← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
356. What This Week Means for CRE: Government Shutdown, AI’s Impact on Employees, CMBS Delinquency Rate Pulls Back, Bank Data Insights & More
00:51:46
Loading summary
Transcript73 lines
- [00:00]
Steven Bushbaum
Foreign.
- [00:06]
Hayley Keen
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 October 3, 2025. I'm Hayley Keen with TREP, a data modeling and analytics firm for the CMBS commercial real estate and CLO markets. I'm with Lonnie Hendry, chief product officer and and Steven Bushbaum, research director. This week as we head into October, we got a wave of mixed economic signals across inflation, growth and labor. And of course, we can't not start with the US Government shutdown that began Wednesday at midnight. If no deal is reached, key data releases for the end of this week could be delayed, adding further uncertainty as the Fed weighs its next move and as new rounds of tariffs took effect on October 1st as well. So in today's show we'll talk about what all of the news this week really means for commercial real estate, starting with the shutdown. We'll also get into the continued rise of AI, Accenture and other firms layoffs and what this says about the future workforce. And we'll also break down some new trip data we have hot off the press September CMBS delinquency data and also new bank loan data to really assess what the numbers are telling us about distress workouts and the overall health of the market. But let's go back to the top here, Steven. How are you digesting everything from this past week or the past 24 hours?
- [01:34]
Steven Bushbaum
I'd say there's some indigestion right now. I don't know how much digestion is really happening. And in a weird way, perhaps that's a good thing. Now don't get me wrong, it is always a net negative when the government shuts down. We don't have data and our decision making process is handicapped in a big way. But the fact that everything will be on pause for a while will maybe allow us to step away from the data for a moment and hash out the disagreements that are, I would say, very, you know, deeply divided across Wall Street. Doesn't matter your show, I mean this one or any other ones we. Right. You see very, very interesting mixture of views about today's economy. In other words, are we threading the needle, possibly looking at a re acceleration and things are good, or I don't know, are we teetering the edge of something breaking and the need to push the fed funds rate lower? It's an interesting debate. I've heard perhaps more believable commentary this past week to the former that things generally are looking okay and that The Fed really should stay on pause and that cutting rates right now is. Maybe one more cut would be okay as a risk management move, but by and large, cutting more than that is looking more and more like the political play. But with the Fed shutdown, I don't know. I'll be interested to see how this shakes out because the regional economic slowdown that's gonna happen when people stop getting paid, especially if this ends up being a prolonged shutdown and it's gonna hurt. And I'll be curious to see if this is just kind of a flash of the pan or we see a broader fire that gets lit out of this shutdown. Now, speaking of the shutdown timing, we could all just throw out guesses all day long, but since we're on a podcast, I figured it'd be worthwhile me throwing out my personal opinion of what I think is going to happen. Duration wise. I think this will play out for a couple of weeks. Personally, I think we could end up seeing Democrats hold onto this game of chicken for longer than what will be good for the market. Because the political divide is so incredibly deep right now. It's fractured in a big, big way. So I wouldn't be surprised if this thing holds on for a while. Hopefully not as long as the one we saw in 2018. I think that set the record for 35, 36 day shutdown. What are you thinking here, Lonnie? How long will this go and how bad is it going to hurt?
- [04:05]
Lonnie Hendry
Yeah, I don't think it goes 30 days. You know, I think this is something. What do we call this, political theater? I mean, I think that's what we're seeing play out right now. And to your point, you know, each side is trying to, you know, strengthen their position, you know, with their base, kind of hold true to what they said that they think is important. If it's a couple of weeks, it probably doesn't have significant detrimental impacts to the broader macro market. And this is kind of a wash. And everyone gets the PR and everyone gets to say they did what they said they would and everything works out. Is there a chance that it lasts longer? I think there's always a chance. And I think to your point, of the political divide, it's at a tipping point at this point in my mind. Like, I think at some level, any hope of the two sides coming together and working amicably or working for the common good appears to be off the table. And the only time that you might see them come together is if one really feels like they've gone too far and they've lost touch with their to make them build back up. I hope that doesn't happen here. I hope this is a blip. I hope it's something that, you know, everyone gets their sound bites in and then we move on. You know, there's a lot of things that we have to consider on the cre side. I mean if you wanted to kind of summarize where we're at today, it's kind of, it's a story that's, that's not just about data, it's the absence of data. You know. And so, you know, ADP had their employment report that came out and Haley mentioned in the lead in 32,000 decline in private payrolls for September. If you look at wage growth for job stayers, it was at four and a half percent year over year. Both, you know, unexpectedly weak signals that loom large. Given that a lot of the bls, the BEA census data may not come out if this lockdown or government shutdown continues. So some of these private reporting figures may carry a little bit more weight and you know, for today's print was not good for the market. I think to your comment around the Fed, you know what they might do with rates. I'm still pretty confident that the 25 basis point rate reduction is pretty much baked in at this point. I mean they're going to meet October 28th and 29th base case is 25 basis points would get the target rate to 375 and 4%. You know, they're going to lean heavily on the private series data. You have ADP ism, you know, PMI beige book which is scheduled by the Fed. So that's going to still come out as those would be their high frequency indicators. And I think what they're saying the talk track now is just that they're going to focus on the length and the breadth of the shutdown. You know, short gaps have historically had limited macro impact, but the longer lapse definitely erodes confidence and creates a data vacuum that really pushes policymakers towards caution. So I think this is theater. I'm kind of tired of it, quite honestly. We have so much real stuff in the world that we should be worrying about out that these elected officials need to get back to work and they need to figure out something that that's a compromise and move things forward.
- [06:59]
Steven Bushbaum
Yeah, I mean the biggest question mark for me on this shutdown is what's going to end up happening with the supposed doge like puts that they're talking about. You Know, it seems like they're going to try and use this shutdown as potentially a tool to enact another round of workforce reductions. And I mean, obviously the big question is, will that happen? And if so, what kind of an economic impact are we going to feel out of it? But it's so much is up in the air in terms of the legality of executing that plan that we're just going to have to keep our ears to the ground for the next couple of weeks to know how this is going to shake out.
- [07:37]
Lonnie Hendry
An interesting time on the cable TV networks over the next couple of weeks because you're going to have all these people pontificating about what's going to happen. I mean, if we look at previous shutdowns, there are some direct impacts to the commercial real estate market and we're going to get into some of this. But just briefly, you know, hotel and retail properties that are located in government centric markets. So if you look at D.C. as one, when those federal paychecks stop, tourism slows down, you see some pretty significant impact in those markets. In fact, if you look at there was an estimate put out in 2019 around the shutdowns, regional activity loss from the previous government shutdown was at 1.5 billion. And then you have second order effects that if you're in OIS down and you're trying to refi, you know, the underwriters may or may not give you some consideration for the fact that this was due to government shutdown. So there's some real, some real challenges. One thing that probably isn't getting enough discussion, Stephen, I'd like to get your thoughts on this is just if you have Section 8 housing or voucher programs right now, every time there's a shutdown, especially when it happens on the first of the month and people don't realize how big those programs actually are, there's always some concern that they may not cut those checks. And if you're a property owner with Section 8 Renters, your business is predicated on getting that government check at the first of the month.
- [08:54]
Steven Bushbaum
Yeah, I mean, stuff like Section 8 Medicare, so many of these programs get roped under essential services. In theory they shouldn't be impacted. But the reality is, you know, some of those administrative functions that sit above the essential side maybe will, will result in some delays if authorization isn't happening because the quote, non essential person, that link wasn't made by mistake. They were, were furloughed. So I'm hopeful that we figured this out because it's happened so many times. But then again, we're talking about government, so anything's on the table.
- [09:31]
Lonnie Hendry
It is kind of funny here when you see. And it's happened on both sides here, so we're not taking a position, obviously, but we. When the Republicans were forcing the Democrats into a shutdown, all the sound bites and then when the Democrats were talking about why you could never have a shutdown and all the implications and everything else, and now they're the ones forcing the shutdown. It's in this digital world we live in where they have those clips playing over and over. It's just kind of funny to hear and see people flip flop real time when, you know, the other party is in power and they're trying to use it as leverage. And so it's, it's just funny how flippant people are, you know, given, given the times that we live in.
- [10:09]
Steven Bushbaum
There is an opinion piece written sometime in the last two to three weeks by a congressman, and he was, was highlighting a bill that he put forth that would permanently remove the possibility of a shutdown. You know, basically provided the mechanics to avoid shutdowns on a go forward basis. Like, why, why doesn't that get pushed through? Part of me wonders, you know, do one or both sides actually want to see shutdowns because it provides so much political fodder that they can use around campaign time? I don't know. I just.
- [10:39]
Lonnie Hendry
100% they don't. They've never met a camera they didn't like. Right. And so no news is bad news type of thing. So, you know, it's interesting, the timing of this is. We talked a little bit about ADP and the, you know, their payroll report coming out. You know, that was considerably less than what estimates were. I think estimates had it pegged at like 52,000 and this was negative 32. And it was, it's not good consumer confidence. We've talked about that over the last couple of months. It dropped sharply in September. It fell to 94.2 from 97.8 the prior month. So this is the lowest level since April. And that's according to the conference board, steeper than economists expected and largely reflects growing concerns about the labor market. So, you know, you're already in a softening labor market where people are, you know, now a little bit more concerned about the economy. The government shuts down. I don't know if you noticed. This week, Accenture announced that they had laid off more than 11,000 employees over the last three months. They were calling it part of a more Comprehensive restructuring plan to try to save 865 million says they're going to train remaining employees on AI and try to capitalize on growing demand for AI services. But I think that's one thing that'll be an interesting tidbit to watch from this. Like obviously the furloughs and some of these DOGE cuts that you mentioned are going to catch the headlines, but it'll be interesting to see if some of these private sector firms that are maybe contemplating laying some people off the next week or two, if this holds out that long, would be a pretty good opportunity to get those things out in the public domain without being the only story in town.
- [12:10]
Steven Bushbaum
Yeah, that's exactly it. It kind of gets stuffed into the middle of the pile and doesn't seem quite as much of a relevant highlight to during a busy, noisy market like this, you know, and I think we're going to see, I don't think I'm almost 100% certain we're going to see tons of more announcements like this Accenture one. I mean, that space, the consulting space specifically is just ripe for reduction through AI innovation. You need so many fewer bodies to do the same amount of work. You think of all the reports that get printed and how many analyst hours goes into some of the mundane tasks, that's all getting automated away. So it's going to be really, really tough on the younger end of the labor force. And that's ultimately, I think one of the statistics we'll be needing to keep watch on very carefully to understand how the labor market is getting reshaped in real time is what are the unemployment stats for the 18 to 24 cohort?
- [13:05]
Lonnie Hendry
I think it's interesting though, if you wanted to take a counter position to that, we did a panel at the Counselors of Real Estate conference this week in Detroit and I moderated a panel on AI. And so I had a couple of fol. Some industry veterans that were, were talking about AI. They were not even directly in the, in the real estate brokerage space as an example. And I think the biggest takeaway for me was if you properly prompt the AI, you can have it believe that it's a 30 year veteran in whatever working space or dynamic you're trying to get data from. And so if you're young and you're just adept at prompting the AI in a way that produces results, you actually can come off with more experience in the results than what you would naturally have earned since you're so young in the workforce, if that makes sense. And so Some of the examples they gave were just when setting up some of these prompts, you feed it that you're a 25 year veteran in this field, you give it very explicit details of who you are and build effectively a profile and then have it go and do the research under that guise. And the results were really incredible. And at one point they were talking about how they actually set up a couple of dueling prompts effectively where they were. One was acting as if it was a corporate board and they built profiles for these individual board members that they wanted them to act like. And the other one was, you know, someone pitching an idea to the board to try to get feedback. If I was in that young cohort, Stephen, I would be doing everything I could, reading everything I could, testing everything I could to become an incredible prompt engineer. Because I think that's where the value is in today's market.
- [14:45]
Steven Bushbaum
You know, as you were talking through this, it gave me a. I'm not going to say this is a good idea, but it certainly is an interesting idea. I saw this piece from a journalist at the Wall Street Journal about a year ago where they used a combination of technologies to create a deep fake of themselves and let it basically do all of their remote work, meetings, chats, whatever. So I'm wondering how long it's going to be before we get a news story about undergrad creating a deep fake of themselves. It's a remote interview.
- [15:16]
Lonnie Hendry
They have them, I mean like they, they have, they have video stuff where people are like, it's like a fake version of them. I mean, it's, it's there and I hope that doesn't take off mainstream. Obviously I think authenticity is still required, but I do think you can have authentic outputs that are generated by these LLMs, so long as you're the one actually doing the prompting and then doing the review. You know, my takeaway from the panel and the value I tried to add was just that. I think two things are true. Given where we are in today's current AI environment. We're still very much in what I would consider the human assisted AI function. So AI still requires human intervention on the front end of the, the input through the prompt and on the back end to refine, verify, fact check, etc. And I don't think AI by itself replaces people. I think people that use AI will replace and move past people that don't use AI. I think that's where we are today. I don't know if you saw this from American Banker. It's topical Citi Mandates now that AI is prompt training is going to be required for most employees. So they said cities rolling out a new AI training program to help employees write better prompts for the the bank's generative AI tools. And this is according to an internal memo from Tim Ryan, who's their head of technology and business enablement, and Anand Selva, who's the bank coo. Strong prompts are critical. They compared the skill to asking the right question in a client pitch saying a well crafted prompt can accelerate work, uncover insights and implement amplify impact. The memo went out Tuesday according went out Tuesday morning to about 175,000 employees across 80 locations. It looks like they've entered about 6.5 million prompts into their internal AI systems in 2025, turning tasks that took hours into work being done in minutes. And the executives describe this as a start of a new way of working. So the idea here is that if their entire employee work base is trained in prompt writing to boost productivity, it's going to greatly expand their reach. But the same thing is true. If you have prompt writers that are poor, that becomes the bottleneck. So you're maybe eliminating some of the manual work, but if you have people that can't write prompts to produce similar results at a pace and scale as the good prompt writers, that becomes the, the bottleneck. And so I'm actually really excited to see this because I think, I thought banking space would probably be a late adopter to this and for the regulatory stuff, I'm sure they prob. But I think this is, this is the way of the future. I mean, if you have a workforce that's AI enabled by definition, you're going to get better, more efficient, deeper results than what you would with people working themselves.
- [17:53]
Steven Bushbaum
Yeah, I mean this is, this is really encouraging to see. We need to ultimately see this at a much larger, much broader scale though, for the collective AI bet to pay off. I'm sure you saw that Wall Street Journal article this past week headline basically asking will the AI bet ever pay off? You know, something like that, highlighting how much capital is being plowed into this sector and you know, ultimately questioning, you know, is it going to be a 50 year payback like it was for certain fiber optic companies back in the, the 90s, late 90s. Right. That just got so far over their skis. And you know, ultimately the, the responses that you were hearing from like Mark Zuckerberg and others, it wasn't all that encouraging, I gotta say. Well, I hope it doesn't take 50 years like, geez, hoping for a little bit more conviction than that.
- [18:44]
Lonnie Hendry
I mean, look, could it take 50 years? Yeah, I'm taking the under on that. I mean I'm taking a significant under on that. I went to a presentation probably five years ago, we had a futurist present. I don't know if you know what a futurist is. It actually sounds like a pretty cool job. I think I want to become a futurist at some point. Basically you go to conferences and you tell people what the future is going to be like. They have some stats and some data. It's pretty cool. I could be a futuristic. But they were saying on the autonomous cars, that was like the hot topic at the time, that you only needed 1 in 5 cars to be autonomous to reduce traffic congestion by something like 70 or 80%. And the theory was if that one in five cars was autonomous, that non needed braking that humans do that causes the chain reaction, a backup where you see the car in front of you and the car in front of you and the car in front of them with their brake lights on goes away. And I think at some level for AI now, not for the huge dollar spent to the type of return you're talking about here, but you're not going to have to have every firm being a power user here. I mean you just need some of the major players and like the federal government using GROK now in there across their ecosystem. Like I think that's a pretty big step forward. I'm pretty bullish on this. Like I know I've been questioning over the last couple of weeks just is this AI stuff a bubble? And I think at some level you could argue yes and be, and be justified in doing that. But I also think the more I hear people that are non traditional tech users talking about using AI in their day to day, I think there's something pretty substantive here.
- [20:15]
Steven Bushbaum
Yeah, I think this is maybe getting too far ahead and too deep on this topic for this part of the pod. But my rough guess at this point is that given the amount of build out you're seeing what we have to have play out. My guess is that late 20, mid to late 2027 is when we start seeing the dust settle on some of the overvaluation. I'm quite confident that certain companies are, are overvalued and that some of the hype is not justified. But I think it's going to take until mid late 2027 for us to ultimately get there and to see any sort of a break that would cause, say like a 20% drawdown across our equity indices.
- [20:56]
Lonnie Hendry
So Haley, mark it down. Stephen's got a prediction 2027. He's been pretty spot on recently. We'll come back to it.
- [21:04]
Steven Bushbaum
October 1st, I gotta say, October 1st.
- [21:06]
Hayley Keen
We never remember when we say these things, we can't figure out which episode it was.
- [21:11]
Steven Bushbaum
And I gotta say, I mean I like the logic that I've put behind this projection. I think it's very intuitive, very logical. The amount of building that's taking place and the adoption, if you look at the pipeline of data center construction of what's projected through 2030 and then step back and think about how the leases work and importantly the life cycle or lifespan of the actual hardware itself, it's going to put us to right about 2027 when we have to start re upping our spend to replace the processors. And to the extent the revenue is not there to the level that it really needs to be right now, I think it was Bain Capital maybe that's projected we're going to have an $800 billion shortfall based on forward projections of AI buildout versus revenue streams. You know, 800 billion gap. So to the extent they're right, I think yeah, I mean that should come to fruition right about mid late 2027 is when we'll start getting the inklings of it and maybe the full understanding of the fallout in 2028.
- [22:13]
Hayley Keen
So let's turn our attention here to some of the latest TREP data that we released this week. We had a lot going on this week. We had our Market Pulse webinar. So if you missed that, send an email to podcastrep.com and we can share with you some of the findings from there. But alongside the webinar we also released our September 2025 CMBS delinquency report. And this report found that the rate decreased for the first time since February and it fell 6 basis points to 7.23%.
- [22:45]
Steven Bushbaum
Yeah, so this was a very welcome change. We've been hoping to see this long awaited decrease in the CMBS delinquency rate. So that decrease to 7.23%. While that 6 basis point decline is nothing huge, it certainly is a sigh of relief for me at least. So both the delinquent loan balance and overall universe balance were down from the month of August. The August delinquent loan amount was 44.1 billion and the universe of loans was 604.6 billion. Breaking down by property type, every sector but one saw a decline in the delinquency rates. The loan sector to see an increase was retail which was up 34 basis points to 6.76%. That's following back to back months of a decline. Alright, so putting the delinquency rates in context, relative to a year ago, the rate is up 153 basis points relative to where it was in September of 2024. The percentage of loans that are seriously delinquent 60 plus days is now 6.75% and that's down 13 basis points on the month. If the fees loans were taken out of the equation, the overall headline rate would be 7.43%. That's a decrease of 5 basis points relative to August. Now all of our regular clients will have already seen this information and gotten the emails, both the trading alerts and the regular report. For any of our podcast listeners, if you want a copy of our delinquency reports, just reach out to us@podcastrep.com and we are more than happy to share a copy of it.
- [24:20]
Lonnie Hendry
Steven, I'm not popping any champagne on this report. It's nice to change in direction. It's what I call a hesi. But I don't think this is doesn't give me super confidence that we're past the delinquency cycle. 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. We'll see. Maybe I'm wrong, maybe it continues a downward trend. But I think we had you said what six months of increases and this is the first downturn positive. But when you're not even 10 basis points down, it's, you know, a negligible rounding error at some level. Good for headlines. Good generally. But I'm probably a little bit more conservative and thinking that we're kind of past the point at this point.
- [25:02]
Steven Bushbaum
Well, sure, I mean I think we're going to see this, this rate kind of trend sideways. It'll probably bounce up down a little bit. But what I'm hoping is that the, the steady increase is, is behind us and now it's just a matter of working through the problem loans. Right. So that we can hopefully start moving into our next cycle.
- [25:19]
Lonnie Hendry
Yeah, I think that's fair and I think, I think we'll probably see that and hopefully to your point, maybe it's just a smoothing out process which would be, which would be well received in the market.
- [25:28]
Hayley Keen
And let's jump into another part of the data that we track here at Trep. We give a plug for this data set quite often. But for those of you that are new or need a refresher, we also track bank loan data and this is through our TREP Anonymized loan level repository. We get quarterly insights from bank CRE loans and dig into origination volumes, delinquency rate and many other parts of the credit market for banks. So this really gives us some transparency in a typically opaque market. So here we have our Latest insights from Q2. This is an exclusive for our podcast listeners because we haven't yet released this on our website yet. So let's dig into some of the findings here. Our headline is that we are charting a stable path through economic and policy crosscurrents.
- [26:20]
Steven Bushbaum
So first let me just highlight what exactly this data is because it's, it's relatively unique in the TREP universe. So the analysis that we're talking about examines trends in Trep's anonymized loan level repository data set. This taller data set is comprised of bank balance sheet loan data, a diverse set of loans totaling about 190 billion sourced from multiple banks. Other information is incorporated from Trep's Bank Navigator data set, which includes all bank call reports, and that's the condition of income or call reports. So for commercial real estate loans held on bank balance sheets, origination volumes increased over this past quarter, consistent with the trend we've seen throughout 2024. Absent the frequently observed first quarter decline, origination growth persisted as banks navigated through conflicting economic and policy signals. Bank credit growth in spite of headwinds is consistent with credit growth in both the life insurance and CMBS channels, suggesting an improved outlook for CRE performance. Further, CRE delinquencies appear to have plateaued both in aggregate and within our taller data consortium. So in this report we explore indicators of bank theory loan performance with data updated as of the second quarter 2025, including net charge offs, delinquency occupancy rates and criticized loan levels across property types and geographies. So for me, one of my favorite data points that I get out of this report are cumulative charge off balances by property type. I love this data. I mean that and the criticized loan rates. In other words, I like seeing the loans that have had, had firm credit losses taken or recognized and seeing the movements in the credit profile on balance sheet loans because over the past, gosh, call it two years we've seen a steady creep up in the charge off balances. And if we look at this by property type, this is data that you will never see out of the call Report data that most people quote across the web and on social media. Most people are working with call report data, and that is only in the aggregate by bank. So you have zero look through as what's happening on the property type by property type basis. So this taller data set is incredibly insightful. To understand what exactly is happening on the balance sheets, what are the drivers of those charge offs, what are the drivers of the delinquency rate increases that we're seeing in the aggregate? And this pulls back the veil and actually gives you those firm insights and.
- [28:55]
Lonnie Hendry
This data, Steven, because it's a consortia that we manage, I mean, you're not getting this anywhere else. We don't spend enough time talking about the value of this. We're going to be spending more time talking about the value of this and some of our other consortia data sets and our head of research, Andy Boettcher and his team's continued efforts to get this in the marketplace. But I'm with you. The insights you can glean from this and kind of seeing what takes place in this pool of loans across these data sets is incredible.
- [29:22]
Hayley Keen
So there's a lot more that's in this report, as we just stated. If you want to see the actual figures of what's changed quarter over quarter and some of our historical taller data, send an email to podcastrep.com and we'll make sure you get access to this report as soon as it's ready next week. And let's dig into some of our deals and data in the property type news section this week. I want us to start with retail. We sent out a few trading alerts and one of them was about a Western Pennsylvania outlet loan that is heading to special servicing.
- [29:56]
Lonnie Hendry
I'm going to take this one, Stephen. Since you always get the negative stories, I thought I'll take the negative. But before I get into it, I just wanted you all to know that on this podcast recording, I've had about four spam calls and I've qualified for about, you know, 600,000 in loans from the loan department. Do you guys get those calls every day? I think I'm up to about 12 a day where I get the, you know, the voicemail. This is the loan department. You've been authorized.
- [30:20]
Hayley Keen
So I haven't qualified for as much yet, but hopefully I'll get there.
- [30:25]
Lonnie Hendry
I am excited about the new iPhone release where they're going to actually put a spam filter on where the caller has to state who they are and what they are wanting to talk about before you Answer the phone. So back to regular scheduled programming here as Haley gave us a nice lead in. If you look at the September data, the $140 million Grove City Premium Outlets sent to special servicing earlier in the month current on payments through August became less than one month. Delinquent in September has never been delinquent during its life and its maturity date is set for December. Commentary reports that it's reaching out to the borrow. The collateral is an open air factory outlet retail property in Grove City, Pennsylvania within the Youngstown Warren Boardman, Ohio PennSA. It was built in 1994, renovated in 2004. Top tenants in the space include Lee Wrangler, Clearance, Old Navy, Nike and Forever 21. Appraised value on the property was 255 million back at issuance in 2015. If you look at financial performance during Q1 of 25 property had DSCR at net cash flow 2.09x and occupancy was not strong at 73%. This is an interesting one, Stephen. You know, sometimes you see these loans go less than 30 and sometimes it's just a technical challenge of getting the checkout there, maybe how to change at the personnel or something. But with the upcoming maturity in December, you know, there's probably a little more to the story here.
- [31:51]
Steven Bushbaum
Yeah. I mean just looking at the geography, the tenant mix, I mean this is, this is a tough one in the current economic environment. In the current economic environment. The good news is it's outlets. We're about to hit the, the busy shopping season. So maybe there'll be a strong pop in income. We'll have some percentage leases on tap that'll provide. But yeah, I mean when you're only, when you're only 73% occupied on a property like this, that is, that's, that's really not great. I mean you want to see occupancy, you know, at a bare minimum in the low 80s, but ideally around 85, 90% on something like this.
- [32:26]
Lonnie Hendry
You know Stephen, a question on this. We've seen a transformation from the enclosed regional super regional malls and that, you know, kind of falling out of favor to these open air retail centers. Do you think we're going to start seeing some pushback there where we're not seeing shoppers even go to those at the level that they used to? I mean, I can't think the last time I went to one of these open air shopping centers centers, 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.
- [32:55]
Steven Bushbaum
Yeah, I mean, certainly when the traffic is a nightmare and your configuration is blah. I mean, what's the draw for, for me as a shopper, I'm thinking, you know, am I really going to get a good deal at these outlets? Do I even want to bother? So yeah, when we think of like just the put yourself in the everyday consumer mindset, these don't really have the same draw or appeal that they used to. You got to really feel confident that you'll be getting some, some good finds, which I don't know, I've come up empty handed too many times on outlet trips to feel good about this one.
- [33:27]
Lonnie Hendry
Well, then in Texas when it's 110 degrees outside and you're walking around in these open air malls, it's, I will say they usually have a few food trucks or some food trailers out there. It's usually pretty good. So sometimes that might be worth the driver the funnel cakes. Are you a funnel cake guy?
- [33:42]
Steven Bushbaum
I am, but you know, with a spouse that's gluten free and kids that can't eat dairy, I, I'm the only one eating the funnel cake and heaven know, nose, I need that like I need a hole in my head.
- [33:53]
Lonnie Hendry
Well, I'll keep eating the funnel cake, so I'll eat one for you next time.
- [33:56]
Hayley Keen
I'm Team Zeppeli.
- [33:58]
Lonnie Hendry
Zeppeli is.
- [34:01]
Hayley Keen
No, tell me New York Long Islanders, they'll know. They're just, it's the same thing, dough with powdered sugar, just in a different form.
- [34:09]
Lonnie Hendry
I see. That sounds, maybe that sounds more cool than a funnel cake.
- [34:13]
Hayley Keen
No, a funnel cake is cooler, but.
- [34:15]
Lonnie Hendry
Oh, okay, all right, cool.
- [34:16]
Hayley Keen
You'll try it at some point.
- [34:17]
Lonnie Hendry
Well, stay fair. Right now in Texas, the state fair, they got funnel cakes, they got all kinds of fried stuff. Maybe the next week or two we'll have to do a segment on Texas State Fair fried foods this year. Every year they bring in some really random stuff. A couple of years ago, it was the fried Oreo. We've had fried all kinds of stuff.
- [34:34]
Hayley Keen
Let's talk about a few other retail headlines we saw this week. As reported in a Bloomberg article, IKEA is doubling down on New York with the acquisition of 529 Broadway in SoHo, where they'll be opening their second Manhattan store.
- [34:50]
Steven Bushbaum
Yeah, this is definitely a positive because heaven knows that IKEA over there in Brooklyn gets a ton of traffic. So ikea has purchased 529 Broadway in SoHo. And this move builds upon last year's $2.2 billion US expansion plan, which included the purchase of 570 Fifth Avenue. The 53,000 square foot SoHo property, one of the few new builds in the neighborhood, will feature an IKEA store on two floors with the upper levels converted into office space. This marks the fourth acquisition of Prime Real Estate to grow IKEA's footprint in major global cities. The expansion comes even as the Trump administration rolls out new tariffs on kitchen cabinets and upholstered furniture, which are expected to raise costs for retailers and strained supply chains. IKEA executives stressed that the US Remains a priority market, noting the company has been here for 40 years and is committed to investing in growth and job creation. Last year, IKEA recorded 5.5 billion in U.S. sales, including 1.9 billion from E Commerce, and currently operates more than 50 stores nationwide. Since we were mentioning food, I got to ask Lonnie, have you tried those little like, you know, 199 or. It's like a $2 cookies that IKEA sells. They have chocolate and then raspberry.
- [36:08]
Lonnie Hendry
Yeah, you got to get the cookies. I mean, like ikea, you got to have GPS while you're inside the building, man. Like, I'm directionally challenged and that's not a great place for me to be because I don't, I don't get around very well. I end up getting lost. I find myself in the food court and I'm definitely, I like some of the IKEA stuff, but I'm not a fan of the take home and assemble. My kids have learned a few new words watching me assemble some IKEA furniture over the years. I like ikea. It's an interesting, you know, they've had good success here in the US And I think it'll be, you know, the tariffs on some of the stuff that I think are pretty strong. Sell items for them. It'll be interesting to see how that is. I mean, the cabinets and stuff. A lot of people are consumers of those cabinets. In fact, there's a guy on Twitter that takes those and turns them into like super high end designer cabinets using the IKEA basis. And so good story to kind of see what's happening, you know, to maybe transition to something that is not so good. There's been a lot of headlines recently about San Francisco Center Mall out in San Francisco. So I went back and I looked and take a guess, Stephen, how many times we've written about the Westfield San Francisco center and tripwire from 2021 to now?
- [37:19]
Steven Bushbaum
Eight.
- [37:20]
Lonnie Hendry
Nine times. You're close. Nine times. This is, this has got to be up there near the top of the list. In terms of properties, that makes headlines noteworthy of Tripwire. So let me give you a couple of the details here. Usually when you look at a property, you're looking for occupancy that's 93 to 95%. You consider that stabilized occupancy. Not for this property. They're at 93 to 95% vacancy. You heard that right. Occupancy of about 5 to 7%. There's only 30 stores remaining out of the more than 200 stores that were there pre pandemic. So just to give listeners some understanding of what that actually looks like from an occupancy perspective, at underwriting securitization, this property was 96% occupied and now it's somewhere between 5 and 7%. Most recent appraised value, 195 million. Original appraisal as securitization, 1.22 billion in 2016. So an 80% drop in less than a decade. And just an interesting tidbit here, Steven. We'll get some thoughts if you have any. This has been marked for foreclosure, has been set for auction multiple times. It has been postponed or delayed at least eight times. Most recently was scheduled for auction on October 2, which hasn't taken place and will be, you know, delayed again. But the lenders claim the, that the foreclosure proceedings are imminent.
- [38:45]
Steven Bushbaum
I gotta be honest, I would not want to take this thing back either.
- [38:49]
Lonnie Hendry
No, I mean, and what makes it even trickier is it's got a ground lease. There's all kinds of stuff on this, and repositioning them all is one probably just impossible in today's market. Turning it into something else in San Francisco, where there's really like no impetus to allow for any type of rezoning or anything else I think is going to make this challenging. And even though there's only eight tenants, there's a lot of nuance to some of these things. So I think this is one that probably just hangs out there, man. I mean, who, who's a buyer for this?
- [39:19]
Steven Bushbaum
Yeah, I mean, the life, health, safety concerns you have for a property like this, what that means for your, your insurance alone. I mean, just think about the carry cost on this sucker. It's got, you know, barely any cash flow coming off of it. So it's just going to be a cash flow sucking sound for years.
- [39:36]
Lonnie Hendry
This would be a pretty cool laser tag spot. All that vacant space.
- [39:40]
Steven Bushbaum
I mean, laser tag or drone racing.
- [39:43]
Lonnie Hendry
Oh, see, that's cool too. I've seen that on tv. Those guys are crazy. Talented, man. You know what's maybe the only thing cooler than drone racing? Labubu. What do you know about Labubu, Steven?
- [39:56]
Steven Bushbaum
Not much more than the south park episode where they claimed it was infused with Sumerian dark magic. I'm sorry, no. It's a Sumerian dark entity.
- [40:07]
Lonnie Hendry
So for those that don't know, you should look up what the old boo Boo craze is all about. People buying them, putting them on their purses, blinging them out, kids putting them on the backpack. It's. It's a little boo Boo craze. And it's found its way into. Into New York. So the Labubu maker, Pop Mart is signed a 7,000square foot lease at 1540 Broadway. This comes to us from Commercial Observer. So if you, you know, can stand the smell of weed and venture down to Times Square now, you can go visit and maybe buy some Labubu dolls. So we'll see how productive this is. In the Times Square location, Pop Mart owns wildly popular monster dolls. They signed a 10 year lease at the building owned by Vornado Realty Trust. According to the New York Post service, the company's US flagship store when it opens in the second half of next year. Looks like the asking rent for retail space in Times Square, according to CBRE, was at $1776 a square foot in 2Q25 property. 1540 Broadway is located on the corner of 45th and Broadway. It's 197,000 square foot property, sometimes known as the Bartlesman Building because the German media company was the anchor tenant when the property opened back in 1990. Has several other retail tenants, including the Disney Store. I can't believe they're still open. Forever 21 and the US Polo Association. Corporate tenants at the building include the headquarters for jewelry brand Pandora Investment Advisors, a light capital management and software company, Adobe.
- [41:41]
Steven Bushbaum
You know, you say that about the Disney Store and that's hilarious because every time I walk by that store, I had the exact same thought.
- [41:47]
Lonnie Hendry
I mean, like literally American Girl Doll, Build a Bear. Got to be putting Disney out of business, man. Like, I don't. I'm surprised they're still open.
- [41:55]
Steven Bushbaum
I gotta say, that store was not all that busy. So see how much longer.
- [42:00]
Lonnie Hendry
Don't think I've ever bought anything there.
- [42:02]
Steven Bushbaum
At almost $2,000 a square foot, that's. That's some expensive rent to be paying.
- [42:06]
Lonnie Hendry
Listen, Labubu fever is real. I bet. I bet some of our Tripwire production team, Jen Spillane, Carly Haley. I bet they have a Labubu or two.
- [42:16]
Steven Bushbaum
Do we need to start coming out with little Truck Labubu shirts?
- [42:21]
Lonnie Hendry
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.
- [42:28]
Hayley Keen
So let's close with a crabgrass and a green shoot in the office sector, we reported on a trading alert here in Chicago that according to our September data, the value of the collateral behind the $105 million 10 S. LaSalle St. Loan was slashed by more than 80% and now sits well under the outstanding loan balance.
- [42:49]
Steven Bushbaum
Yes, the collateral for this loan was valued at 166.5 million at securitization in 2015 and that has been slashed to just 30.1 million, according to the most recent appraisal that was dated July 2025. The loan is currently 60 days delinquent and transferred to special servicing back in 2022. Special Servicer Commentary reports that a receiver was appointed to control the collateral this month. The Asset is a 781,000s square foot urban office tower in Chicago that was built in 1987, renovated in 2013. The top tenant at the space is Amwin's Insurance brokerage, which occupies 8% of the property on a lease that runs through January 2031. During the full year 2023, the loan posted a DSCR based on net cash flow of 0.69 times, with occupancy at 72%. Now, fortunately, we do have some positive news to counter this negative headline. BlackRock is expanding its 50 Hudson Yards headquarters by another 194,000 square feet, according to Commercial Observer. So this expansion at 50 Hudson Yards will bring BlackRock's footprints in the New York City office tower to roughly 1.24 million square feet across more than 15 floors. The asset manager just subleased an additional 193,000 square feet, according to Savile's third quarter office report. That follows a smaller expansion in July 2024, when BlackRock added over 50,000 square feet to push its space to just over a million. Now the firm has far exceeded its original 2016 lease commitment of 850,000 square feet. The financial terms of the latest deal weren't disclosed, but when the tower opened in 2022, asking rents were between $175 and $240 a square foot. As of the second quarter this year, average rents in Hudson Yards were closer to $153 per square foot. With this expansion, BlackRock joins other marquee tenants in the 2.9 million square foot building including Meta with 1.2 million square feet and Truist Financial which signed on for 100,000 square feet in 2022.
- [44:59]
Hayley Keen
All right, let's turn to our Programming Notes of the Week. As many of you know, Trep got our start in CMBS and we have robust data sets there, loyal clients and a lot of tools, analytics and data that people rely on every day. We had some exciting news this week on the CMBS front and we announced that Trep and Numerix are partnering to strengthen connectivity and structured finance analytics. We are introducing an upcoming integration that links our loan level cash flow modeling with Polypaths, which is Numerix Structured Finance solution. So we have a press release out on our website and on LinkedIn and this is an upcoming release as I mentioned. So if you're interested in learning more or becoming an early adopter or finding out more about our CMBS offerings, if that's what you focus on, send us an email to podcastrep.com and we will have our teams get in touch with you. And I have a plug here for our upcoming webinar. So if you're catching this episode before Tuesday, October 7th, you still have time to sign up for a Trep CRE Demo webinar. If you are in the commercial real estate world and have ever wondered what are our offerings, what data and analytics do we have there, we'd love to have you sign up for a webinar. It's a no pressure chance to see our Trepsery platform firsthand and understand how it can help you whether your specialty is finding qualified opportunities, better, assessing the CRE market, looking at comps, looking at income and expense data, valuing properties. Whatever you do, we'd love to have you sign up and check out the system and see how it might work for you in your day to day. So send us an email podcastrep.com and mention that you're interested in our Trep CRE webinar and we'll get you the link to sign up and Turning to shout out. I don't know if you guys saw this, but it was International Podcast Day this week and it feels like International Podcast Day every day for us because this is a big part of our week, every single week. But from everyone at the Tripwire Podcast team and all of the teams at Trep as a whole, we wanted to give a special shout out to all of our listeners, our guests, and our Trep colleagues who have been a part of this Journey. For those of you who don't know, we're in our fifth year of running this show. We are at 356 episodes and have have had more than 2 million listens. So this is a no joke show and we are so grateful to everybody who tunes in every week who writes into us, who shares this show with their friends and colleagues. It's so cool to see some of you who've said they've never missed an episode and some of you who said, hey, I just started listening last week and now I'm addicted. So we appreciate you all. We love International Podcast Day and getting the chance to celebrate, but it feels like that day every day for us at trup. We've also received several shout outs this week from our listeners. Chad D let us know he is a major fan of the podcast. Jaron R. Also emailed us to tell us he is a big fan and he wanted to give a quick shout out to our TREP colleagues Matt G. And Tyler T. For always being so responsive and incredibly helpful whenever he has questions. He also thanked you Lonnie for the valuable insights that you are consistently providing. So thank you to Jaron. We appreciate you reaching out to us being a loyal listener and client and that is a perk of being a TREP client. You will get access to us 24 7. Basically a lot of us don't sleep as much as we should here and we're always willing to answer your questions, get on the phone with you, find ways that you can use our tools and understand our data even better. Danny S. Thanked us for all we do and was interested in the upcoming TREP CRE webinar, so we sent you that registration link. Andrew J. Was also interested in the upcoming webinar and said he's a big fan of the podcast and appreciates our content so much. Jamie is another fan of the show and was wondering if we had any information on non performing loan portfolios across the US Looking for stats, transaction volumes, recent transactions, et cetera. So we connected Jamie with a member of our team and we're excited to share with you all the data that we have. And another one here, Gabe P. Told us he religiously listens to the trepwire podcast and shares it with many of his colleagues. He said we are a wealth of information which he greatly appreciates even in today's market cycle.
- [49:19]
Lonnie Hendry
Haley I have a couple shout outs this week. As you guys know, I was in Detroit for the Councilors of Real Estate Conference. I mentioned it a little earlier. It's A great conference, great event, brings together some really well known commercial real estate practitioners and advisors across the US and very thankful to, to the panelists that decided to join my panel on my invitation. So Topher S. He shouted us out on Twitter this week and then one of his connections, John G. Said that he just found the podcast and that he's been consuming it as much as he. And, and then our good friend from Detroit, Haley, which you met when we were there to do our live podcast recording a couple years ago. Robert P. Got a selfie with him. Actually saw our good friend Ruth Culpaber there as well, looking fabulous in Detroit and had a really great time by all. So it's, it's amazing. As part of the introduction to our panel, I asked anyone in the audience if they'd listen to the Tripwire podcast. And I'm amazed at how many people raise their hands at every event that I asked the question. So I mean, we know the math says you don't get to 2 million plus listens unless you have of people listening. But it's always refreshing when we see people in person acknowledging that they love the show. And you know, we try to bring our best every week. And I think as you mentioned, you know, International Podcast Day, it's important to point out Haley, last year on Spotify, so we had like what, 48 different countries where people tuned in. So this definitely is an international global podcast and we hope to continue to bring, you know, insights and information and perspective that you can't get anywhere else backed by our data. And, you know, hopefully we're hoping that we can just continue to just foster relationships. I mean, the amount of emails we get every week and the shout outs is just incredible. So keep them coming. We're going to keep showing up, keep showing out and, you know, no shortage of topics to discuss with all this nonsense going on in the world right now.
- [51:05]
Hayley Keen
But if you have a request or you want to hear something specific, send it our way. We'd be happy to work in any other topics. We could do one on one segments. We could bring in special guests who have some extra expertise in something that they do. And we're excited to keep this show rolling. So 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 Tripwire podcast with your favorite provider. Thank you for listening. And stay well, all right.