The TreppWire Podcast (Episode 357): "Shutdown? Maybe in DC… CMBS Issuance Surges, Bank Consolidation, Office Recapitalization"

Date: October 10, 2025
Hosts & Contributors:

• Hayley Keen (Host, Trepp)
• Lonnie Hendry (Chief Product Officer, Trepp)
• Steven Bushbaum (Research Director, Trepp)

Episode Overview

This episode focuses on the ongoing federal government shutdown’s impact on markets, surging CMBS (Commercial Mortgage-Backed Securities) issuance, continuing bank consolidation—including Fifth Third’s $10.9 billion merger with Comerica—and creative approaches to office recapitalization, highlighted by RXR’s major Midtown Manhattan deal. The team discusses macroeconomic uncertainty, regulatory shifts, notable real estate transactions, and fresh market data.

Major Discussion Points & Insights

1. The Federal Government Shutdown: Risks, Real Estate, and “Flying Blind”

[00:06–12:16]

• Current Situation: The shutdown is in its second week, causing uncertainty and delaying key economic data releases, such as nonfarm payrolls.
• Market Implications: So far, brief shutdowns haven’t derailed markets, but a prolonged event (4–6 weeks or more) could have severe, nonlinear ripple effects.
• Market Analogy:

  "I like the analogy of trying to land the plane, you know, when you can't see out the windshield... you also don't have access to the equipment."
  — Lonnie [05:16]

• Specific CRE Impacts:
  • National Flood Insurance Program paused—no new policies/renewals for federally-backed mortgages in flood zones.
  • HUD & USDA running with limited staff, slowing FHA/VA/rural loan processing.
  • IRS slowdowns hinder income verification for mortgages.
  • TSA staffing issues causing airport delays.
  • Retailers could suffer if shutdown extends into peak holiday spending, which could trigger ripple effects for percentage-based retail leases.
• Notable Quote on Shutdown Consequences:

  "If this thing were to, heaven forbid, stretch on for two months, I shudder to think what that would mean for the economy. If we've entered it that long, the breakdown would be unfathomable for what the fallout would be."
  — Steven [02:50]

2. Uncertainty and “Kryptonite” for CRE

[07:00–08:48]

• Uncertainty’s Effect: Any ambiguity—be it Fed rate decisions, government operations, or rental payments—erodes CRE confidence and hinders underwriting.
• Tariffs: Combined with the shutdown, tariffs are exerting downward pressure during a crucial retail period.
• Stimulus Possibility: Emergency stimulus or tariff relief could be on the table if the economy deteriorates sharply.

3. Credit Markets and Oddities: Microsoft Bonds vs. Treasuries

[08:48–10:20]

• Notable financial oddity: Microsoft bonds have been yielding below comparable U.S. Treasuries—a sign of either increased U.S. debt risk or exceptionally strong corporate demand.

  "Short term Microsoft debt had a yield that was lower than US Treasury. So it's a negative spread to Treasury. Really odd thing."
  — Steven [09:20]

4. Federal Reserve Division & Alternative Data Reliance

[12:44–16:44]

• FOMC Split: After a recent 25 bps rate cut, Fed officials are divided, with dot plots “all over the place.” Some favor waiting due to persistent inflation, others want cuts as job growth slows.
• Labor Market Debate: Official data is paused, so markets increasingly turn to alternative data (e.g., Bank of America reporting a 10% YOY rise in unemployment benefits; Carlyle Group’s private hiring estimate).
• Quote on Fed Uncertainty:

  "Bifurcation between the hawkish members and the dovish members are really starting to play out. And not having readily available data is going to just exacerbate the differences."
  — Lonnie [16:12]

5. CMBS Issuance: “On Fire” in October

[16:44–23:57]

• Q3 & October Update: 21 private-label deals in October totaling $15.66 billion; year-to-date 2025 CMBS issuance already at $102 billion, with projections to break through $130 billion (the highest since the '05–'07 boom).
• Trend Changes:
  • Strong SASB (Single Asset/Single Borrower) activity
  • Mix of fixed and floating deals, with fixed-rate becoming more prominent as rates drop.
• Spread Compression: AAA paper recently priced at 78 bps over; “accordion” effect of risk moving down the stack is sign of a bull market.

  "We've already broken that hundred billion dollar mark... This will be the highest year on record since 2005, 6 and 7, which clearly are outliers."
  — Lonnie [19:01]

• Deal Sizing: Fewer deals than last year, but with larger sizes, mainly due to the SASB trend.
• Optimism: Barring major shockwaves, expectations are for a strong finish to 2025 and a robust start to 2026.

6. Bank Consolidation: Fifth Third & Comerica Merger

[23:57–29:25]

• Headline: Fifth Third buying Comerica ($10.9bn deal), creating the 9th largest U.S. bank.
• Regulatory Easing: Recent changes at DOJ, OCC, and FDIC have streamlined approvals, encouraging further M&A among banks, especially those below the $100bn “bright line.”
• Market Strategy: Regional banks seek scale, diversified balance sheets, and strong positions in markets like Texas.

  "This to me is a better scenario than what we thought we might see when there were bank failures and there was going to be forced consolidation."
  — Lonnie [27:20]

• Texas as a Growth Center: Multiple banks growing footprint in Texas; recent transactions cited include Huntington/Veritex, Pinnacle/Synovia, and increased interest in “Wall Street South.”

7. Property Highlights: Recapitalizations & Conversions

A. New York Office Recapitalization: RXR’s 1211 Avenue of the Americas

[31:57–36:44]

• Deal: $1.45bn recapitalization with $367m toward tenant improvements (Fox News, Dow Jones, NY Post primary tenants); major loan extension and substantial equity infusion.
• Significance: Signals creative approaches to unlocking office value by major operators amid stubborn vacancies and market stress.
• Anecdote:

  "Elevators are usually, you know, very well monitored, maintained, regulated. But in New York City, it's a whole other level of regulation and maintenance."
  — Steven [34:47]

• Quote on RXR’s Resiliency:

  "When the COVID fallout was decimating the office sector, his quote... was it's like we have a Polaroid camera in a digital age and now... you're seeing him just, you know, knock the ball out of the park."
  — Steven [35:11]

B. NYC Office-to-Residential Conversions

[36:44–38:59]

• Bloomberg Report: 29 West 35th Street to be converted into 107 studio apartments (400–575 sq ft), a $70m investment plus $25m acquisition; reflects Midtown South zoning changes and growing trend from offices to housing.
• Unit Costs: All-in costs approach $900k per unit—potential mill-plus pricing per studio.

C. Dallas Office Market: Crescent’s Uptown Acquisition

[38:59–41:11]

• Deal: Crescent acquires 2000 McKinney for $295m ($645/sq ft), setting a post-COVID high mark in Dallas.
• Tenant/Base: Texas Capital Bank signed through 2040, ~80% leased, signaling capital migration from coastal to Sunbelt markets.

  "This sets the stage for more capital to flow into this uptown neighborhood... capital migration from coastal markets to Texas."
  — Lonnie [39:56]

Notable Quotes & Memorable Moments

• On government shutdown and markets:

  "Let's just say, if we push into four weeks of a complete full shutdown, the economic implications are going to get nasty."
  — Steven [01:57]

• On the wisdom of penalizing Congress:

  "If the government shuts down, nobody in Congress is eligible for reelection. Do you think we can get a shut down then?"
  — Steven [03:41]

• On Microsoft’s bond yields:

  "Microsoft bonds having a lower borrowing cost than U.S. treasury debt?"
  — Steven [08:48]

• On New York elevator maintenance:

  "...fire department has to save people probably on a daily basis from locked up elevators."
  — Steven [34:53]

• On office-to-resi pricing:

  "I just bought me a 400 square foot studio for about a million two fifty. Crazy man. Come down to Texas, you can be a king for a million 2:50."
  — Lonnie [39:03]

Timeline of Key Segments

• 00:06 — Episode intro, government shutdown context
• 01:37 — Market reactions and what history suggests
• 07:00 — Discussion on retail, tariffs, CRE uncertainty
• 08:48 — Microsoft bonds and Treasury yields
• 10:20 — Real estate-specific shutdown effects
• 12:44 — Fed rate debate and labor data reliability
• 16:44 — CMBS issuance trends, record projections
• 23:57 — Fifth Third/Comerica merger and rise of Texas in banking
• 31:57 — RXR’s Midtown recapitalization
• 36:44 — NYC office–to–residential conversions
• 38:59 — Dallas Uptown office market activity

Closing Notes

• Job Market Data: TREP has published a new anonymized bank CRE loan performance report (request via podcast@trepp.com).
• Training/Webinars: TREP clients can attend property update walkthroughs, banking/lending webinars, and Market Pulse sessions later this month.
• Shout-outs: Thanks to listeners, contributors, and special mention for the Texas Tech banking program and RXR’s leadership.
• Upcoming Events: Lonnie to speak at North Texas Realty Conference and NAI’s event at the NFL Hall of Fame.
• Birthday: Co-host Lonnie celebrates his birthday on October 10.

For more information or to request reports, reach out to podcast@trepp.com.

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