The TreppWire Podcast: A Commercial Real Estate Show

Episode 356: What This Week Means for CRE—Government Shutdown, AI’s Impact on Employees, CMBS Delinquency Rate Pulls Back, Bank Data Insights & More

Date: October 3, 2025
Hosts: Hayley Keen (TREP), Lonnie Hendry (Chief Product Officer), Steven Bushbaum (Research Director)

Episode Overview

This episode unpacks a turbulent week in commercial real estate (CRE) and the broader economic landscape, focusing on the immediate impacts of the U.S. government shutdown, evolving labor markets, the role of AI-driven workforce changes, newly released Trepp data on CMBS delinquency and bank loans, and headline stories affecting retail and office property sectors. The panel brings data-driven insights, industry anecdotes, and candid commentary on risks and opportunities arising from current events.

Key Discussion Points & Insights

1. US Government Shutdown: Economic & CRE Impact

• Shutdown Landscape: The U.S. government shut down at midnight on Wednesday, October 1st, causing imminent delays to key economic data releases. This injects more uncertainty for the Fed and market participants as fresh tariffs came into effect simultaneously.

• Market Digestion:

  • Steven: "I'd say there's some indigestion right now... It's always a net negative when the government shuts down" [01:33]
  • Loss of data paralyzes effective decision-making but may create a forced pause for market actors to recalibrate.
  • The shutdown is seen mostly as "political theater" (Lonnie, 04:05), with both sides angling for PR wins.
  • Predictions:
    • Steven expects the shutdown could last "a couple of weeks," perhaps longer given severe political divides.
    • Lonnie doesn't see it reaching 30 days ("I don't think it goes 30 days"), hoping it’s just a PR “blip.”

• Sector-Specific Risks:

  • Direct impacts on government-centric markets (e.g., D.C. hotel/retail) as tourism slows and federal pay halts.
    Lonnie: “Regional activity loss from the previous government shutdown was at $1.5 billion.” [07:36]
  • Fed data vacuum increases market nervousness and pushes policymakers toward caution.
  • Section 8 housing and social programs face risks if administration backlogs delay essential funding.

• Political Dynamics: Both parties blamed for shutdowns in different cycles; the hosts highlight partisan flip-flopping and the use of shutdowns as campaign leverage.

2. Labor Market Jitters & AI-Fueled Restructuring

• Economic Data:

  • ADP’s payroll report shows a 32,000 decline in private payrolls for September (expected +52,000), contributing to weaker consumer confidence.
  • Lonnie: “Consumer confidence... dropped sharply... lowest level since April.” [10:39]

• Corporate Layoffs:

  • Accenture recently cut 11,000 jobs; says it plans to train remaining employees on AI to “capitalize on growing demand.”

• AI and the Future Workforce:

  • Steven: The consulting space is “ripe for reduction through AI innovation. You need so many fewer bodies to do the same amount of work.” [12:10]
  • Younger workers (18-24) may be disproportionately affected as automation targets entry-level roles.

• Counterbalance—AI as Equalizer:

  • Lonnie shares insights from a CRE conference panel on AI—if young professionals master prompt engineering, they can “come off with more experience...than what you would naturally have earned since you’re so young in the workforce." [13:05]
  • Companies like Citi are mandating AI prompt training for employees, marking a wholesale shift in white-collar work.
    • “A well-crafted prompt can accelerate work, uncover insights and amplify impact.” [15:15]

• Skepticism vs. Optimism on AI:

  • Wall Street is split—will the AI bet pay off, and how soon?
    • Steven: “My rough guess... is that mid to late 2027 is when we start seeing the dust settle on some of the overvaluation.” [20:14]
    • Lonnie: “I’m taking the under on that... I'm pretty bullish on this.” [18:43]
    • Discussion of parallels to past technology bubbles and the transformative effect, even with partial market adoption.

3. Trepp CRE Data Round-Up

CMBS Delinquency Report (September 2025)

• Headline: First decline since February—down 6 basis points to 7.23%.
  • Steven: "This... is a sigh of relief for me at least." [22:44]
  • Every sector but retail saw improvement; retail delinquency increased to 6.76% (+34 bps).
  • Serious delinquency (60+ days) is now at 6.75%, down 13 basis points.
  • Year-over-year, the rate is up 153 basis points.
• Caution:
  • Lonnie: “Not popping any champagne on this report. ...this is a little bit of a reprieve, but this is not something that makes me feel like we've seen the worst.” [24:20]
  • Steven expects the rate to “trend sideways” with some volatility but hopes the worst steady increases are over.

Bank Loan Data Insights (TREP Anonymized Loan-Level Repository, Q2 2025)

• Key Finding: “We are charting a stable path through economic and policy crosscurrents.” [26:19]
• Origination volumes rebounded this quarter (excluding typical Q1 decline); delinquency rates and credit stress seem to have plateaued.
• Steven’s favorite stat: “cumulative charge off balances by property type.”
  • This proprietary consortia data gives unique insight into charge-offs and criticized assets by property type—not found in standard call reports.
• The panel touts the value and exclusivity of this granular data, promising more insights in future episodes and reports.

4. Sector and Property News Roundup

Retail

• Negative—Outlet Center Distress:

  • $140M Grove City Premium Outlets (Western PA): Sent to special servicing, upcoming maturity, recent drop in occupancy to 73%. [29:55]
    • Lonnie: “...when you’re only 73% occupied on a property like this, that’s really not great.” [31:50]

• Positive—Retail Expansion:

  • IKEA acquires 529 Broadway (SoHo, NYC): Opening a second Manhattan store as part of wider US expansion despite looming tariffs.
    • Steven: “Heaven knows that IKEA…in Brooklyn gets a ton of traffic. ...This is definitely a positive.” [34:49]

• San Francisco Retail Carnage:

  • Westfield San Francisco Centre: 93–95% vacant, only ~30/200 original stores left, 80% drop in appraised value since 2016.
    • Lonnie: “Occupancy of about 5 to 7%. ...has been postponed for foreclosure auction at least eight times” [37:20]
    • Both hosts question the viability of repositioning the asset given ground leases and SF market barriers.

• Pop Mart’s “Labubu” store signs for Times Square:

  • Lonnie: “Labubu fever is real. ...If I go to the next conference and we have Trep Labuboos as giveaways, I don't know how I'm going to feel about that.” [42:05]
  • Highlighting the continued draw of international niche retail into prime urban corridors, even as legacy brands (Disney Store) struggle.

Office

• Negative—Valuation Collapse:
  • Chicago’s 10 S. LaSalle St. loan ($105M): New appraisal of $30.1M (slashed from $166.5M at securitization); 60 days delinquent, special servicing ongoing since 2022.
• Positive—Prime Tenant Expansion:
  • BlackRock at 50 Hudson Yards, NYC: Expanding HQ by 194,000 sq ft, bringing total to 1.24M sq ft. [43:53]
    • Rents in Hudson Yards remain at a premium, indicating strong continuing demand for trophy office assets, particularly from financial services.

Notable Quotes & Memorable Moments

• On the government shutdown:
  • “It’s a story that’s not just about data—it’s the absence of data.” — Lonnie Hendry [04:05]
  • “Maybe it continues a downward trend. But I think... this is a little bit of a reprieve, but this is not something that makes me feel like we've seen the worst.” — Lonnie Hendry [24:20]
• On workforce automation:
  • “I think people that use AI will replace and move past people that don’t use AI.” — Lonnie Hendry [15:15]
  • “You need so many fewer bodies to do the same amount of work.” — Steven Bushbaum [12:10]
• On retail evolution and the outlet center troubles:
  • “It’s effectively the mall, but just without the roof on it. It feels like maybe they’ve peaked out at some level as well.” — Lonnie Hendry [32:26]
• On speculative trends:
  • “I could be a futurist. ...They go to conferences and you tell people what the future is going to be like.” — Lonnie Hendry [18:43]
• On San Francisco retail:
  • “Not for this property. ...They’re at 93 to 95% vacancy. ...Occupancy of about 5 to 7%.” — Lonnie Hendry [37:20]
  • “I gotta be honest, I would not want to take this thing back either.” — Steven Bushbaum [38:45]
• On in-podcast banter:
  • “Are you a funnel cake guy?” (Cue spontaneous detour on state fairs and fried foods.) [33:27]
  • “Labubu fever is real.” [42:05]
• On podcast reach:
  • “We are at 356 episodes and have had more than 2 million listens. ...It’s always refreshing when we see people in person acknowledging that they love the show.” — Hayley Keen & Lonnie Hendry [48:58, 49:19]

Timestamps for Important Segments

• Shutdown Analysis, Political Theatre: [01:33] – [06:59]
• Labor Market Data, Accenture Layoffs, AI Impact: [10:09] – [15:15]
• AI in Banking and Prompt Engineering: [15:15] – [18:43]
• AI Hype, Tech Bubble Parallels: [18:43] – [22:12]
• CMBS Delinquency Data Breakdown: [22:12] – [25:28]
• Bank Data & CRE Credit Trends: [25:28] – [29:22]
• Retail: Grove City Outlets Distress: [29:55] – [33:27]
• Retail: IKEA, San Francisco Centre, Pop Mart Labubu: [34:34] – [42:20]
• Office: Chicago/10 S. LaSalle, BlackRock Expansion: [42:27] – [44:58]
• Listener Shoutouts & Podcast Milestones: [44:58] – [51:04]

Final Thoughts

The TREP team strikes a balance of sober analysis, wit, and industry insight—delivering actionable intelligence for CRE professionals. The hosts remind listeners to stay in touch and share requests or suggestions as they continue dissecting market turbulence.

For reports referenced in this episode—including the September 2025 CMBS Delinquency Report and Trepp’s exclusive bank loan data—listeners are invited to email podcast@trepp.com.

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