← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
355. The Markets Keep Moving: Office Bright Spots, Compass’ $1.6B Merger Reshapes Resi, Recapture Explained, & Trepp Trading Alerts
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Foreign.
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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 26, 2025. I'm Hayley Kean with TREP, a data modeling and analytics firm for the CMBS commercial real estate and CLO markets. I'm with Lonnie Hendry, Chief Product Officer, and Steven Bushbaum, Research Director. This week, markets were mostly constructive with tech leading the way. Second quarter GDP was revised up to 3.8% on strong consumer spending and jobless claims surprised to the downside, easing recession worries while Fed Chair Powell kept a cautious tone after last week's rate cut. Growth and jobs remained the big focus ahead of the October 30th FOMC meeting. Government shutdown risks are still on the table with the September 30 deadline looming, though any disruption is expected to be short lived. Also in today's episode, we'll review some items for the residential market, breaking down the huge Compass merger we saw this week, and new data for the home and mortgage market. We'll also dig into the idea of recapture and talk about how depreciation plays into decisions to hand back the keys to a property and and how this all ties into the big beautiful bill. But first, Stephen, after all that, are you buying crypto Gold or CBD Office?
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Well, to be quite honest and to answer the question straight away, CBD office. Now I know there's plenty of good reasons to be buying gold. It's come a long way though this year and I got a question how much more room there is to run. But given the political backdrop and geopolitical situation, I know there's probably an argument for more room to run there. Crypto. I have a bitter pass there. After not buying Bitcoin at $40 a coin back in 2008, I have a hard time jumping back on that train because that was a bitter miss for me. So honestly, stick to what you know, right? I have, I have pretty good conviction in CBD office, especially with all of the talk that's been going on this week. Few you look at the jobless claims numbers coming in slightly low and then forward guidance from all of the C suite executives that have taken the streets over the past two weeks to give their interviews to, even comments from a few different Federal Reserve members. Granted, there's pretty wide dispersion in outlooks. There's a pretty rosy or optimistic outlook for a re accelerating economy. So if you truly are buying into that talk track that we're threading the needle Things seem to be going very well and unless something comes out of left field, we're going to continue marching upward. Right. I like the analogy somebody put out. This feels more like 1996 than 2000 in terms of where we are in the tech run up. So if you believe that, truly we're at 1996, we've got some room to run and we feel pretty good about where the economy is and what that's going to mean for office users and space demand. So we're with that backdrop. I am a buyer of Office. How about you, Lonnie?
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I mean, at this point I'd probably be a buyer of any real estate over gold or crypto or bitcoin or whatever. It's just not my jam. I don't quite understand the thesis behind it. Everyone that I asked to give me a detailed definition or explanation as to why I should be going there, I come away more confused than I went in. I agree with you. I think some of the fundamentals for the office sector, especially cbd, are swinging back in favor of continued office use. And you know, I think we might differ a little bit and just kind of where I think we sit with the AI bubble, like, I think we're probably a little farther along than what most people want to acknowledge at this point just because I think the challenge is we've spent so much money on all of the, the ships, the compute, the stuff, the data centers, all this. And at least to this point we haven't seen that revolutionary use case where it just completely disrupts something. It's getting very, very good at a lot of smaller tasks. But I think for this to actually like impact the markets and impact people in the way that it's been described and I think we will get there. I just don't know that we're going to get there as quickly as people think. And I think by definition the first to achieve that effectively becomes the market leader. And then some of these others that have been vying for that, you know, start spending money elsewhere or trying to pivot a little bit. And so it'll be interesting to see. Maybe I'm wrong. Hopefully I'm wrong because I do think the broader macro economy needs this AI to hit some form of realization in the sense that there's been so much capital thrown at it that we have to see some utility from it at scale. And so anyways, but yeah, just to the question, I was at a conference this week and I was telling people if you're bearish on the office at this Point, I think you're just not looking at all of the signs. I mean if you look at all of the CEOs that have said people are having to come back to the office, the stat I saw most recently, 70% of people are going to be required to be in the office at least three days a week. I mean that's probably not that much different than what it was pre pandemic. I mean in terms of office attendance now three days a week is different. But 70%, I mean most offices, even pre Covid, if you have any type of a sales function or any type of a traveling staff with sickness with other things, you're probably running about 70% office attendance. And so I think office is on the come up. And it's just interesting as we've detailed with the, the delinquency in office continuing to spike, you know, it's hard to say that and people not look at you a little bit. Funny that you're a believer in office, but the delinquency numbers are just still the distress that we've known about for a while. This hasn't worked its way through the system yet. So I still think you'll see increasing distress. But the numbers look good. I mean office origination has blown away the last several years. What we've seen, I mean I think we're over 23 or 24 billion year to date in office origination in the CMBS market. And you're seeing markets like San Francisco and others come back to life. And so it's very interesting. I will say Steven, I talked with a few folks this week from the Houston area and so it's, it's interesting to hear boots on the ground perspective from people in the office space, you know, brokerage space and valuation space. They're saying for every distress deal there's one or two non distressed deals that are, you know, pushing the envelope. But it all comes back to the high end class A amenitized buildings still pushing forward and everything else. It literally is site by site. I mean they had several examples of building selling for just land value because they're just obsolete. And so I think as bullish as I am, there's still a lot of challenges that have to be played out. And you're going to see some incredibly low office sales prices over the next couple of years as this inventory starts to get cleared out.
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Yeah, I mean to your point on issuance, I'm looking at the calendar for October and you know, yet again we have a couple more SASB office deals coming to market. And again, to your point, typically we're seeing the Class A A, or if we want to think of it on a tier schedule, say Tier 1 being the best, Tier 4 being the worst. This is centered on the Tier 1 space, which is very encouraging. So for me, if I'm looking to hit a home run or a grand slam, where maybe I'm searching for deep value is in that tier two space that's been super beat up, hasn't seen the sort of recovery that tier one has sustained and been driving forward. And I think that's where you stand to gain a lot. Assuming we do thread this economic needle, your gains in that tier 2 space could be, you know, well into the double digits, likely probably low 20%, you know, or even mid-20s levered return. I don't think that's, that's unrealistic for how low the basis has gotten on some of these assets and how low the current occupancy is and where it stands to go over the next five years.
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Yeah, I agree with you. I think there's going to be a lot of people jumping on our podcast or writing articles over the next couple of years saying they missed out on the opportunity to buy some of those still viable tier 2 class B offices and generally good locations with good dynamics and fundamentals. So I think we'll see a lot more of those stories in 26. I think 2026, especially if we get some rate movement like people are predicting, you're going to see people coming back with capital in the office sector.
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All right, let's talk homes and the residential real estate market. We have a lot to cover here, and I think we want to kick it off by a big headline that we saw this week where real estate brokerage firm Compass has agreed to acquire its rival Anywhere real estate for $1.6 billion. So talk about what this means for the residential market and is this a sign that home sales is making the industry consolidate?
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As much as I want to jump in here, I know, Lonnie, I mean, you have a brokerage of your own, and so I'm really interested to hear your thoughts on consolidation, because I feel like for how just incredibly abysmal transaction volume has been, this kind of consolidation just seems only natural in the space to have two of the biggest players combine to survive and thrive. But you're basically plugged into this industry in the network. So really interested to hear your take here.
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Yeah, it's really interesting when you look at the consolidation. If you put the two firms together and just Try to give a sizing that effectively means that the combined company is going to control about 13 to 15% of all home transactions. So that would make it the largest residential brokerage globally. I mean that's, that's something to be said. I still just don't know if this is enough of a snowball to kind of really put the pressure on some of these smaller brokerages. I mean, I think it definitely creates some pressure for them where you have a dominant player now at scale that, that really, you know, dominate some of these markets and these smaller, you know, boutique brokerages like mine and others maybe, you know, start to feel some pressure of being able to compete. You know, if you believe Compass's tech driven platform and everything that they have touted for, for so long as being a competitive advantage. And then you add in anywhere's agent networks, you know, they have multiple brands, you know, CB century 21, Sotheby's, et cetera. It could be really interesting to accelerate, I think, just kind of repositioning what brokerage in the residential market means post the litigation and everything that took place. And so, you know, tech enablement I think is something that's going to be required. You know, Compass has just, I think underperformed relative to expectations on the whole. And I wonder at some level if this type of transaction isn't just a lifeline to kind of extend the talk track because they haven't really delivered the results that the market had anticipated. So I'm not as familiar with either of those firms at a personal level to know the inner workings. I do think it's the sign of kind of where the industry is. I mean, real estate on the residential side has been extremely slow for the last several years and you're starting to see a lot of agents exit the market. You're starting to see firms, brokerages that were very profitable through the run up in 2019, 20 and 2021 really struggle to, to make money at this point. And so I think it makes sense. It'll be interesting just to see how this takes hold. I mean, everyone thought with the legislation or the, the new, you know, commission split era that we're in, that that was going to disrupt and kind of turn residential brokerage on its head. And it hasn't really done that. The market's really been the driving force of the slowdown. I mean the interest rate environment was just very unfavorable. I will say there's been a lot of interest rate movement. I mean, the Fed made their 25 basis point rate cut While we haven't seen commercial mortgages really impacted positive or negative, residential mortgage rates went down 100 basis points or more last week. I mean, I think we were at, you know, 6.13 nationally. But I called around to a couple of my mortgage broker friends in the residential space last week just to kind of get a feel for this week's episode and they were quoting, you know, par rates at five and a quarter to five and three quarters with no buy down. So that's really, really low compared to what we've seen the last 24 plus months. And so I do think that'll pick up some activity and the announcement here maybe drives a little bit more excitement around just kind of some of the options in the marketplace.
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Yeah, I think we're still in the very early innings of the industry stabilizing itself after the lawsuit and with the commission splits and perhaps the change in menu for services offered. If you focus only on that aspect of the industry, I think smaller boutiques probably stands to outmaneuver the larger firms in that aspect because it's a very hands on, very service oriented industry. And at least my opinion is it's more difficult for these large firms to systematically adapt and be as agile as the smaller players. Where I could see an advantage is if you have more of a shakeup in the MLS platform because there's still litigation ongoing on that front. It's incredibly hard for brokers to, to gain access to other markets. Right, the, just the overhead, the cost that kind of keeps you siloed geographically. If we break some of those chains and break down walls, I could see perhaps having a consolidated platform be an advantage if that's getting you lower cost access to more markets and perhaps a little bit fewer frictions across border. But for right now, my money's on firms like yours.
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C
Well, it's, it's interesting because, you know, you hit on a point that I didn't discuss. But the, the MLS and just the national association of Realtors at Large, I think are going to just, they may feel the brunt of this because compass now if they control 13 to 15% of the transactions, that's a statistically valid sample to effectively create their own network of listings, the private exclusives or whatever you want to call it, which, where they don't need mls, they kind of disintermediate that requirement. And so I think that they may stand to be the biggest fallout here beyond even the brokerages. The other thing that I think that could be interesting is just does this push some of These other large players in the space to consolidate or does it just reinvigorate them to push their own tech initiatives or to create some other type of competitive advantage? And so, you know, there'll definitely be things that we see. I mean, EXP is on record is trying to be very tech focused, like a lot of these brokerages, Keller Williams, which also has a pretty large commercial division, you know, very tech focused. So something to keep an eye on. And while it's not directly related to commercial real estate, I mean Compass does have a commercial arm. Most of these brokerage shops do. It is maybe a precursor to what we might see across the commercial brokerage industry. I mean, I know when Covid hit, there was a lot of talk about some of these really large brokerage firms being over levered, having too much headcount and having to really reshape their teams. And I think for most of them they've been able to navigate that pretty well. But there's been a lot of acquisition activity. Some of these smaller commercial brokerages that have really built a reputation in the multifamily space, et cetera, have been acquired by some of these larger firms, Colliers, JLL et cetera. You might see an acceleration of that activity as we know navigate this, this current environment as well.
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Well, since we're on the topic of residential real estate, one stat or one data point that came out this week that was eye popping was the new home sales number that got released on Wednesday. It showed new home sales were up a whopping 20.5% month over month, which is just absolutely wild. Economists were expecting a slight decline and new home sales. So this completely blew estimates out of the water. Now, you know, you do want to take this with a bit of a grain of salt in terms of health of the residential sector, because existing home sales account for, I think it's something like typically 90% of overall transaction volume. So, you know, in absolute volume terms, this isn't, you know, a massive needle mover. And you also have to think what was driving that increase. Part of it was likely rates like Lonnie mentioned or alluded to. Declining mortgage rates obviously help a ton and certainly help homebuilders in terms of softening the blow for the rate buy downs. In August, 66% of homebuilders reported using some sort of discount like rate buy downs, price cuts or other concessions. I think the average price cut was about a 5% decline. And that's, that's usually a last resort for builders.
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Right.
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You have more or less a homogeneous product that you're offering up. So really you don't want to be cutting price because that marginal buyer, like every incremental buyer you have after that first price cut is going to say, okay, I want that cut as well. So, you know, home builders are more likely to offer in things like say refrigerators or you know, some sort of build out or rate buy down other concessions that are less strong of a signal than a price cut. So it's taken a lot to move the needle. And if you look at building permits and just listen to the talk tracks of some of the CEOs, it's not looking great. In terms of new supply of homes coming down the pipeline, there's not a lot that's being started because land prices are so incredibly high. I mean the, the amount of banked land at these large homebuilders is got to be getting drawn down to incredibly low levels. So you know, going forward, I can't say that I'm terribly bullish on margins and prospects for, you know, major national builders just given what I'm seeing in the forward pipeline for new construction.
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C
Yeah, you mentioned margin, Steven. If you look at residential home builders margin, let's go back in 2023, that's when they hit peak profitability. Their average gross profit margin was about 20.7%. If you look at 24 and year to date in 25, I just pulled out Lennar as an example. Q4, 2024 margin for Lennar was 22.1%. But guidance for Q1 or 25 was dropped to 19 to 19 and a quarter percent. And then they've, they've realized the slowdown there. So I mean like what they had forecasted basically came to fruition. And if they're at 19% gross margin, they're probably low single digit net margin, which is just not a lot considering all of the risk. I mean, residential real estate from a home builder perspective is a very interesting net present value calculation. It's basically a discounted cash flow of absorption. And when you're not selling X number of homes per week, per month, per year to build out some of these subdivisions, those holding costs get very prohibitive because you're still paying taxes on the land, you're still paying a bunch of fees and permits and all of this stuff that if the absorption slows down, your insurance, all of those things have to continue into, into your payment schedule. It's, it's really prohibitive. And so to your point, they do everything they can. They, they would almost sell out at a At a break even so they didn't have to incur those carrying costs and have things sit on the market. But not a great time to be a home builder. I think if you look, we'll look back at the end of 25, this will probably be the toughest year they've had since the gfc. And it'll be really interesting. We've seen how that impacted multifamily. You know, we had a run up in new deliveries over the last couple of years and the new construction pipeline has really slowed down. And I think there's some similarities here on the residential side, like, once you stop that inertia, it's hard to spin back up. It takes time. I mean, to get a large undeveloped piece of property, to get the entitlements, to put in the utilities, to put in the streets, to blot the lots. All of those things take time. And when they, they stop or pull back, it's not like they can flip a switch tomorrow and be shovel ready on some of these things. These projects take time. Yeah.
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And we've come out of a period of pretty heavy growth.
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Right.
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We've, we've had while maybe still not enough supply. We've had a lot of supply added. So you're seeing a lot of, you know, markets push back to some degree. I'd be interested if anybody's been able to derive the statistic, but I know there are a decent number of metros. I shouldn't say metros, but a decent number of counties that have put building moratoriums. Right. They're basically looking and saying, why are we letting these national home builders come in, disrupt our local character, take the profits and then leave.
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Right.
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If anything, we want smaller builders. And so they're imposing moratoriums. And to your point, Lottie, for how long these developments take, it feels a little bit like 2011, 2012, or potentially where we might stall out on new home development.
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So I want us to pivot here to something I mentioned in the intro. And this is a topic that came to us from a listener named Michael W. We love it when you guys send us topics that kind of pique our interest and lead to a longer form segment.
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So.
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So what Michael sent us was a note that said, can you discuss the topic of recapture, specifically how having depreciated a property may impact a decision to turn in the keys or stay involved to work out or modify a loan in order to avoid significant tax consequences. So let's get into this topic and tie it back to what's being Added into the law with the big beautiful bill.
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I love this topic. It's really interesting. It adds a very colorful dynamic and spin on the delinquency and default decision process and modification as well. So let's break down just the basic math here. When you have non recourse debt, which is typically the case with CMBS loans, most CMBS loans are non recourse if the borrower defaults and puts the loan back to the lender. It essentially looks like a sale on paper.
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Right?
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You're effectively selling the property back to the lender and that sale is the outstanding loan amount. So to put some numbers to this, let's suppose that you had an owner that had owned a property for a long period of time. Their original cost basis was 10 million before depreciation. And let's say they've taken $3 million in cumulative depreciation. So their adjusted tax basis is currently $7 million. Now let's say they have a current outstanding balance of 12 million. Remember, they've owned this property for a number of years, probably done a cash out refinance, and so their loan balance is actually higher than their original cost basis. If that borrower were to default and put the loan back to the lender, that would look like a $12 million sale cause of the $12 million balance on the loan. And so the gain recognized on foreclosure would be the 12 million loan minus the $7 million depreciated basis. So that's a $5 million gain of that $3 million would be taxed as depreciation recapture. The federal tax rate on depreciation recapture is 25%. The other $2 million would be taxed at the, say 20% capital gains tax rate. So on a weighted average basis, I think if my math is correct, that works out to a weighted average tax rate of 23% on that $5 million gain on foreclosure. So the borrower, while they might not be on the hook for the loss incurred by the lender, when that property is liquidated, they're still going to face a sizable tax bill due to that depreciation taken and putting the loan back to the lender at a basis that's higher than their cost basis. So if we think about what the big beautiful bill means for this, if you have accelerated depreciation, that means that that $3 million in depreciation that we had in this example, that number could grow to an even larger amount. Right? And so your depreciated basis would be even lower, which is going to push that gain even higher. The short version of this is basically that when the borrower defaults, they're going to face an even larger tax bill due to that depreciation recapture. So while on paper this could look good if your property performs at as expected and you pay off your loan, if you do run into a rough patch and this is a property you've owned for a long time and have done a cash out refi, you could stand to get hit by a very, very large federal tax bill.
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C
Yeah, I mean, that's the part of the guru course and the Instagram famous cost segregation accelerated depreciation that they don't talk about. Steven. It's a tool, it's a valid tool, it's a legal tool. It's something people should consider, it's something people have used. It provides an advantageous position where it allows you to, you know, create losses in the first couple of years or, you know, rapidly depreciate the asset. That works great if you're a longtime holder or you're going to, you know, buy, hold, refi, dai, pass it on to your, your heirs. But if you're one of these transactional investment firms where you're going to be selling out in, you know, a short period of time, or one of these inexperienced operators where, you know, you took out floating rate debt and the Fed raises rates and now you're distressed and your LPs or some of your investors have gotten the benefits of this and then, you know, the property goes into foreclosure. There's a whole lot of, of tax consequence here that I think the general public just doesn't pay attention to. And so, you know, it's, it's interesting when they added this bonus depreciation back into the big beautiful bill, everyone was super psyched about it, but there's just really not a broad awareness to some of the implications of this. And so I think for those that are in the business that use this and have a good framework in place and understand the implications, this is a very viable tool. It's just like 1031. Not every investor leverages 1031. They think that it, you know, you inherently pay more for an asset because of the constrained time limits that you have to make a decision. And so they'd rather go ahead and just pay the capital gains tax on the transaction and buy something else not under time distress. Whereas others, you know, they think they're going to just redeploy their capital using 1031, even if they overpay a little bit for the asset today. So there's no right or wrong answer here. But I would just caution folks that maybe hear about this broadly through some quick snippet on on the Internet. There's more that needs to be explained. Stephen did a great job of giving you a real life example of, you know, with numbers of what this would look like. And if you have questions, you can obviously find a lot of information about, you know, this accelerated depreciation online. It's been a very hot topic for some time. So I appreciate the overview, Steven, because I do think this is one of those underappreciated components of, you know, people just see the dollar signs and the benefit on today's taxes. They don't necessarily see what happens when that recapture comes in. They don't ever read far enough down to hear that there's actually even recapture sometimes. Yeah.
- [27:29]
A
And so what this means for cmbs and debt investors, this creates a really interesting dynamic and just makes it all the more important for you to know the sources and uses of capital on new deals and get as much of the backstory as you can. Because in that example we gave, the tax bill you would face on default would be over a million dollars in capital. And so if you're deciding do I walk away or do I stay vested in this deal and try and see this thing out, obviously you're going to want to make sure you know what that federal tax bill is going to be so that you can decide. All right, maybe it does make sense to pump another, say, three quarters of a million dollars into trying to release this deal and see it through because, geez, getting hit with a $1.1 million tax bill is going to be painful.
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B
So let's turn over to our Deals and Data Property Type news segment. We had four trading alerts that we sent out to our clients this week. So let's start with the Office segment and talk about a Seattle single tenant office loan that was sent to Special Servicing with Trep's latest September data.
- [28:38]
A
Yes, first up, we have a Seattle single tenant office loan has moved to Special Servicing. September data revealed that the $304 million Bravarin office commons loan transferred to Special Servicing recently for eminent monetary default. The loan is yet to be delinquent during its life. It was current on payments through August and shows a status of less than one month delinquent in September. It's scheduled to mature in January 2027. Now, we last mentioned this loan in a September 2023 edition of Trupwire when news broke that the building's sole tenant, Microsoft, would not be renewing its lease upon termination in 2025. Now that other shoe is dropped with Microsoft having fully vacated the building as of the end of last month. The loan is backed by a 750,000 square foot urban office complex in Bellevue, Washington within the Seattle MSA. It was built in 2009. We don't show any renovation information on it in our system. The collateral's Appraised value was 605 million at securitization in 2019. During the full year 2024, the loan posted a DSCR based on net cash flow of 3.43 times with occupancy at 100% obviously because it's a single tenant building. So this will definitely be one to watch as we've talked about that Seattle market quite a bit and this one, honestly we could see it breaking either way. The good news is it's a newer property in a market that's very hot and potentially has some good momentum with AI and office based demand. But there's also been some struggles with quality of life concerns. So this will be an asset we'll be watching closely as a good barometer of office space demand given that there's obviously a lot of space that needs to be released here with Microsoft leaving.
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C
Yeah, I mean, I think this is something that we've probably seen the writing on the wall for some time, Stephen. If you look at some of the statistics for some of our friends in the brokerage community, they don't look great for the Seattle market. I mean, Collier says that Q2.25 saw 732,000 negative absorption. There was another firm that showed 563,000 negative absorption. They've lost about 1.7 million square foot of occupied space in the last 12 months. So this is another one of those dynamic cities. I'm not looking at Seattle five years from now and thinking it's worse off. But it is interesting when you start mixing in some of the quality of life challenges. It does add a wrinkle to just the underlying kind of cre fundamentals, foundational perspective. I mean they, they've leased 2 million square feet or so per quarter in 2025. So it seems like they've had some good activity. But those deals have been predominantly in those really high end class A spaces. And so it'll, it'll be a city on, on our watch list for sure. If you look at asking rents, they're about $55 a square foot, but they still have some pretty large employers there. I mean, Amazon has a big footprint, there's some others, so maybe we'll see some some positive news coming out of Seattle, but I I think it's definitely one to watch.
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B
And another story takes us to the Philadelphia market. We saw a Philly CBD office loan value that was slashed below its loan balance.
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A
Yes, September data indicated that the asset behind the $222.9 million 1818 Market street loan was recently reappraised and that value now sits well below the outstanding loan balance. The collateral was valued at $313.8 million at securitization in 2021. Net value has been reduced several times since then. We mentioned this loan in an August 2024 edition of Trupwire when the collateral value was cut to 211.3 million. The most recent appraised value that we just saw now pushes that value down to $181 million. The collateral is a nearly 1 million square foot office in downtown Philadelphia. Top tenants at the building include WSFS Financial corp. With almost 9% of the space on a lease that runs through 2028 e research technology that has almost 6% of space on a lease that runs Through 2032. Special servicer commentary indicates that a receiver was appointed last month after the borrower was unable to submit an acceptable resolution proposal. During the trailing twelve month period ending March 2025, the loan's DSCR based on net cash flow was 0.65 times with occupancy at 70%. And then we have one more trading alert for you. We have a story for a San Francisco office building that has a vacancy issue that has triggered a transfer to Special Servicing. According to September data, the $98 million Central Tower loan was transferred to Special Servicing earlier in the month for imminent monetary default. We warned Tripwire readers back in December 2023 about this loan, noting that the top tenant, Unity Technologies, was looking to reduce its office footprint. The story now comes full circle as Unity's lease expired at the end of August, jeopardizing occupancy at 52% of Central Towers square footage. The loan Collateral is a 164,000 square foot office at 3034 Third street and 701705 Market street in San Francisco. The property is built in 1898 and renovated in 2018. The loan has been current throughout its loan life and its status at the end of last month been updated to less than one month delinquent. It's scheduled to mature in May 2029 during the first half of 2025, the loan posted a DSCR based on that cash flow of 1.46 times with occupancy at 82%.
- [34:13]
C
Do you know when this building was built, Stephen?
- [34:15]
A
1898.
- [34:17]
C
Right answer. This is a really old building for our listeners out there that maybe don't have the year built right in front of you like Stephen does. When I ask a question, do you know when it was renovated, Stephen, was it 2018? You're killing me here. Yeah, so it's a 21 story office building. This is on market in third. You know, we've had an up and down relationship with the San Francisco office market. And this is one of those that right now is just on the downturn. You know, this is the part of the cycle, Stephen, where, guess what, if the current owner can't service the debt, they can't get refinancing, they can't get the occupancy up, Then you end up with what a buyer coming in at a low cost basis that can reposition the building. So we'll see if that actually takes place here or if this is, you know, something that the servicer's gonna get worked out. So, Stephen, you, you kind of gave us the rundown on some trading alerts that we've seen across the office sector. Did you happen to catch the sales transaction? This is, this is actually a pretty good story here. Beverly Hills office just sold for 205 million. And when you look at it, it was about twice what it was purchased for back in 2005. So this comes to us from Bloomberg, our friend John Gittleson, Tishman Speyer sold the office property Maple Plaza to Kililroy Realty at $707 a square foot. The deal stands out compared to other Los Angeles office transactions, especially given the challenges with vacancy that they've seen across that submarket. Kilroy CEO Angela Aman said the purchase was a rare chance to buy into the supply constrained Beverly Hills submarket at a meaningful discount to replacement cost. I think every CEO that's bought an office in the last five years has said that. Meanwhile, Tishman's Ryan Botger highlighted that the deal reflects ongoing demand for high quality office space in the top tier markets and reaffirmed the firm's long term commitment to the region. So, you know, I think this is a good story for both sides. And I do think in these heavily constrained markets, you know, you start to still see these prices that maybe outshine what you're seeing across the other markets. And so, you know, they're making a long term bet here in Beverly Hills and paying a premium today because of the the high barrier to entry on the supply side.
- [36:37]
B
And let's turn to retail. According to our latest September data, we saw that an Augusta, Georgia mall loan is now off to special servicing.
- [36:48]
A
According to September data, the $160.8 million Augusta Mall loan transferred to special Servicing due to balloon payment maturity default. We previously mentioned this loan in a November 2024 edition of Trupwire when it was extended for 24 months in exchange for a $3 million principal paydown. The loan returned to the Master servicer in January before turning to the special servicer last month. Special Servicer commentary from September reports that the file is currently under review to determine a workout strategy. So more to come on this loan. The collateral is a mall built in 1978, renovated in 2007, consisting of 500,000 square feet in Augusta, Georgia. The property is anchored by Dick's Sporting Goods, non collateral. Anchor tenants include Dillard's, Macy's and JCPenney's. The collateral's appraised value is 1:59.6 million, which is down from its value at securitization of 250 million over the first half of 2025. The Malone posted a DSCR based on net cash flow of 3.19 times with occupancy at 93%. Now, unfortunately, this mall also has some other local news that's been tagged to it as of this week. It just came up in the news this week that a 16 year old was detained after a shooting at the Augusta Mall. So we have one person that was shot dead and two are in custody according to local reports. So not not the sort of news you want to have on your mall asset after you just transferred to special servicing.
- [38:20]
B
And finally, I'll turn us to the multifamily apartment market. We saw an article in Commercial observer this week from Larry Getlin and he reported that Kennedy Wilson, the global investment firm with $30 billion under management, is adding another $5 billion in assets through its $347 million acquisition of Toll Brothers apartment living platform.
- [38:45]
C
Yeah, so this was a pretty big deal, Hayley, because this effectively signals the end of Toll Brothers in the multifamily space. So the deal includes their general partner stakes and 18 apartment and student housing properties which carried a value of about 2.2 billion. And I think the interesting part here is it also included a pipeline of about 29 development sites that could total another 3.6 billion once built. Kennedy Wilson's going to take over the construction responsibility for those development projects and then they will also manage 20 apartment and student housing properties that Toll Brothers still owns but intend to sell over time, placing another 3 billion in assets under Kennedy Wilson's management. So it's just a strategic exit for Toll Brothers, and I think it's a really great opportunity for Kennedy Wilson to just expand its footprint into the apartment student housing sectors, which is interesting. Stephen, I like to get your take on this. You know, it feels like the institutional players still see opportunities in kind of the student housing and multifamily space, even though, you know, there's been a lot of headlines around some of the financing troubles.
- [39:57]
A
Yeah, I mean, this, this space is really, it's a tricky one to operate in because you've had a number of schools that have really struggled with profitability and enrollment numbers. So you want to be just highly, highly selective when you're buying a portfolio like this. You want it tagged to, you know, really Tier one schools that are going to stand to gain. I'm not like outright calling for consolidation in higher ed space, but it certainly has had its share of woes over the last year or two here and certainly over the last six to 12 months. We talked about it just a little bit with international student enrollment here, gosh, sometime in the last month or two, and what that was meaning for a number of higher ed institutions. But yeah, this is an interesting move. I like it because it shows conviction. It shows that there's still opportunities in the space. Despite lots of caution and perhaps some negative sentiment for select markets.
- [40:51]
C
We had a couple of other multifamily transactions that we'll just kind of run through quickly here. Center space sold five apartment properties with 832 units in and around St. Cloud, Minnesota for 124 million, which is marking its exit from the area. So we just talked about Toll Brothers exiting center space is also getting out at a smaller scale of the St. Cloud, Minnesota area, 65 miles northwest of Minneapolis. Our friends at CBRE arranged the transactions. The Minot North Dakota REIT, which owns 62 properties with a total of just over 11,000 units. Units in Minnesota, north and South Dakota, Montana, Colorado, Nebraska has been reducing its exposure to Minnesota, where it owned a total of 4873 units. It was slated to be looking to sell 12 properties with about 1500 units in the state. The St. Cloud properties just happened to be the first to sell. The remainder are slated to be sold by the end of the year. You know, Stephen, I Have to wonder if this isn't just a byproduct of some of the rent control measures that we've seen spreading through Minnesota. It looks like they're probably saying, that's great, you guys can continue to, to push that, but we're not going to be part of, part of that as a, as an operator anymore.
- [42:09]
A
Yeah, absolutely. I mean, at some point, you, you just kind of throw your hands up and say, if my arguments are falling on deaf ears, I'm out. I mean, this is, this is a lot of political risk to be taking on in perpetuity. It doesn't seem like there's going to be any recognition of the hardships and just basic economic difficulties you're imposing on the free market.
- [42:31]
C
I wonder if this is maybe a product idea to throw out there for our listeners. So if you're working on this or you think it'd be viable for someone like Trump to work on this, let me know. But is there a political index that can be overlaid to some of these multifamily markets, like a volatility or a risk for, for some of these underlying, you know, systemic challenges like rent control that has to be factored into the underwriting model? I mean, at some point, I think you're addressing that probably with cap rate or discount rate or your versionary cap rate upon sale, if you think that there's going to be some limitations put on the revenue side. But I'd love to hear from people of how they're actually quantifying or measuring or if they are at this point, or if it's still kind of just gut feel, but it feels like some of these more sophisticated shops, you know, they're going to be incentivized to go to markets where they feel like there's more upside on the rent rate control than there is on the, on the government's clamping down of rent control implementation.
- [43:27]
A
I mean, speaking of that, I don't know if you saw the news this week, but one of the mayoral candidates, Mandani, just basically agreed to have a business strategic advisor be brought on to help kind of guide him. And you can imagine what a large part of that is going to consist of real estate owners, operators, developers, and trying to make sure he's well aware of the difficulties that this rent cap, rent regulation imposes on the free market and hopefully avoid some of the missteps that we saw out of not the most recent administration. But you go too, back to de Blasio. That was a big part of his platform and so some of the struggles that the city faces now are really the result of de Blasio's administration.
- [44:13]
C
Yeah, and we're seeing it firsthand in New York where it obviously negatively impacts the operator, but it really handcuffs the lender if and when these things have to have to sell or get refinanced. So let's move on. We had a couple of others here. Rubicon Point paid 119.3 million or just under 600,000 per unit for the 203 unit Madeline apartment property in San Francisco that comes to us for Multi Housing News purchased the property at 2823 18th St. Through its Rubicon Point Fund 2 from JRE Partners of New York. They just launched this fund back in January and closed in July. It's targeting high quality apartment properties they aim to purchase at opportunistic prices. To facilitate the purchase, Equitable Insurance provided an $81 million loan. And then we'll finish up maybe with this last one here going back to the Seattle market since we talked about some of the office properties there. Principal paid 94.85 million for eighth plus Republican, a 211 unit apartment property in Seattle, which equates to about 449,000 per unit. Des Moines, Iowa investment manager purchased the property at 430 8th Avenue north from Essex Property Trust in a deal brokered by CBRE, Walker & Dunlap. Our friends there provided a $60.41 million Fannie Mae loan to facilitate the deal. Fairly new construction built in 2016. Studio one and two bedroom units with monthly rent starting at 2217amonth. And these range in size from 572 square feet up to 16. 16 square feet. And they all have washers and dryers, which is a nice amenity. So, you know,450,000 a unit in Seattle still feels pretty strong to me, Steven.
- [45:58]
A
Yeah, absolutely. That's. That's looking quite healthy to me as well.
- [46:04]
B
All right, so turning to programming notes, something that we produce exclusively for our clients is a CMBS loan loss report. So we sent that out this week and it looked at the volume of loan losses and we saw that it pulled back in August 2025. So if you're interested in loan losses and you'd like to see a preview of some of this data or learn about what we track here, send, send an email to podcastrep.com and we'd be happy to share more with you. We have a lot of upcoming events and webinars. We like to say this plug every so often, but if you're attending any industry events, commercial real estate, structured finance, any type of conference that you think the Trep team should be at or you want to know if we are at, send us a note. We'd love to connect with you. We meet so many listeners at these conferences and it's so great to see what you're doing in your business and how you're using TRAPP and how you like the podcast. We also have two upcoming webinars. If you are an early listener to this podcast, you'll still have time to sign up for our September Market Pulse webinar that is taking place on Tuesday, September 30th at 2pm Eastern. We will really dig into the Fed's rate cut and do a deep dive into what this basis point might mean for commercial real estate in the future. While we know that one cut doesn't change the market, we are seeing some signs and signals and we'd love to have you join us and give us some Q and A while we're talking about this. We'll also talk about the borrower's point of view and compare typical loan terms across securitized deal types. We'll dig into an update on the industrial market so a lot of you listeners tell us you want us to talk more about industrial on the podcast. If you're in the industrial market, definitely sign up for this webinar because you'll get a deep dive into some of the sector performance there. And then we'll also dig into commercial real estate property prices that we are seeing stall amid tariff negotiations. So if you're not already signed up, send an email to podcastrep.com and we will get you that registration link. You can also find it on our trip LinkedIn or on our X Twitter account repwire. And this one is kind of something new for us. So if you've ever wondered about Trep's data but thought I'm not ready to get on the phone with someone, I don't have time in my day to do an in depth demo. Or maybe you've read our content for years and years you've listened to this podcast but you're looking to see how Trep really supports commercial real estate firms. We are opening up an exclusive webinar where you can have a no pressure look at some of our tools, our front end solutions, specifically Trep cre. So if you're interested in this webinar that's taking place on Tuesday, October 7th at 2:00pm, we'll talk through a lot of different use cases for our data. Whether you're looking to find qualified opportunities, you're looking to benchmark your portfolio of loans, you're looking to just get an overview of what's happening in your specific commercial real estate market or within your asset class of interest, we will dig into all of the different ways you can use our data and the tool. So this is something that's very exclusive. We'd love for our podcast listeners to take advantage of this and check out the system, give us feedback, ask questions. So send an email to podcastrep.com this webinar is called How Trep powers smarter CRE decisions and we'd be happy to have you Turning to Shout Outs, Our friend and colleague Susie S. Sent us a shout out from her client Josh K. Who is a recent client of ours who just signed up to get some of our Trep CMBS data, and he told Susie he's been listening to the podcast for a few years and was excited to say that he even met Yulani back at a conference recently. So great to have you as a client, Josh, and thanks for being a listener. We really appreciate it. Dalton told us he's a big fan of the podcast and was interested in our spread data that we mentioned last episode. If you missed that, we dug into some of our Trepi spread information. A lot of you guys wanted that, so send us an email if you missed that and you're curious to see what we're talking about there. Josh H. Said, please send all the info that was made available for listeners on your recent episodes. So we sent Josh a lot of links and we are happy you're taking advantage of that. Nestor said they were listening to our always illuminating podcast and wanted to see if they could sign up for our webinar. So we sent that information. Matt K. Was also interested in coming to our webinar, as was Nicole K. And then we heard from Jonathan G. That said he loves the podcast and tunes in nearly every week.
- [51:08]
C
So Haley, this week on Shout Outs I don't really have any named shout outs other than just we had a couple of folks at a conference this week, myself included. We had two speaking presentations at the event, both very well attended. And you know my favorite part about doing the speaking at these conferences or at local firms is just that afterwards you get to sit down and talk with folks or shake their hand or they get to come ask questions. So this did not disappoint. I think there was probably 150 or so people in my session and you know, I got to talk to eight or 10, 12 people afterwards. And it's just great to hear their perspective and, you know, kind of where they're sitting in the cycle and where they're, you know, their markets are, you know, excelling or where they're struggling. And so just it adds to our understanding of the market from local practitioner perspective, which we obviously don't get because we're not in that business. And so I appreciate everybody that came to the sessions and gave us their perspective because it really helps inform us and hopefully allows us to have a better podcast. So shout out to those that came to the to the session and took the time to kind of give me some of their insights from what they're seeing.
- [52:14]
B
And as always, follow us on social media. Reach out to us if you're a listener and you've been hiding for some time and you want to say hello and rate and review us on Apple and Spotify. With that, we'll close. Thanks to our producer, Mariana Sobrana. And I'll cut my intro here to say Mariana is about to leave for her honeymoon, so we wish her all the best and a relaxing trip and time away from work. We thank you for all your production efforts for this podcast, so we'll see you soon. 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 two, 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.
- [53:02]
C
All right.