← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
359. CRE Playbook: Navigating the Shutdown, AWS Outage & AI Shifts, and Bad Bank Loans?
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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 October 24, 2025. I'm Haley 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 Steven Bushbaum, Research Director. This week, the government shutdown has now stretched into its fourth week, marking the second longest shutdown in US History. Markets are also awaiting the delayed inflation report, which could play a key role in shaping sentiment amid the ongoing data blackout. Meanwhile, AI continues to dominate headlines. OpenAI launched its new browser Atlas, taking direct aim at Google. And reports are surfacing about AI already replacing white collar jobs. In today's episode, we'll also dig into more noise in the banking market, spotlighting the news for Zion's bank and Western Alliance. We'll also dig into this week's AWS outage and what it reveals about infrastructure risk, and then share TRIP's latest trading alerts for big CMBS loans backed by properties across the country. So Stephen, talk to us this week. The government is still shut down just like aws. Banks are all over the news and we are waiting on inflation data. What gives and what are you making of all of this?
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C
Well, with a lack of data, we certainly have not been without our lack of drama or news headlines like you highlighted. It's been very active this past week, this past two weeks, and honestly I'm liking it. You know, it's keeping us kind of fresh in the fall. So I'm going to put a real estate spin on all of the news that we've collected over the past week. So here's how I'm seeing it. Investors are trading a bit of return for a lot more control and there's three particular shifts that are standing out. First is liquidity over yield. Banks are stepping back even though we're hearing some signs or seeing some signs that some banks are clearly stepping back in. And we're seeing origination volumes up. But by and large, we're still in this period of bank retrenchment. So the clearing price of credit is being set by private lenders, which means higher coupons, tighter structures and lower proceeds. Savvy buyers are running a barbell system. So you're seeing shorter duration, risk free cash to stay nimble, paired with selective higher conviction assets where they can fix basis and force. Noi rescue capital and structured equity are back in style, but the mantra is simple visibility on cash flow over the next 12 to 24 months beats blue sky underwriting, right? Cash is king and certainly certainty and underwriting beats everything else. So the second trend is risk management is getting rewired. The AWS outage has been a reminder that operational is investment risk. So sponsors and lenders are really paying attention to diligence and vendor concentration, power resiliency and data continuity the way that Lana, you're going to love this. We used to underwrite roofs and chillers, all right, so really now we're having to think a lot broader in scale and scope. So let's think data center adjacencies and logistics nodes while underwriting also bakes in tech dislocation for office and certain back to office retail footprints. Now the third trend that's playing out is capital structure matters. Maybe matters. Again, I don't know how you want to say this, but capital structure is clearly of the utmost importance. We're seeing more covenants, cash sweeps and reserves reserve regimes. Borrowers are proactively re hedging because we've seen a recent spike in rate fall. So rates are a little bit sticky at the moment. We have broken through the 4% floor and so I'll be interested to see exactly how far down we can reprice. I've heard some folks this past week talk about a new floor of potentially three and three quarters percent. So we'll see if maybe we probe that depth if the shutdown continues to stay on the longer end of things if we do actually breach and set a new record here. So on the equity side, investors are favoring deals with multiple exit ramps, sell refi and recaps versus prefs and then across property types. Neighborhood retail with throughput holds up, industrial normalizes but remains well bid and multifamily is hyper local with supply pockets and office is still a lender LED workout story where basis is destiny. So the playbook from here keep dry powder, underwrite today's debt markets, not yesterday's and prioritize resilience in a landscape defined by AI acceleration, bank retrenchment and infrastructure pressure. The edge isn't predicting the next print. It's owning options, controlling downside and being the first to move when the window opens. How you like that Lonnie?
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I mean I'm almost speechless at some level. I mean like I'm not sure if I'm taking like a investment credit course from Dr. Steven Bushbaum, you know, from Clemson, or if I'm just getting Stevens off the cuff. It's great man. I think you just Laid out a menu of realities for the marketplace, and there's a lot to digest there. I mean, we could have an entire episode just on those three main points that you made.
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C
What can I say? I really geeked out when I read this week's intro. I was like, all right, it's time to roll. The air is crisp. There's a lot going on in markets, and this is the time where just my mind runs wild. And I love to kind of think about possibilities.
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A
So are you like an energy drink guy today, Steven? Are you like a pumpkin spice latte? I mean, like, what is the fuel that's, that's feeding your, your ambition Today?
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C
I, I pivot from a pumpkin spice latte in the morning to a nice, dry English breakfast tea in the afternoon.
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All right, well, whatever it is, keep it up because you brought the heat on the intro. I like it. So, you know, it is interesting. Like, I love that you put a real estate spin on this because, I mean, I would hate for us to drone on again about the government shutdown that just continues to persist if it's, it's gone on longer than I think both of us thought it would go on, and there's really no clear path to an end in sight. I mean, I think there was maybe some green shoot quotes here and there this week about some cracks starting to form and maybe some resolution being reached that would keep things from, from extending too much longer. But the reality is the markets still continue to move and deals continue to still get done, and credit still has to be priced and risk has to be priced and operators have to create optionality for themselves. And I, I like the perspective of underwriting certainty and having optionality. I think if I were to just take a 30,000 foot view here. Isn't that what you're supposed to do?
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C
Yeah, in theory, yeah.
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I mean, so at some level, it's almost like amidst all this chaos, maybe some logic is finally returning to the process and maybe some conservative lenders and a new frame of who's going to lend to whom at what price, and where does rescue capital actually make sense and what does the capital stack actually look like? Like, to me, at some level, it's just almost a return to the fundamentals. I mean, like when we're taught to underwrite deals, like, you have to look at known risk and unknown risk. You have to look at external factors, you know, that may impact the property beyond just who's on the rent roll and who's paying the rent. And it feels like now we're finally maybe getting to some realization that those things actually matter. When interest rates aren't zero and capital's flowing like crazy, you have to get back to blocking and tackling in the basics of the market. And even in a higher interest rate environment, as you've outlined, there's opportunities to play in various spaces in the market and chase yield and, or cash flow, depending on where you want to be in the stack. And so it's exciting for me and I know you share this excitement, Steven, just to see, we've almost seen real time the pivot across these different strategies in the marketplace. I mean, I know if you go back a couple of years ago, we had Warren DeHaan on the show from Acor Capital. He was the first one, I think we heard, coin the phrase, of seeing equity like returns in the debt space. And they were really, you know, taking advantage of the uncertainty in the market and bringing some stability to certain borrowers at a, at a rate that was favorable to them. And I think with some of these property sectors stabilizing and, or transaction volume and origination volume kind of, you know, picking back up, you've seen people shift their strategy real time to take advantage of some of the nuances in the marketplace. And you know, if you're an investor or you're someone that tracks our commercial real estate landscape, this just shows why it's such a great investment class. Because no matter where the market is, no matter where rates are, no matter where uncertainty is, you know, on the macro there are opportunities. And I like that you mentioned the word hyperlocal. I mean, if you listen to the show at all, you hear me say real estate by definition is a local, sometimes hyperlocal endeavor. And what I mean by that is you have two buildings on the same street with completely different outcomes depending on who the operator is or what the debt stack or capital stack looks like. And we're seeing that play out real time here. So it's exciting. I mean, there's a lot of stuff this week has been pretty packed and I know the next week or two is pretty packed with reporting of earnings and other things. I mean, you have CPI that's coming out on Friday. There's a lot of people questioning the validity or accuracy or where that's going to be relative to the government shutdown. You know, you have some government agencies, Ginny and fha, that have like kind of put a stop to pushing out some of their data. And so we're starting to see some of these second level effects play out. We'll have some commentary on that in the coming weeks of these things continue. But I'm with you. I think we're an interesting inflection point but it's fun to watch people navigate this real time and maximize their objectives.
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C
Yeah, one thing that has really been eating away at my brain that this week is exactly where we're at in the credit cycle and the macro cycle. And today I heard one equity strategist specifically highlight their quantitative approach to equity trading has 12 different factors and 12, 10 or 12 anyway the number doesn't exactly matter. And they said specifically six of these were flashing late stage or late cycle warning signs. So not like bear market retrenchment was imminent, but just signs that this, this bull market run is potentially running out of steam. And exactly what's going to trigger the inflection is, is to be determined. It's usually not the train that you see coming that hits you, but something, you know, completely out of left field. So I'll be curious to see exactly how much Runway we have left on this bull market and exactly, you know, how much longer we can sustain these credit spreads that are just at decades low tight. I mean it's absolutely amazing. And fortunately we have seen CRE catch some of that credit spread tightening wave and in particular in cmbs which is why issuance come with the numbers that it has. I mean we're over 105 billion through mid November for issuance that's passed and issuance that's scheduled. So what will exactly get issued over the last six weeks of the year? To be determined. But again it looks like we're very much on track to hit that 120 billion mark. And I gotta say I'm a little bit disappointed we didn't see Meta's Hyperion deal hit the CMBS market because that would have taken us there and put us on track to hit the upper end of my projection range. $27 billion for Hyperion? Absolutely. Nuts.
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Crazy man. I mean look, is that a one off or is that kind of the new trend as we go forward? I mean I think you're going to see more and more and it, you know, we've joked at some level here on the show that it used to be 10 million, 50 million, 100 million was a big story. Now if it's a billion, it's kind of like just whatever. I mean we're, we're into the multi billions on these transactions and deal size and that creates complexity, I mean that creates this mechanism where you have to have financing for multiple players. And there's increased risk and there's risk sharing and there's all of this stuff that's required in order to facilitate deals of that nature. And it's an incredible thing just to see in my 20 years in the space. I know you have a similar tenure, Steven, of just how sophisticated the markets have become. We talk about the quantitative approach. I mean, like, you can apply that across the spectrum in commercial real estate, whether it's lease rollover analysis, whether it's, you know, screening. And even with all of the quantitative rigor that's been applied, and we'll talk about this a little bit later in the show, things still happen that shouldn't happen and things, deals get done that shouldn't get done and things that get checked off as valid, that are not valid, you know, kind of find their way through the system sometimes. And so there's still an imperfect market which creates that information asymmetry and that that upside opportunity that people are going after. You know, I think an interesting segue here for us is just the AWS outage in the week. I mean, I know we talked, it's kind of interesting last week we talked a little bit about, you know, the clustering effect of the data centers. We understand why proximity is needed for the type of use that those buildings have. But I think what we saw this week was just the over reliance that people have on AWS broadly. And, you know, we've seen the memes and we've seen the stuff on social people joking about all of these new applications just being LLM wrappers or GPT wrappers. And I saw one after the AWS outage. It said everything is just an AWS wrapper. And it's kind of an interesting perspective when you think about it, because there were people that had their eight sleep mattress that was overheating or locked in the upright position that they couldn't even get down because AWS was having an outage. I mean, there are so many interconnected components, not just of the economy that gets monitored. Right. But just of our everyday lives that have dependencies and, you know, interdependencies and reliances on AWS in some form or fashion. And it's, it's just crazy. We saw it a little bit this year with the airlines when they had the, what was the, what was the firm?
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C
Crowdstrike.
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Crowdstrike. You know, it's crowdstrike now. It's aws. It's. I'm convinced that for a sophisticated nation like the US we're just a couple of days away, of if you don't have Internet access or you don't have your electrical devices, to going back full on barter system where there's almost chaos in the streets. I mean, that's how reliant we are on technology.
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C
Yeah, I mean it's, it's really comical in, in some way. It's not funny that all of you know, our businesses were interrupted and personal lives were kind of thrown into disarray for the better part of a day because of this AWS outage. But the timing, you gotta admit, is kind of funny after last week's episode, especially given that I don't know.
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Yeah, that was the interesting thing.
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Yeah, you saw where this outage was centered on. The outage was centered on Amazon's or AWS's US East 1 region in Northern Virginia, exactly where we were talking about. And apparently the incident was attributed by AWS engineers to an issue within its EC2 internal network and later tied to a domain name system failure or a DNS failure, which quickly became a global systematic risk task for finance. I know, for me, I, you know, teaching on Monday, Wednesday, Fridays at Clemson Real Estate Principals classes and students were freaking out because they couldn't access canvas and they, they had assignments that were due and you were just completely out of luck. It's like, wow, see kids, this is why I print off my in class assignments on paper and we use a TIBA two plus our lives are not disrupted.
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Steven's like, this is why we still use a number two pencil in this class, folks, with a manual pencil sharpener. It is interesting. I mean, I think at all levels. You mentioned the education, finance, education, entertainment, all of these things were impacted and it's, you know, luckily AWS was able to restore at a relatively quick pace and get things back up and running. But yeah, I mean there's major disruption to the, to the broader economy and it's a really interesting just time period for us to live in. I mean like we're the first generation going through this type of interconnected systemic risk tied to such a concentrated service in this capacity. I mean, previous to this, you might have had regional disruptions or you might have had, you know, local disruptions that were relying on certain services. But this is like a global type of, of connectedness now. And so it'll be obvious, I'm sure a lot of CTOs and other folks are having discussions internally saying what is our fallback plan? What's our rollover plan? How are we going to prevent this from becoming an issue on the ongoing basis. You know, I think I saw online that this is maybe like a once in a decade type of catastrophe. So hopefully this is something that, you know, just we joke about this week after we, we've survived it. And it's not something that becomes more of a persistent issue, but it, it does beg the question, like just going back to the discussion last week around national security and other things. I mean like there's no denying that there's inherent risk with this, you know, total global connectedness that we, we rely on so much at this point. Yeah.
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C
And I think we're still kind of growing an appreciation for exactly how much bigger of a problem this is going to become. And this is a beautiful segue into some headlines that we've seen this week about AI taking white collar jobs. But for that to happen, that means we're going to have increasing reliance on this AI infrastructure. So AI has been already gradually taking some jobs across banking, the auto sector, retail. And executives are warning employees and investors that AI is in fact already taking over jobs. While maybe it's not happening en masse, we have plenty of clear cut signals across multiple industries that this is happening. So within tech companies including Amazon, Palantir Salesforce and fintech firm Klarna say they've cut or plan to shrink their workforce due to AI adoption. Recent estimates from Goldman Sachs suggest that 6 to 7% of US workers could lose their jobs because of AI adoption. And recent research from Stanford suggests the changing dynamics are particularly hard on younger workers, especially in coding and customer support roles. And there was an article that came out mid this week noting that Amazon plans to replace 600,000 workers with robots by 2033. 600,000, absolutely. Nuts.
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Yeah. I mean this is the reality that people don't want to address or talk about or face head on relative to the AI wave. I mean, yes, on the broad scale, if 6 or 7% of US workers lose their job, you could argue like maybe that attrition at some level is needed for progress and to get things to a modern frame. But that's a significant number if you just, if you just multiply that out. I mean, you're talking about millions of people that are going to be without a job. Amazon is just one of those large employers. I mean, 600,000 is no joke. I mean that's, that's, and the reality for me would be let's just assume they're successful at that. I mean, that's just the tip of the iceberg. I mean, they're incentivized at that point to figure out ways to just get that type of automation deeper and deeper into their organization. So you know, I had lunch with a client today and it was interesting, our conversation. I'm more convinced of this by the minute. It's just, it doesn't matter what role you're in, in what industry, at what level, at what firm, if you're not staying abreast of what's happening with AI and you're not finding ways to implement AI into your day to day workflow, you are going to be replaced way sooner than you think you are because it is inevitable at this point. I mean, I don't know if you've seen some of these AI web browsers that are on the web now. Atlas, Comet, which is perplexities. I mean these things have agents built in and they perform work functions and intelligent work functions based off of prompts and it's impersistent. I mean you can tell it to go find the cheapest price for something and it will search until it feels like it's adequately found. The cheapest price. I mean it's incredible. And they don't get tired and they don't need benefits and all of those things. I mean it's just, just is the reality. So you know, to see Amazon kind of put a time frame on this I think is interesting because you know, this kind of quantifies the game plan. I mean everyone was cheering when they were talking about Net zero and putting all the timelines and everything with that. Probably a lot of people not cheering when they say, oh, in the Next, call it eight or so years, we're going to replace 600,000 of our workers with robots.
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C
Well, we started getting a little bit cautious, I won't say bearish, but definitely cautious on the industrial sector. As Amazon announced that they're going to be pulling back from some of their commitments or reevaluating their industrial need. But part of this announcement I think is a very bullish signal for continued industrial demand by Amazon. They noted that while their workforce has tripled since 2018 to almost 1.2 million, the automation that they can implement would help them avoid hiring more than 160,000 people in the US than it would otherwise need by 2027. So basically what this means is Amazon can continue their expansion path without incurring margin pressure to do so. So this should be a bullish signal for the industrial sector that know, hopefully we'll be able to absorb some of the space that was beginning to get questioned and potentially look like an oversupply issue.
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B
Yeah, Lonnie, when you were talking about Atlas and when you guys were mentioning our discussion from last week, it reminded me that our listeners really need to tune into this show every single week because so much changes. Just last week we were talking about how innovative and interesting and cool it was that Walmart now has ChatGPT embedded into their tools and you can shop right in the Walmart app. But since then, I think the launch from OpenAI of Atlas was way bigger and a direct hit at Google Chrome. So this is going to be very interesting if you guys had anything else to add there.
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Yeah, I mean, I'm really bullish on this because what I've seen through ChatGPT's functionality, the more I use it, the deeper it gets embedded into my workflow, the better the results become.
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Right.
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Because ChatGPT has done a very tactical, very good job at learning from their own customers and basically making sure these agents are tailored to each individual user. So it'll learn from your workflows, learn from your prompts, learn about what you do on a daily and weekly basis, and ultimately get smarter, get better for you. And so bringing that with the Atlas web browser product, I think will be an absolute game changer for those that are already heavy users for it and ultimately is necessary, because I don't think ChatGPT has quite the same benefit that Google did in entering the browser space. I mean, Google really dominated. If you go back and look at the history of the Internet and what Google achieved in the mid to late 90s through the early 2000s, there's been some parallels drawn about, oh, well, maybe ChatGPT will do the same thing. But you're seeing way more aggressive competition than, I think, for ChatGPT than what Google faced at that same point in time. It's a completely different ecosystem, completely different environment, and it's going to be more difficult for ChatGPT to carve out and sustain the sort of market share advantage that Google did back in the 2000s.
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Yeah, I think, I think that's valid, Stephen, but I think they're pursuing it as if that's the. That's the objective.
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Yes.
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And if you look at their adoption rates on like a per month, per week, per day basis, the scale at which these things are growing is astronomical. The market is just much different than it was then. But it's an interesting dynamic. I mean, I do think at some level, I mean, I've seen too many of these demos over the last couple of months where these agentic AI browsers. When you want to talk about replacing people, you want to like see it firsthand, just mess around with some of those things and see what these agents can do on behalf of you instructing it. I mean it's, it's like having another person. It's like having you do whatever it is that you were intending to do without actually physically doing it. And we're just scratching the surface. I mean, I had a friend of mine post on LinkedIn this week and his analogy I thought was really sufficient and accurate in saying ChatGPT in particular or these LLMs are kind of like a baseball glove. Like when you bring it home from the store and you go outside and play catch, it'll catch the ball, but it's kind of hard to squeeze, it's a little stiff and it's not perfect. It's just like an off the shelf glove. But after a couple of months of playing catch and getting your hand built into the material, it starts to fit. Where you get the term fits like a glove. And it's very much your glove and it gives you some comfort and ability to do things with it that somebody else couldn't just pick it up, up and do. And I think what you're, you described with it learning from you is, I've seen it too. I mean like the more you use these things, whether it's copilot, cloud, whatever, the more it gets to know you and the responses and then the results get infinitely better. I know we spent a little bit of time the last couple of weeks talking about this, but I, I don't know that we're spending enough time on this just broadly. I mean, if you're someone in the market that's not reading up on these AI advancements literally every single day, it is passing you by and you don't know it. And the problem is it's a high speed rocket ship that's going to be impossible for you to catch up to. I mean, this is a transformation of life type of time period for people and I don't think many of us fully understand or grasp just how dramatically it's going to change every aspect of our life.
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Yeah, it's absolutely wild. And you hear this repeatedly from CEOs, CFO, CTOs. I mean, for people at that C suite level to repeatedly say we've never seen anything like this in our lives and it'll be transformative in ways that we would have never imagined, you know, it's science fiction, tells you, you know, just how real the future is. It's here.
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Yeah, it's here and it's evolving real time. So it's, listen, I think for us, like, it's, it's a great time to be alive and be part of the process. And if you're someone that's intellectually curious and wants to be on the cutting edge, like, there's never been a better time to latch onto some of these things because at this point, everyone's starting at ground zero and it's a really great opportunity to kind of level up and increase your marketability. I still am convinced people that can learn to leverage these tools are not going to be replaced.
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C
Yeah, absolutely. Bloomberg had an article they wrote, gosh, I wish I remember the exact year. Maybe it was 2017, 2018. And it said the future belongs to those who can code for those who can't. And while I love that article and there's plenty of truth to it, I think it maybe needs a little bit of refreshing and massaging to fit the current context. And yes, for those that understand and can work and incorporate AI, the future belongs to you, those who can't. And then there's certainly going to be industries that will have some resilience to it. Any sort of physical manual labor obviously is going to be resilient to some extent, but that doesn't mean it won't be transformed. So that's, that's where I think the real exciting opportunity is for the entrepreneurs, is finding how you can incorporate AI into the very difficult scenarios. I mean, that's where you see those exponential returns possible.
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All right, so let's turn our attention here to noise in the banking sector. Pretty sure we were recording last week as the news broke that Zions and Western alliance banks were disclosing bad loans tied to fraud. We've since seen earnings come out and new headlines and comments from their CEOs and their teams. So let's talk about what happened last week and what we've seen shift since this week.
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C
Yes, so let's start with the CNBC article that noted the alleged sweeping betrayal of trust that rocked Zion's bank and spooked Wall Street. Zion's Bank Corp. Lost $1 billion of its valuation in a single day last Thursday after disclo $60 million worth of loans it had made that were unlikely to be repaid. What led to that point was a messy, tangled web of loans that Zion's said were surreptitiously subordinated by the borrowers, all while the collateral was effectively eliminated. Shares of regional banks tumbled on Thursday as fears mounted around the health of their lending business. Zion's 13% share plunge ended up sparking worries about possible broader issues with lending for the regional bank sector, knocking the whole US Stock market on Thursday, with the Dow Jones Industrial average finishing lower by 300 points. Zion subsidiary California bank and Trust is suing Andrew Stupan and Gerald Marcille, the until now relatively unknown managers of several funds utilizing the name Canter Group, along with their associate Deba Shyam. Now, I just want to be clear here. This has nothing to do with Cantor Fitzgerald, the Wall Street Group? No, this is a completely separate entity. So let's examine what happened. We'll start with first, the borrower scheme. According to a lawsuit filed by Zions, the borrowers and their affiliated companies orchestrated a scheme to enrich themselves while stripping the bank of its collateral. So the pledged collateral that was stripped. The lawsuit claims the borrowers used a web of affiliated companies to secretly transfer or subordinate the deeds and underlying properties that were meant to secure the lo. So that left the bank in the dark. Zions says the borrowers kept California bank and Trust, its subsidiary that originated the loans, unaware of the true status of its security interest for years. So let's parallel this case with another bank. Zion's launched its investigation after another bank, Western alliance, sued a related Cantor Group for fraud. In August of 2025, Western alliance made similar allegations against funds tied to Stupen and Marcille, claiming they falsified title documents and diverted funds. So the financial fallout and market reaction is as follows. First, you've had some massive charge offs. Zions took a provision for the full $60 million in outstanding loans and charged off 50 million, anticipating it will not be repaid. We covered the stock market slump. The cockroach theory. So Lonnie, you brought up that cockroach theory a couple of weeks ago, was it? I guess maybe two weeks ago, I think.
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A
Yeah, it was a Jamie Dimon comment.
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C
Exactly. So the incident, coupled with other recent credit losses at different banks, has reignited concerns about lending standards, particularly to non bank financial institutions. Now, the earnings impact. Despite the hit, Zions reported that its underlying third quarter earnings were solid, which helped reassure investors that the issue was an isolated situation. And the bank has stated it does not have further exposure to the involved borrowers. So let's continue to hope that this continues to be just an isolated cockroach situation and that there's not a broader infestation of bad loans getting ready to rock the banking sector. But I gotta say, we will certainly be on the edge of our seat as we have A ton of community and regional banks reporting earnings over the coming week. I mean, just in this week alone I totaled up and it looks like we have about a hundred banks set to report earnings this week alone.
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A
So Stephen, I gotta say, like, continuing to reference cockroaches kind of gives me the ick. And then when you say infestation, it really does. So, like, we got any pest control company listeners out there, we might need to bring some stuff and sanitize these CRE portfolios. There are a couple of things and I appreciate you giving us such a broad overview and some context on this. I found some stuff online that was kind of pushing some tough questions to the market on this. And it was this, how do you validate collateral and prevent double pledging? Right. That's the question everyone answered. And people are like, well, we have our process in place, et cetera, et cetera. Right. But if someone's willing to commit fraud, it's really hard to stop it. I mean, I think that's the, the underlying challenge here. It's almost like I saw an article this week that said 50% of rental applications for high end class A multifamily in Atlanta metro were fraudulent. I mean, if someone's willing to do that, it's almost impossible to detect all of that. And so I think what we're going to find out is while this is isolated on a relative level, this is not the only incident where we're going to see something like this discovered in this sector. And it's an unfortunate reality for the marketplace. I do think it'll tighten up, force the tightening up of certain constructs and process to make sure that things are verified, validated. There's a more stringent, you know, microscope put on, on each deal and not just at origination, but throughout the process. I mean, like that these things, you know, once the loan's made or the proceeds are given, that you're monitoring the collateral on a much more stringent basis, which is good for the marketplace. It does increase administrative overhead and that's something the banks, you know, how many divisions can they create to just deal with the administrative problems? But at some level to the investors, they have to do it. I think the silver lining here is that net interest income is up, credit metrics have improved and shares are stabilized. And so, you know, it definitely shook confidence in the short term. But it does appear at this point that it's a contained fraud event and not a systemic risk. But more discussion and we're going to have some stuff, as you mentioned, coming out that talks about some of this, you know, lending to non depository financial institutions or non bank lenders and kind of some of the increased risks and dealing with some of the opaqueness real time, because I don't think anyone is fully understood or quantified just the, the size, the scale, the scope of, of some of these transactions that have occurred over the last call, you know, 24 to 36 months.
- [33:56]
C
Yeah, I'm glad you brought up that Atlanta Residential or I should say multifamily application fraud article. I mean that one just had my jaw dropped wide open. It was like 50, 60% of applications were fraudulent. And you have somebody blatantly advertising on TikTok or whatever the platform was saying, hey, pay me this much money and I'll put you together a fraudulent rental application, like all of your bank statements, tax returns, even a fraudulent Social Security ID card, like whoa, whoa, whoa. So I'm wondering, you know, what role AI can play. Gosh, this was maybe six, eight months ago. You threw out a stat about just how, how much fraud could be detected through implementation of AI and agency underwriting. And it was a phenomenal, phenomenal fraud detection statistic. So, you know, I'm sure some of these systems are being put in place or certainly being contemplated and the lower cost to put this sort of technology in place certainly is going to help its adoption. But right now it's like a battle of the bot bots. Right. Somebody's conjuring up a fraudulent rental application using AI tools and it's trying to be detected using AI tools.
- [35:06]
A
Yeah, I mean you see it in academic sense all the time. Students using chat GPT to write papers and then you feeding those papers through, you know, Turnitin or one of these other products that tries to like detect if this has been plagiarized or created by AI. And you're always at a disadvantage. The folks committing the fraud on the front end always have an inherent competitive advantage. And so we'll see how, how this plays out. But it's got potential to have far reaching implications across CRE because our business at some level is based on a certain level of arm's length trust with documents that are shared from a borrower, in this instance to a lender. There's a finite amount of due diligence or validating that you can do before you hit a threshold where you're going so slow and being so meticulous that no deal ever gets done.
- [35:57]
C
Yeah, I mean you can't just take the electronic records as proof or truth. You need to actually go to the originating institution, the auditor, the bank, whoever, and get that point. Source validation, which, I mean, correct me if I'm wrong, Lonnie, but I thought that tended to be the highest and best practice in the industry. But I can see how just for speed and ultimately relying on the fact that most people don't commit fraud has led us to a situation where we've just taken electronic records as kind of. Okay, that's the truth. If they look authentic, they probably are authentic. And most of the time they have been. But when we're this far along in the credit cycle, this is where those cockroaches start to come out.
- [36:43]
A
Yeah, I mean, this is what they say. History doesn't repeat itself, but it often rhymes. And you're going to see this play out over and over. As you get to this part of the cycle, the technology changes with the underlying activity is very similar. We see a higher instance of fraud. As you get deeper in the cycle, I think you're just going to see banks and other lending institutions doing more due diligence and it's, it's needed and I'm, I'm hopeful that it roots some of this stuff out. I think for the, the operators on the multifamily side and some of these folks that are not regulated industries, that's where it's very difficult now. Are they going to, are you going to start seeing multifamily operators bringing in, you know, cyber type of, of analysts to, to validate electronic submitted documents, you know, for tax returns, pay stubs and other things? Like are they going to do forensic analysis for a rental application? It'll be interesting to see how they combat this because it's a very. For banks, that's one thing. And I think they have the resources and they have the requirement to, to be proactive at a higher level there to ensure public trust. But for some of these individ, it's just a huge administrative cost to them that they don't necessarily get to pass on to the, to the renters.
- [37:58]
C
I don't know about you, Lonnie, but this makes me think this would be a good opportunity for a guest podcast for a multifamily operator that's on the cutting edge of, you know, attacking this sort of fraud.
- [38:09]
A
It's funny you mentioned that, Steven. We have our friend Iman J. From Chicago that's a multifamily investor, owner, operator, and he's been pretty prolific on, on Twitter or X talking about this issue. So if you're listening, give us a shout. Maybe we can, we can bring you on and have you educate us on how you're trying to deal with this real time.
- [38:29]
B
All right, we had a lot of news this week. We have some in depth reports coming out specifically about the overall commercial mortgage debt universe. We will dive into that on next week's episode. But I want us to turn to our deals and data segment and dig into some of the property type stories that we tracked this week. I want us to start here with a trading alert that we sent out to our clients this week that revealed that with trapp's latest October data, the value of the collateral behind the $660 million NGPV GSA portfolio loan was reduced by nearly 1/3 in its most recent appraisal.
- [39:11]
C
Yes, this was the asset's first Reappraisal since its $1.02 billion valuation at securitization in 2015. So this most recent appraisal cut the collateral value down to $720.7 million. Now we last mentioned this loan in a May edition of Trupwire when it transferred to Special Servicing for eminent balloon maturity default. The loan hit maturity in August, showed a delinquency status of performing matured balloon through September, then became current once more in October. Updated special servicer commentary indicates that the loan was modified and extended and will return to master servicing soon. The collateral includes 41 properties scattered across 19 states. The properties span a total of 2.6 million square feet and are an average of 16 years old. A total of 25.2% of the collateral's portfolio space is in Florida, 15.7% is in Texas, and a little over 6% is in Kentucky. Some of the federal agencies occupying space include the FBI, which occupies six buildings totaling 652,000 square feet, Citizen and Immigration Services and eight buildings with 365,000 square feet and the DEA and four buildings with 289,000 square feet. At year end 2024, the loan's DSCR based on net cash flow was 1.81 times with occupancy at 98%.
- [40:31]
A
So just add a little bit of color here, Stephen. When this deal was transferred, it actually avoided a near term default. It secured a three year extension extending the loan to August 6, 2027 with additional options to push it all the way out to 2029. And as you mentioned, there's about 16 different agencies that occupy space in this portfolio and of those 41 assets, 39 of them are office buildings and two of them are industrial properties. I think the interesting point here is just given the increased scrutiny around GSA owned leased buildings, even strong, you know what we would call when you say FBI, dea, these other things, those are mission critical type of government agencies. If buildings that have those agencies as tenants are having trouble refinancing, it just tells you kind of where we're at in that part of the cycle.
- [41:27]
B
Let's talk about another story we saw. This one was a purchase of a Dallas office building.
- [41:35]
A
So Haley, I appreciate, you know, couple weeks out of the last month or so we've had a Dallas office story to cover and this is another good one. The last one we talked about was an uptown Dallas office I believe that sold for $640 a square foot. That was the whisper price. This building, Shorenstein Investment Advisors paid 126.5 million or just over $403 a square foot for a 313,000 square foot sterling Plaza office building in Dallas. San Francisco investment manager bought the 19 story building from KBS REIT 3 in a deal arranged by Newmark. KBS recently disclosed in their SEC regulatory filing that they had transacted and what the price was when they purchased the property back in 2013. They had acquired it for 73.4 million and they provided 8.8 million credit to cover the cost of outstanding tenant improvements and leasing commissions. So this does reduce the effective price paid to about 117.7 million or brings that price per square foot down after acknowledging the credit to $375 a square foot. Still a really positive story for the Dallas office market. Anything north of $300 a square foot is a very strong sale. The 640 obviously in that uptown Dallas market set a new price high watermark. But I feel really good about this at 375. I think it speaks to the strength of the Dallas marketplace in the office sector. It's a 41 year old building, it's 91 plus percent occupied as of the end of last year and had about 7.69 million worth of annualized base rent. So I don't know what you think about this, Steven, but I think it's another signal for the bullish office market in that Dallas corridor.
- [43:14]
C
Oh, absolutely, yeah. That market has been on fire. I gotta say. It's been quite resilient and speaks to the fact that Texas and Dallas specifically was on the front end of that return to the office. And so it just kind of makes sense that on the transaction front you would see some of these Dallas office transactions leading the wave in the South.
- [43:34]
A
So Stephen, this office sales price, you know, just doing some back of the envelope math would indicate something in that six and three quarter to seven and a half range for this particular asset. If you wanted to get, you know, try to drill it down fairly specifically, maybe you get down to that 7, 7 plus percent range. But I think it's a pretty strong indication. Anything with a seven handle on a stabilized office asset in Dallas I think is a really strong signal for just the appetite for people making those purchase decisions.
- [44:06]
C
Oh, absolutely, yeah. I mean you do have to do that additional kind of consideration for that TI LC credits and look at, you know, net versus gross price. But yeah, that's, that's a very healthy going in yield on an asset that's in one of the hottest markets in the US.
- [44:24]
B
I want to turn our attention to the mall segment and in retail. We have a headline here that the value of a New Hampshire mall was slashed according to our latest Trep October data.
- [44:38]
C
Yes, the collateral behind the $150 million the Mall of New Hampshire loan was recently reappraised at a reduction of over 40% and now sits just above the outstanding loan balance. The June 2025 appraisal valued the property at $154 million. This was the asset's first reappraisal following its $256 million value at securitization in 2015. We mentioned this loan in an August edition of Tripwire when it transferred to special servicing for balloon payment maturity default following its maturity at the end of July 2025. A loan modification closed shortly thereafter, pushing maturity out to July 2027. The loan is now back to current on payments. The collateral consists of a roughly 400,000 square foot regional mall in Manchester, New Hampshire, built in 1977 and renovated in 1998. Top tenants include Best Buy with 10% of square footage on a lease that runs through January 2034. Old Navy with 5% of space running through January 27, Boot Barn with 3% of space running through March 2035. Over the trailing twelve month period ending June 2025, the loan posted a DSCR based on net cash flow 1.49 times with occupancy at 84%.
- [45:52]
B
And let's do a little multifamily here. We had sales across the country that we reported on in the CRE rundown this week. One of those was a suburban Chicago apartment property that sold for $54 million.
- [46:06]
A
Yeah, so I think we'll go back to our broker. Start your engine here and I'll run through these fairly quickly. Haley Thailand's Vista Group paid 54 million or 184,300 per unit for Renaissance at Carroll Stream, a 293 unit apartment property in Carroll Stream, Illinois, a western suburb of Chicago. That comes to us from Crane's Chicago Business. Denver Investor acquired the property from Bender Companies which bought it in 2021 for 38 million. So really positive story here. Renaissance at Carol Stream is encumbered by a $24 million Freddie Mac loan that's securitized in a 2018 deal, as well as almost a $5 million supplemental loan that's part of a 2023 deal. We go out to our next sale in Glendale, Arizona. You have a senior housing property that sells for 65 million and takes out a 40.25 million dollar mortgage loan. This is an affiliate of AEW Capital Management who paid 393,939 per unit to be exact, for the 165 unit Inspira Arrowhead senior housing property in Glendale, Arizona, about 28 miles north of Phoenix. Boston investment manager bought the six year old property from a venture of Fortress Investment Group and Cogear Senior Living, which purchased it last year for 42.65 million. So you know, another great sale after you know, an acquisition a few years ago or within the last year or two showing increasing sales price. JLL brokered this latest deal. They also arranged a $40.25 million loan as I mentioned, from Fobright bank to facilitate the purchase. That loan extinguishes the $33 million mortgage that first Citizens bank had provided to facilitate the original purchase. And then lastly we have one more here in Denver. Trinity Property Consultants paid 40 million or $173,913 per unit for Renew Pinehurst 230 unit apartment property in Denver. This one comes to us from the Denver Business Journal. Irvine, California investor acquired the property located at 3550 South Kendall street from Advenir Azora which bought it in 2017 for 38.5 million. So you didn't see as much appreciation on this deal as you did the previous two. JLL arranged a $26 million Freddie Mac loan to facilitate the most recent purchase. That loan took out the $29.5 million Freddie Mac loan that was set to become open for prepayment in December. The property was built in 1977 and renovated in 2012 and generated 1.88 million of net operating income last year, which was down pretty significantly from 2.3 million back in 2023, based on the new purchase price, it would highlight a going in cap rate of 4.7%.
- [48:53]
C
Lonnie, what struck me on that first one, the suburban Chicago apartment property, I was looking at that NOI and purchase price that looks like a 7% yield on that asset. So curiously high cap rates on an asset and I guess what may be considered a difficult submarket to operate in, but yeah, curiously high cap rate. Now we know Chicago has one of the notoriously highest tax rates in the country, property tax rates, and certainly has some struggles ahead of it from a municipal financing standpoint. I gotta say, some of the headlines that I've read out of Chicago and specifically the pension liabilities they face, it's really not a good situation. So that speaks to the broader financing needs of Chicago in general and the ongoing services they're going to have to finance. For those last two deals. I got to say that's a relatively healthy LTV that you're seeing on those two for the senior apartments. We talked about another senior housing deal that got done a few weeks ago with what seemed like a lower than typical ltv. This deal hits right in the sweet spot. That's about a 62% LTV, which is, I think about what you'd expect for a well operated, well positioned property like that. And that last one, wow. I mean that is middle of the fairway apartment transaction right there. 65% LTV and a 4.7 cap. I mean that's just straight down the middle of the fairway.
- [50:16]
A
Agreed.
- [50:17]
B
Okay, so before we close, I have some programming notes. As always, there's still time to sign up for our Market Pulse webinar that's taking place on Thursday, October 30th at 2pm Eastern. Our experts will dig into the latest news and data in commercial real estate. We'll talk about the CRE debt landscape and dig into the commercial mortgage universe where we're seeing $4.8 trillion in CRE and multifamily debt. We'll talk more in details about the government shutdown and what it means for cre. We'll do a macro review and then dig into CMBS issuance and signs of life in originations. So if you're not signed up yet, you still have time. Send an email to podcastrep.com and we'll get you on that list. Coming up soon, we will be releasing our quarterly data review magazine. I wanted to do an early teaser for that because that's always a well read and highly downloaded piece of content that the trap rep and commercial real estate Direct teams produce. So stay tuned for that. That will be a recap of all of the data, trends and news that we talked about this quarter. We also still are accepting applications for our December 2025 class of future Leaders. So if you are or you know someone who is graduating in December in the world of commercial real estate finance, and that could be any type of degree, bachelor's, Master's, or further degrees, we would love to have you submit an application for our Future Leaders Awards Program. We've had a lot of our podcast listeners already reach out to learn more about that, and we are excited to highlight some of you across our channels and give you the recognition you deserve before you enter the commercial real estate workforce. Turning to Shout Outs Marty B. Is a devoted podcast listener. He said he tunes in every Thursday while he's running the mean streets of Jacksonville before work. We need to get back to you, Marty, because you sent us a very nice invitation to join your program that you're planning a big conference around in February. I won't give all the details yet, but we will book some time with you and get on the phone. We'd love to have some of our TREP employees or experts take part in that event and it's really great when our listeners reach out and say, hey, wait, I didn't know you guys spoke at events. Or you could have some data that you share with our teams. We'd love to have you there. So we will get back to you, Marty, and we look forward to being connected. Matthew C. Is a podcast fan that we met at the ABS East Conference this week in Miami. He said he's been listening for as long as he can remember and that we have great CRE insights. So thank you Matthew for meeting our teams and coming over to chat with us. Mitchell M. Is an avid listener of the podcast and was interested in our daily Siri newsletter. Lawrence S. On LinkedIn gave us a shout out and shared last week's episode of the show. Perry L. Shared our latest special servicing report on LinkedIn and I'll give a shout out to our friends over at Connect cre, Daniel C. And Emily L. Who are always big supporters of trep and we are supporters of Connect CRE as well. So I got to see them and have lunch with them this week, which was always great to do.
- [53:39]
A
Haley I have a couple shout outs this week. We had some of our sales team and our client support team come down to our Dallas office this week and got to have a few lunches with some of our clients. And, you know, we say it every week on the podcast. We love the interaction, whether it be email or at conferences. But it's really great to be able to take some of our clients out to lunch, hear how they're leveraging our tools and technology, hear their excitement around some of our AI initiatives and the webinars and the training and all the stuff that we do to help be really a partner with them, not just a data vendor. And so hearing people that use our tool daily talk about how impactful it is for them is just a really fulfilling part of our job. And so shout out to the folks in Dallas that let us take them out for lunch and tell us a little bit about how we're helping them make more money.
- [54:25]
B
And as always, more to come from the TREP team. We'll have more guest podcasts coming out in the future, and it's conference season, so we'll be all over the country and world in the coming weeks and months. So if you're traveling and looking to see if a TREP representative is there, send us a note. We'd love to meet with you. We've met so many of our listeners for coffee, for drinks, for dinner, and we can't wait to meet even more of you. So with that, we'll close. Thanks to our producer, Mariana Sobrana. 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 the podcastrep.com and subscribe to the Tripwire podcast with your favorite provider. Thank you for listening and stay well.
- [55:09]
C
All right.