicable, but this is just rampant in life at this point. This is the participation trophy, lifetime. You know, I mean like that's just the way that things work. And it's at one level it maybe is good because it does prevent some people from feeling negative things that come with losing. But to your point, that's where growth really happens. I mean you see any of these super successful athletes or anyone else that's at the pinnacle of their career and they'll tell you the reason they got there is because they had to overcome something like they had to go through something that tested them to a point of is this really what they want? Are they willing to sacrifice everything to get there? And you know, it's yeah, we need to start up a separate podcast. Maybe we do Trap Wire After Dark or we can talk about some of these other challenges. But you know, I think as it pertains to real estate, you know, two weeks ago you and I were both really optimistic about where we were given the retail earnings. People were revising their forecast up. We thought the things maybe had bottomed out and we were on the upswing. If you look at where we are today, I'm probably a little less optimistic. I think the double edged sword nature of the rate cuts, if the, the revisions in the, in the data are correct and if the stuff from March to now is actually worse than the what preceded that, then you start seeing a fall off in demand and you start seeing a fall off in spending. 50 basis point rate cuts maybe only going to cement the fact that we're in a recession or getting close to it. And you know, that's kind of a self fulfilling prophecy. So it's interesting, like I felt really good a couple weeks ago actually to the point of like kind of being little bit very bullish on the pod. And it's funny how two weeks later I'm Questioning how I could have been so confident given what we've seen this week.
- [21:47]
B
I know it's amazing how much things fluctuate day to day, week to week. And I mean, heck, you look at the stock market, granted equities do not equate to the economy as a whole, but the equity benchmarks hitting all time record highs. While at the same time we have, I think you highlighted this, Lonnie, the Kobese letter out there noting a record number of new homes for sale in the southern US States. Now it's just like, oh, your, your head has got to be on a swivel these days.
- [22:15]
C
Yeah, the home stuff is where it gets really interesting if that market actually starts to falter, which depending on who you read online or whatever. But FHA has been supposedly, you know, either letting reduced payments or subsidizing a large portion of their portfolio and not reporting them delinquent or pursuing any action. There's, if that stops or if that, you know, winds down at some point, there could be some real challenges to the residential market. I mean, I do think, and it is interesting, going back in 2008, I was pretty bullish, you know, that maybe the, the recession talk at the time, you know, end of 2007, early part of 2008 was a little overblown because on a percentage basis, the percentages, the percentage of homes that were negatively impacted by subprime lending or whatever on the whole was a very small number, but you just don't realize how large that market is. I mean, 2 or 3% of homes is still by, by percentage a small number, but by total number of properties is a huge number. And if we see something similar to that here. But again, you know, we talked a little bit about this last week and I know we got to get onto some other stories here, but if you look at just the inflationary value increase of some of these properties, specifically in residential, where they locked in mortgage rates at crazy low numbers, there has to be a correction and there has to be a sizable correction. Like the math just doesn't make sense and at some level there's, there's got to be a correction. So again, it goes back to what we've been talking about all day today is just at what point do we rip the band aid off and do we let the person bleed for a little bit before we put another band aid on, or do we just stack another band aid on top of it and never remove the first one?
- [23:53]
B
I'm thinking, you know, given all that we've discussed up to this point and the social trends, I'm thinking Band Aid on Band Aid.
- [23:59]
C
That's what I think will happen, too.
- [24:03]
A
So let's get into some of the commercial real estate headlines from the week. We saw coverage in cnbc, and they were citing a new report from NAOP about the demand for industrial space falling for the first time in 15 years. So let's talk through the story, and then maybe we can share some of our trep data and what we're seeing in the industrial market.
- [24:24]
B
Yeah, talk about some timely data for this week's episode and the theme thus far, coolant for demand in the Industrial Sector. I couldn't have drawn it up better. So five years ago, when the pandemic pushed E Commerce to new heights, the industrial warehouse space became the biggest commercial real estate play in town. And that began to slow in 2022. But now economic uncertainty, brought on by constantly changing tariff policy and persistently high inflation, is taking a greater toll on the previously hot industrial sector. Just 27 million square feet of industrial space was absorbed in the first half of this year, and Demand fell by 11.3 million in the second quarter alone. This represents the first quarterly drop since 2010, according to an August report from NAOP. Since uncertainty is likely to persist through the end of this year, NAOP projects that net absorption will be nearly flat over the second half of this year. To quote the report's authors, they say demand for industrial space is expected recover somewhat after occupiers have time to adjust to a new tariff regime. However, higher tariffs and slowing employment growth will likely result in slower demand growth than that experienced from 2020 to 2022 or in the six years that preceded the pandemic.
- [25:45]
C
Let me give you some stats here on this industrial stuff, Stephen. We've been hearing this narrative of slowing down or cooling demand, all of this for a while now. I do think that it's true. I think it's at various levels of truth. Just like we've, we've talked about, not everything is, is equal. So let's just give some perspective here. If we look at delinquency across the industrial sector, we're still at, you know, less than 60 basis points, basically. On the whole, New York leads the, the state rankings. They are about 6.7% delinquent. Massachusetts is second with 3.38%. Illinois is third at 2.89. But across the US you know, you get outside of the top six and you're less than 1% delinquent. Across the nation around all of the other States if we look at new origination trends. So you know, last quarter origination volumes, California leads the way, 894 million in origination. Florida was number two at 587 million. Georgia three at 443 million. Indiana at 415 million. And Texas rounds out the top five at three hundred and ninety million. So yes, things are probably starting to slow. If I zoom into Texas in particular, delinquency is, you know, 10 basis points effectively. Okay, how many properties or what percentage of properties in our data set in industrial in Texas do you think are on the watch list, Steven? And then I'll ask you about debt service coverage less than one.
- [27:10]
B
Oof, watch list for Texas. I mean I, I'm thinking 10% or less.
- [27:18]
C
That's what I would have thought. 39%, 2.4 billion properties, 2.4 billion worth of outstanding loan balance across 433 properties are on the watch list in Texas Industrial. Now let's go to debt service coverage less than 1. What percentage and maybe what outstanding loan balance do you think is out there?
- [27:37]
B
Percentage less than 1. And we're going to include series clos in this.
- [27:42]
C
This includes all sources, so CMBS and cre cielo. Yep, good question.
- [27:49]
B
Percentage less than 1. I'm gonna hope it's less than 5%. I mean 5 would be pushing it. So maybe, maybe 2 and a half, 3.
- [27:56]
C
13. So the numbers are, the headline numbers are good, but when you dig a little deeper, there's, there's maybe some cracks. Now you know, it's less than 200 million outstanding loan balance that has debt service coverage less than 1. It's not a huge population of properties, but both numbers, 39% watch list, 13% DSCR less than 1 are significantly higher than what I would have expected.
- [28:26]
B
Yeah, I guess in fairness I shouldn't be too surprised about the percentage with debt service coverage less than 1. Because what we've seen over the last five to seven years is industrial absolutely tends to be the highest leverage and tends to be underwritten on future growth prospects. So in other words, the debt yield tends to be the lowest of any asset class by a pretty good margin like 7.5%. Debt yield is not outrageous in industrial.
- [28:55]
C
So if you look at the most recent couple of years without even looking at the data, Steven, you're pretty spot on. If you look at 2021 weighted average origination debt yield for industrial, this is in Texas again, still just Texas. 6.53, 2022, 6.83, 2023 did see a pretty significant Jump up. But it was a much smaller sample, but it was 10.17 24. Debt yield was 8.78. And 2025 year to date is 8.03. Loan to value in the 58 to 60 range pretty consistently. And if you look at cap rates, weighted average trailing twelve month cap rate for industrial in Texas is at 5.22%. So actually slightly higher than what I probably would have guessed on the cap rate side.
- [29:36]
B
Yeah, I was thinking like four and three quarters. So. Okay. Yeah, this, yeah, this all stands at probably the inflection point, you know, between what this qualitative report is telling us and the quantitative data. Yeah, this, this definitely feels like we've, we've passed that inflection point of peak performance.
- [29:55]
C
Yeah, it had to happen again. You had 25 years or so worth of development pipeline built out in about seven years. It's, it's got to slow down at some point. And so we'll see how this slowdown, if it actually is just a slowdown or if it comes crashing down. I think there's still enough demand at this point that we shouldn't see. Maybe you'll see some pockets that really see some deterioration, but I think ultimately you probably just see a slightly leveling off of the curve.
- [30:21]
B
Yeah, I think we'll have to be probably more careful going forward too about how we classify industrial. There's going to be strong bifurcation between the warehouse and logistics space versus, you know, data center and hyperscaling facilities. Brookfield was having their investor day today in Manhattan. I was listening to an interview with one of the C Suite executives there. And I mean, just the amount of bullishness they had around data center and hyperscaling development was fantastic, you know, phenomenal. Just talking about, basically this is a multitrillion dollar play over, you know, easily five to 10 years and perhaps longer.
- [31:03]
C
Doesn't that make you a little bit nervous in the sense that since everyone is kind of like rowing in this direction like that usually is, when things get to a bubble, things don't pan out like they're expecting. Now, I know in some of these instances, both with AI and with the data centers, people are placing strategic bets across the spectrum. They're hedging and they just need one or two to hit for them to be okay. But it does feel like when there's a consensus talk track or there's, you know, there's this agreement across all the major players, things get inflated. And I think data centers are definitely one. I agree with you that we're going to have to start, you know, calling it a separate subsector or whatever. And even some of these pure industrial plays that have a lot more logistics and infrastructure built into those buildings are probably something more than what we traditionally have called industrial. It's, it's cool from our perspective, you know, because you've had the same major food groups for the last 25, 30, 50 years maybe and with technology some of those things are going to be transformed.
- [31:59]
B
Yeah, speaking of transformation, we had a transformation in the world's richest individuals this week. Larry Ellison actually overtook Elon Musk as the world's richest individual as Oracle's stock has absolutely surged on the heels of this OpenAI announcement.
- [32:19]
C
Yeah, that's pretty interesting. What'd you follow? It's number nine or ten, Stephen.
- [32:25]
B
That's funny, like ninth or tenth from the bottom.
- [32:29]
A
And speaking of industrial, we saw an article in Commercial observer this week about Starwood landing a $930 million CMBS loan for a five state industrial portfolio.
- [32:42]
B
Yes, Starwood is refinancing a portfolio of 54 industrial properties across five states with a loan of $930 million that's going to be securitized in a CMBS deal. This floating rate non recourse loan was co originated by Goldman Sachs, Barclays, Morgan Stanley, Natixis and UBS with an expected closing date around September 26. According to data from KBRA, the SASB deal or single borrower deal was structured with an initial two year term with three one year extension options. And the deal is structured as an IO loan, so interest only, no principal pay down. The 54 industrial assets encompass a total of 8.2 million square feet in Nevada, Arizona, Colorado, Maryland and Tennessee. The properties are 88.3% leased to more than 230 tenants including Amazon, UPS and FedEx.
- [33:40]
C
So I have a couple of properties that we can highlight on this story, Stephen. There's 8410 Kelso Drive in Essex, Maryland. 500,000 square feet, 100% occupied by DAP products, lease expiration in 2030. Pretty large exposure here in North Las Vegas, Nevada. 450,000 square foot, 95% occupied. As you mentioned, Amazon major tenant in this deal, lease expiration in 2029. So most of these have multi tenant component but there is a fairly large sample that is single tenant. Let me find my stats here. 24.9% of the portfolio has single tenant assets in place which in industrial maybe is a little less risky than what you would think of in like the pure, you Know, single tenant, net lease type of deal, but it's a pretty large amount of square footage. You know, 25% of 8.2 million square feet with single tenants. In those cases, though, as you mentioned, mostly Amazon, UPS and FedEx.
- [34:40]
B
Yeah, I mean, in a way, it makes it a little bit easier to analyze and price these deals because at the end of the day, with single tenant exposure to publicly traded investment grade firms, you're effectively looking at this thing like a corporate bond. I mean, at least at some level.
- [34:57]
A
Okay, let's turn to some happenings in the office market this week. In the Return to Office saga, we now saw Paramount calling its employees back to the office five days a week.
- [35:09]
B
Yeah, talk about a bitter pill to swallow. But something that's right in line with the trends we've been seeing. And honestly, for a cooperation and innovation push, not too surprising. So this five day a week mandate will begin in January. Staff members have less than two weeks to sign on to the new schedule or start talking severance. Employees at the vice president level and below in New York and Los angeles have until September 15th to make their decision. That's coming from CEO David Ellison, who sent this out in a memo to staff on Thursday. Those not interested in shifting to five days from the current expectation, at least two days in the office can participate in an opt out severance program. This announcement comes just weeks after Skydance closed its merger with Paramount Global, the home of cbs, MTV and its namesake movie studio. The company executives said they plan to cut costs by more than $2 billion and there will be reductions in headcount later this year.
- [36:08]
C
So I did some digging around the web, Steven. 27% of US companies are expected to be fully in office by the end of 25. That's up from 22% earlier in 2025. Hybrid work remains the dominant force across the office sector, with 67% of employers offering some flexibility, allowing employees to come in less than five days a week, but at least a couple of days a week. What's really interesting though, Steven, is Of those surveyed, 47% plan to discipline or terminate employees who don't comply. And many use badge tracking or other attendance monitoring protocols. So if you break this out, 33 of the Fortune 500 companies currently require employees to be in the office five days a week. Amazon, JPMorgan Chase, Goldman, Tesla, UPS, Boeing, AT&T and Broadcom are a few of those. Over 54% of the Fortune 100 firms now mandate full time in office work. Now, just to give some perspective here, two years ago that number was 5% and it's up to 54%. This is including Amazon, Walmart, UnitedHealth, JP Morgan. Three in ten companies plan to enforce, you know, effectively five day in office policies at some point in 2026. So that number was at 22% at the beginning of the year, 27% expected by the end of the year and 30 plus percent in 2026 is what's expected.
- [37:30]
B
Yeah, it's funny how as the economic engine has slowed down and the economy has cooled, the in office mandate has become the de facto strategy to help cut costs because you have a significant portion of the workforce that is probably of that age where maybe they can afford to retire early or of strong enough belief that they can find a position at another firm with flexible policies. It'll be interesting to see really how much headcount reduction ends up coming into play because of a weak labor market. And it's becoming a lot more difficult to find a substitute job. And you know, it could be that we start seeing layoffs increase because people are holding onto their jobs more dearly.
- [38:13]
C
You know, the folks that had all the power, I mean two years ago, two and a half years ago, it was definitely an employee market. You know, they had the ability to really push comp expectations, change jobs. You had the quiet quitting, you had all this stuff. You know, it's not moved as quickly as maybe, maybe my sentiment change of two weeks ago to now in the economy, but the sentiment has definitely shifted to where now I think the employers have the upper hand. And to your point, a lot of these employees maybe think, well that's fine, I'll take the severance and go find something else that's hybrid or remote, I think the days of those jobs being as prolific are really numbered. It'll be a difference in just how people approach this after they see some of their friends maybe taking the severance and then not landing another job, I think people will start coming back in the office.
- [38:58]
B
You know, not to pat myself on the back or anything, but to pat myself on the back. If we go back to 2022, when we were all throwing darts, guessing when we would see stabilization and normalization in the office market, to the new hybrid, remote in person regime, 2026 was, was my pick and it's looking very much like 2026 will be the stabilization point.
- [39:24]
C
So a little, a little behind the scenes here of the podcast, I think Stephen, every time he makes a prediction, like writes it in his little prediction journal and he like reverts back to that, you know, so that he can bring it up. News flash. When I make a prediction, it pretty much just lives and dies on that episode. And if someone said, oh, you predicted this, I would have to say, let's listen to the tape because I don't remember it. But Steven's got those bad boys documented in a prediction journal. I'm sure you're probably a spreadsheet, more of a spreadsheet guy, but there you go. I think he keeps track of it pretty, pretty diligently.
- [39:52]
B
Well, over time. How do we improve our forecasting ability if we, you know, aren't keeping track of, of our wins and losses?
- [40:00]
C
Yeah, go ahead and call me out, Stephen. You know, that's what I rely on you for, man. You're the, you're the brains of the show and I'm the dad jokes. And then Haley keeps us on the track.
- [40:08]
B
Don't be biased, man. You're meticulous in your record keeping.
- [40:12]
A
Our friend Yona Weiss actually just put out a post on LinkedIn where he rounded up a blooper reel from all of his podcasts. I think we could come up with some prediction re round up all of Steven's predictions over the years, if you're ready for that, Stephen.
- [40:25]
B
Oof.
- [40:27]
C
I don't know.
- [40:27]
B
That might be humbling to the negative.
- [40:29]
C
I don't know.
- [40:31]
A
I'm sure some of our listeners are keeping track. All right, so let's go on to another story from Commercial Observer. We're seeing more news on the office to residential side. We've talked about this so many times on the podcast, but what started as just a theory and trend is really taking hold in some places. So this article talked about how D.C. is now going to grant tax abatements for two more office to RESI projects.
- [40:58]
B
Yes, Washington, D.C. is already among the most active cities in the country for office to resi conversions. And now the District is putting its weight behind two more adaptive reuse projects with more tax incentives. D.C. mayor Muriel Bowser announced this week that two new projects spearheaded by Monumental Realty at 608624 I Street Northwest in Chinatown and 2401 Pennsylvania Avenue Northwest and DC's West End will receive 20 year tax abatements via the District's Housing in Downtown or HID program. The program aims to incentivize residential conversion projects as a means to achieve Bowser's goal of adding 15,000 residents to D.C. by 2028.
- [41:41]
C
So I think as we talk about these throughout the year, Stephen, I agree with both you and Haley that we're starting to see more of these con but you've yet to see any of these in any major market outside of single digits. It feels like it's like one or two or three or four or. We've had our fifth conversion. Great. And the kind of a niche, you know, use case, maybe it's more prolific than what we thought it would be. But even here, I mean we're talking about just a couple of buildings. It's not really shifting the narrative around this, you know, office to resi conversion at scale. And I still think that we're not going to see that. As I said a couple months ago, I don't think it has to be for this to be considered a success. Like I think obviously more than one or two per market needs to happen. But you could have markets like DC where maybe 25 or 30 in total is a monumental shift. I just don't know that we're going to get there. I mean it feels like some of these, like just the administrative process of getting these public private incentives and things align takes so long. And especially with what we just talked about with the office sector, you know, we kind of. Is the pendulum going to swing back the other way where people say, like we said, you know, five years ago, we just need a reset in basis on the last trade and these functionally obsolete offices are magically no longer functionally obsolete when the basis is cut in half.
- [42:54]
B
Yeah. I mean, in a way I'm actually glad we're not seeing this take off exponentially because the tax incentives are a big part of this conversion calculus. And when you have tax incentives of this size and scale, what I worry about is if this had greater momentum, we'd start getting some problematic asset price distortions in markets that could have some less than desirable knock on effects.
- [43:22]
A
And as always, we have a lot of credit stories that touch the CMBS market and we talked about a lot of transactions in our newsletters this week. But let's just quickly cover two sales that we saw in the retail space. One in Boston and one in Charlotte, North Carolina.
- [43:41]
B
So this first one in Boston, we have just under 29,000 square feet of retail space. Has sold for 83 million. The Hennett Group has paid 83 million or just over $2,800 a square foot for the 28,856 square foot Mandarin Oriental retail collection at 772 and 776 through 778 Boylston street and the back Bay section of Boston. The Toronto investor acquired the space in a deal arranged by JLL Capital Markets. The shops at the base of the 148 room Mandarin Oriental Hotel, which was acquired in 2016 by the Mandarin Oriental Hotel Group of Hong Kong for $140 million. The retail condominium is 82.8% leased and anchored by Citizens Bank. Other tenants include Fret Minilux and Lunette Optic.
- [44:30]
C
Kind of feel pretty good about that if you're the seller. Stephen. 2,900 a square foot roughly sounds like a pretty good deal. I mean, I'm not an exper the Back Bay. Maybe that's kind of, you know, average for that market, but it feels like pretty strong sales price for this property.
- [44:45]
B
Yes, we're talking about high street retail now. Next up we have Inventrust bought some retail space for 80 million in Charlotte, North Carolina. They've purchased the 182,000 square feet of retail space at the Ria Farms Master Plan development in Charlotte, North Carolina for $440 a square foot. According to the Charlotte Business Journal, The Downers Grove, IL REIT purchased the space from Barings, a Charlotte institutional investor. It's anchored by a 76,000 square foot Harris Teeter grocery store. Ria Farms sits on 188 acres near the intersection of Providence and Audrey Kell roads. A venture led by Lincoln, formerly known as Lincoln. Harris is the property's master developer. Work on the Property began in 2017. It also has more than 700 apartment units, 175 senior housing units, single family houses, townhomes and a 200,000 square foot lifetime fitness center.
- [45:44]
C
Yeah, it's been a while since we've had a Charlotte story on the pod. It's good to see. I know they had a really nice run post Covid and maybe slowed down a little bit, but this is a pretty strong sale here. I mean $440 a square foot. It's no joke. And especially for a grocery anchored center, this is a pretty good, pretty good deal.
- [46:01]
A
And a quick programming note for this week. We are gearing up for our September Market Pulse webinar. Send us a note to podcastrep.com and we can get you the signup link. This will be on Thursday, September 25th at 2pm Eastern and we'll dive into some big topics impacting commercial real estate and share some exclusive data that sometimes we share before we release the report. So this will get you a first look at some of the research that we're digging into. Turning to shout outs. So we had a very astute listener, Robert M. Who pinged us and said he's noticed that the daily SOFR rate has been elevated the past week, which seems odd when everyone and their pet rabbit knows that the Fed will be cutting the Fed funds rate by at least 25 basis points next week. He wanted us to dig into what is happening with the SOFR rate and why it's been counterintuitively rising. So this is a great topic. Robert. We're going to dig into this and we'll come back to you next week with some more details. Rek is a recent graduate from business school and is interested in pursuing a career in commercial real estate. They came across the Tripwire podcast and has already learned so much from it. They were looking for additional resources such as emails and events, so we got you signed up for that. Thank you so much Ari for finding us and using us as a resource. Will M. Was listening to the podcast and wanted to dig into the life insurance company's CRE returns. We touched on that last week and if you are interested in seeing how the life insurance industry is performing, we have a life Comps data set and we can give you some insight into life insurance commercial mortgage returns. So reach out to us if you're interested. Jim D. Was also interested in our Life Comps report and said thank you guys. Love the pod. Keep up the great work. So thank you as always to everybody who requested more resources and reached out to us. With that, we'll close. Thanks to our producer Carly Sento. 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.
- [48:20]
B
All right.