← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
360. Fed Easing into the Unknown, Bank Mergers, $4.8T CRE Debt Universe, and Headline Highlights in Multifamily and Office
00:59:46
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Foreign.
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Welcome to the TRPwire podcast, the show where commercial real estate meets data and insights. This is our Week in Review for the week ending October 31, 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 Steven Bushwoman, Research Director. This week, the Fed delivered its second rate cut of the year, lowering the federal funds rate by 25 basis points to a range of 3.75% to 4%. With the government still shut down and key data releases paused, the Fed is navigating without its usual tools. Powell emphasized elevated uncertainty and rising risks to employment even as inflation remains above target. The committee also announced it will end its balance sheet runoff on December 1st. On today's show, we'll also look at the Chicago Fed's labor indicators to gauge employment health and examine how yields and spreads are reacting post fomc. A steepening curve or widening spreads could signal market uncertainty, while tightening may show confidence in the path of easing in tech. We'll dig into Amazon's decision to lay off 14,000 corporate employees as it doubles down on AI, calling it the most transformative technology since the Internet. In CRE, Plymouth Industrial REIT is going private in a $2.1 billion deal and Huntington bank is acquiring Cadence bank in a $7.1 billion all stock transaction. So Stephen, the Fed's cutting interest rates while flying blind, Amazon's betting big on AI, and banks are consolidating again. What does this tell us about where the economy and CRE markets are headed next?
- [01:48]
A
Here's how I'm pulling it all together. This is an easing pivot without the confidence. Two cuts in, but the lights are half off. With the shutdown pausing data, the Fed is leaning into risk management, taking out a little insurance against labor softening while staying in restrictive territory. Though, Lonnie, I think later on this podcast you and I are going to have some fun back and forth about whether we really are in restrictive territory based on what we're seeing across other data points. So with the ending of balance sheet runoff on December 1, this will add a small liquidity tailwind. But the message still uncertainty is first. Now rates and credit should tell the story. If we get a bear steepener with wider spreads, that's the market pricing growth risk compared to a bull steepener, which would signal tighter spreads that say softer landing confidence. Now I know bull steepen or bear steepen or what the heck. So Let me just pause here and explain this quickly. A bear steepener is when the yield curve steepens because long term interest rates rise faster than short term rates. And it's called a bear because rising bond yields mean falling bond prices, which is bearish for bonds. So why does this happen? Why does it matter? Well, this bear steepener could be due to rising inflation expectations or stronger growth. Both of those are absolutely possibly in the mix as what we've seen. We've talked about the possible reacceleration and what could be happening in 2026 as we get more tariff repricing entering the economy. This could also be due to a higher term premium and more long dated treasury entrant issuance or reduced central bank buying. So why does this matter? Long duration bonds specifically in CMBS would get hit the hardest as prices fall. That's going to pressure mortgage rates and other long term borrowing costs which are going to tend to rise. And banks that borrow short and lend long may see better net interest margins, but the credit risk could very possibly increase. So often this is a headwind for long duration equities. So for example, some growth stocks, because those cash flows, the growth that occurs in the future is getting discounted and it's gonna result in a lower present value. So now the bull steepener is when the yield curve steepens because short term rates fall faster than long term rates. And it's called a bull because falling bond yields mean rising bond prices. So why does this happen? Okay, the markets are gonna expect Fed rate cuts or easier policy growth slowdown or recession fears and a flight to safety. And then why does it matter? Okay, bond prices rise, long duration tends to benefit the most and short term borrowing costs drop quickly. Long term rates drift down but less and bank funding costs may fall faster than loan yields, potentially helping net interest margins. But recession risk can pressure credit. So I'll come back to that one in just a minute because I've gone through a lot of bank earnings and hopefully we'll get a chance to talk about that on today's pod. So back to the narrative here. I'm expecting a modest bull steepener with front end yields falling more than the long end as the market prices in additional cuts and the end of runoff prems term premium. If instead though long rates lead higher, a bear steepener that would flag inflation and term premium worries and likely come with wider credit spreads. So we'll really have to watch the data and let it tell us what is going to happen and we'll have some fun commentary today. To give us some polish on our crystal ball, see if maybe we can get a sense of where things are at least trending toward right now. On tech, Amazon's 14,000 cuts alongside a bigger AI bet is the playbook. So shifting spend from people and footprints to compute is absolutely what we've been seeing as the winning combination. For earnings. This likely means continued pressure on large office demands while data center and power constrained industrial nodes stay very, very well bid. So in CRE and banking, the tape says selective risk. On Plymouth Industrial going private signals private credit still believes in in infill light industrial cash flows. Huntington Cadence is about scale and deposits. So expect tighter underwriting, more loan remixing and some extend and amend where it makes sense. Bottom line, lower base rates offer relief, but spreads and steepness will decide who actually transacts. Strong operators with clean stories will clear everything else pays up or waits again.
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Steven Bravo, two weeks in a row, man, where you knocked us over with some really great insights and perspective. And I think at some point like this may just be the podcast, right? I mean, you basically hit on all of the notes today. I want to get into some of these a little bit deeper. But for those listening, I mean, this is incredible. I appreciate you giving us some context, some definition, some understanding because the market is moving real time and for a lot of people, you get caught up in the fray, you hear the presser from Powell after the event, you start seeing headlines, you might not get some of the broader perspectives. So I really appreciate you kind of going through and giving us some, some deeper insights into what we might see in a couple of different scenarios. And so a couple of takeaways for me today, just in terms of the meeting, the rate cut and kind of where we're at, it seemed like you're seeing Powell acknowledge that this labor softening is a real thorn in his side at this point. And I think he's having to be a little bit more explicit relative to these layoffs at this point. I mean, like it's no longer a concept or a construct, it's, it's reality. I mean, we're seeing massive layoffs over the last couple of weeks announced and I think this is the second week in a row where we're talking, talking about Amazon effectively cutting a significant number of jobs. Now. Last week we were talking about them reducing their workforce by about 600,000 due to AI. That's somewhat of a future state. You know, this, this announcement this week about some of these corporate positions being eliminated. Much, much more real time target, the Same, I mean Target came out today. I think they said they're going to be reducing workforce. And so you're starting to see these dominoes start to fall on the labor side. And it'll be interesting just to see how far and how deep these cuts go. Unemployment just still hovering pretty low on a relative basis. And so if we see that tick up, mired in some of this is the fact that the government is still shut down. We're entering now, I think week five of the government shut down. And so some of this data may or may not be available to them at the same pace that it has been in the past. And you mentioned some of the data centers and the industrial segment. I think Powell answered about five or six questions at his press conference today where he was talk about how he doesn't think data centers or industrial broadly is as interest rate sensitive as maybe some of these other sectors because they're more of a long term play. And that's kind of where the market narrative is going with compute versus Human which you highlighted. So it'll be interesting to just keep an eye on that because we've seen a huge proliferation in the data center space. We think it's going to be sustainable but there's still a lot of unknowns out there. And it's interesting just in some anecdotal conversation over the last couple of weeks that I've had with folks, I still think you have, you know, we've talked all year about this bifurcation in the office market of the highly amenitized class A stuff and then everything else. I think you're getting a similar talk track narrative, you know, think path around AI. I mean it seems like every week you get people that are either more entrenched and this is a bubble or you get people more entrenched in the idea that this is something that is going to revolutionize everything that we do and seeing these things kind of battle it out is an interesting, interesting just playbook that we're seeing and nobody really has the answer. So I don't know if you want to get into some of the FOMC stuff. I mean he had two dissenters this, this month. Nothing super significant to report on that. I think the December commentary from Powell was really interesting. Love to kind of go back and forth on that with you as well.
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Yeah, absolutely. So the two dissenters were Steven Myron who was advocating for a half percentage point cut and the other was Jeffrey Schmidt who preferred to just hold. He didn't want any cut at all. And it's going to be really interesting to hear once we start getting all of the Fed speak again. We've exited the blackout period, so we'll start getting the next round of FOMC speakers giving us their take, their insights and hopefully some insights into what their mindset is if this government shutdown continues and they continue to stay blind in particular to labor data. Now inflation data is obviously a problem as well, but I would say if I had to rank order them, it seems like the concern or the sensitivity is tending more toward the labor side. Powell even said that explicitly that of the two parts of their mandate, stable prices and full employment, right now the employment is the more sensitive issue. So what'll be fun to see is how this CME Fed watch tool December rate cut projections evolve over the next week because it was like an ice bath for markets today when the Fed chair Powell basically said yeah, we're not pre committed to cutting rates in December, so just hold your horses. We're getting a little bit ahead of ourselves because in case you hadn't noticed, the economy isn't exactly falling off a cliff right now. And I'm of the mindset right now after the research I did the past 24 hours that yeah, I think a hold is completely appropriate. Like I'm not seeing the signs of an overly restrictive monetary policy. Right now we have the unemployment rates which is failed to tick up in a material way yet employment has slowed down but with the lack of immigration and yada yada, I think, you know, neutral employment now is between 30 and 70,000. So I don't really see anything overly concerning in the long run. Sure, back to the comments on AI, that'll be a huge disruptor. But for the short term I don't see weakness on the labor side. That's all that concerning. And I see inflation ticking up. So for me it seems very much like a hold. Now I keep teasing this bank data over the last 24 hours we've had, gosh, close to 200 banks and other financial institutions report over the last two weeks. So what I wanted to do was go through the regional and community banks yesterday in middle of the morning last night and see what are we actually seeing from the data prints and importantly from the CEO, the cfo, the C suite comments. And what I saw was incredibly encouraging. I mean you're seeing banks that are trading at a discount relative to either their price earnings, multiple implied price or the discounted cash flow valuation. Banks have been beat up pretty well since the SVB failure in 2023, banking crisis. Some banks have recovered, but by and large we're still trading at a discount. They're beating strongly on average for revenue. You're seeing revenue growth range from 8 to 18% at these institutions on a year over year basis. And Lonnie, Importantly, when the CEOs and the CFOs and C suite folks were talking about loan demand and lending conditions, what they were talking about for CRE sounded incredibly bullish. Right. They're basically saying, hey, it's a food fight out there. Maybe not exactly a food fight, like peak of market food fight, but it's getting very difficult for us.
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Right.
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We're having to be more aggressive on terms, more aggressive on pricing. And the bottom line was expect some pressure on loan yields over the coming three to six months. Right. And just trying to softly guide expectations around net interest income and net interest margins. But to see that over and over and over again, that yeah, we're, we're having to fight to win deals and it's very, very active out there on the credit supply side is telling. I mean that says it all for what we should expect. So it's going to be fun to watch the bank loan growth in the CRE sector over the next three to six months and importantly the insights we're going to get from Toller, I think that's going to help give us some very much needed data support to understand what's working in the economy and what's looking a little bit dicey.
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Yeah, I mean this is a welcome news story for us. I mean we want to see the banks get back in the business of being active here. I mean they've been had pencils down or slowed the pace for some time. And there were a couple of quotes this week, one from Steven Schumer. We're starting to see the more traditional banks not going full bore by any means, but starting to come back with more opportunities than we were seeing. They're still being more selective and making sure the asset is a good asset and the sponsor is a good sponsor. But we're seeing that thawing very much compared to the last couple of years. Stephanie Wiggins from pjum across the agency lending community lenders are reporting healthy pipelines as owner operators. Buy into the optimism that has accompanied the week over week decrease in rates coupled with let's win deals mindsets. As at both Fannie and Freddie, this fourth quarter will require a marshaling of resources to get it all done as borrowers are ready to move forward and strike while the iron is hot. So you know, the optimism theme I think, you know, goes just beyond the banks. It's pretty much just CRE generally and I think it's, it's a good place to be. We, we finished last year on a pretty strong note as well. And then 2025 got off to a good start and then you had Liberation Day and things kind of paused for a short period. But you know, look, last year what at this time, and kind of heading into the fourth quarter we had about 100 basis point rate reduction from the Fed. I think everyone was pretty much looking at 2025 as being this catalyst for reigniting the markets. Now if you look at origination statistics, particularly in The CMBS market, 2025 is going to be, you know, near high watermark outside of the gfc, you know, pre GFC time period. But it seems like banks, there's, there's optimism like you're mentioning Stephen, and just the activity around M and A consolidation, other things, it's gotta make you feel pretty positive heading into, heading into 2026.
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Yeah it does. And so like when I step back and think, okay this, is this an environment where we should be cutting, holding or even increasing rates. I have a hard time getting on the cut train right now because when I see that sort of bullishness on credit where GDP sits in the economy. I think the Atlanta Fed GDP now forecast put GDP close to like, it was like 3.9, almost 4% and with inflation running, gosh close to 3%, I just, I don't see a cut as the prudent path forward. It's, it's an interesting two speed economy that we live in right now.
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Well, and I think it just, it speaks to this, you know, narrative filled world that we live in where you know, there's political pressure and there's all this stuff that like continue to stimulate the economy and we want to take things back to the moon versus maybe some of the more pure fundamental driven approach that you've highlighted. I mean all of those things to your point highlight that there's really no need to cut. You know, I will say there's still some, some parts of the market that feel a little squishy. I mean the residential market as we've talked about and highlighted still feel soft in a lot of markets. Powell did comment today that while inflation appears to be under control and is nearing their target range, if you're a consumer you're feeling the pressure of this, you know, cumulative inflation effect. And you know, I think that takes shape or form and some of the consumer confidence and some of these other surveys that we see. I mean, this October, consumer confidence fell again for the third straight month. So dim reviews about the outlook of the economy and labor market confidence remains stuck below levels seen last year as consumers fret about the labor market and cost of living. And then expectations for the job market weakened. There's a greater share of consumers expecting fewer available jobs in the next six months and their outlook on income prospects were less positive. So there is a little bit of a balancing here, but I'm with you. I mean from all indications it seems like the market has pivoted, continued its strength. I'm not sure where it's getting this endurance, but I think from a CRE perspective it's great and it's good we've talked about. We'll continue to discuss all of these new multifamily units being absorbed. You're going to start seeing rent growth in some of these markets that we haven't seen in the last two plus years. And with new entrants coming into the lending space going to make for a very competitive and very compelling, you know, finish to 25 and 2026 for sure.
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So let me, let me give you some interesting insights on the resi world. I'll start with commercial and then we'll pivot to residential. So I was talking to a loan broker today and I can't disclose any specific details here, but he was telling me about a deal that they just lost on and the pricing got really competitive. This was like a story loan. Think Siri clo multifamily deal. Debt service coverage was right at 1.0. I mean this was pure break even. They lost the deal because somebody else was willing to give them a loan without an interest carry reserve.
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I mean, I'm not laughing at that lender and their tolerance for risk. I'm laughing because it just, we're just, you know, it's amazing how bullish people get when they're bullish.
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I mean, absolutely, we, we have full conviction. Rates are dropping, rents are rising. Just, just believe me, you know, 75% loan to capitalized cost basis will be just fine on this thing.
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Well, you know, my dad has a saying sometimes he's like, if you don't believe me, just ask me again and I'll tell you the same thing. And it seems like in, in some parts of the market cycle that's what we continue to see play out is, you know, maybe this time it's different. Maybe this particular property there really is a strong business plan. And there's something there that makes this work, but that's the, that's the fear. I would say if you wanted to put a little bit of cold water on just the optimism. It's just we've, we've, we've highlighted this. But if you look at pricing, okay, outside of the office sector, we've not seen a reset in pricing across any of the other major asset class types and cre. I mean hotels are off the charts, industrial, off the charts, offices repriced, but even then you could probably argue not enough industrial. All of these, these property sectors continue to increase in price and if the market grows like we're expecting it to and rates continue to come down or stabilize, it's just an interesting dynamic of what you have to pay for every dollar of NOI today as compared to maybe even just 10 years ago.
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Yeah, I mean there's still deals to be found out there. The same broker was telling me about a foreclosure, a pre foreclosure deal that they were navigating and bottom line, they ended up getting it at like a mid to high 7% in place yield. Right. I mean in other words, the cap rate was, was mid to high. Sevens just absolutely fantastic deal for them. And all because of basically the pressure that had occurred from a lender refusing to do any more extended pretend. Right. They had already extended this deal out. This may have been a different deal, but.
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Right.
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The rate cap costs are still untenable for some of these deals. I mean we're talking on say a 20 to 30 million dollars loan, a rate cap that's going to cost you north of $1 million. And that's just. No, thank you, absolutely not. But yeah, we continue to see things grind tighter now. Speaking of tightness on the residential side, did you catch the S and P case Shiller 20 City Composite?
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I had to, I have not reviewed that. So I'm looking forward to you telling me about it.
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So last month the print was 1.8% year over year growth. It was projected to come in at 1.4. We got a solid one 6%. So again, these repeat sale indices are just coming in resiliently higher than where we think they should be going. And I mean I don't know what you're seeing in the DFW area, but I've been tracking some listings and price action on listings and I gotta say, like, I'm expecting things to turn negative here at some point in the next 18 months. Like the price capitulation. You're finally starting to see is real. Now maybe we don't actually hit negative territory, we just kind of plateau flatline and it doesn't get that ugly because again, repeat sale indices are positively biased. But yeah, I mean the repricing is finally starting to feel like, you know, people are, are capitulating and the question is, are the transactions, you know, ultimately occurring because the volume is anemic?
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Yeah, I think that's the, the catalyst or the Kickstarter here will be the layoffs. If we start seeing layoffs spread, spread at a more wide pace pace or a broader, you know, spectrum, then you're going to see the residential sales market really start to crater from a pricing perspective. I think what we're seeing now and you, you, you hit it on the head when you said it's anemic. Like we're just seeing the really good properties are still selling the, you know, nicely appointed, well kept, you know, good price properties are selling. Everything else is having to take price reductions. But you know, in residential real estate, if and when one or two of the, the income earners either get super nervous about losing their job or they do lose their job, you start seeing these things get, get pretty dicey pretty quick. So something we'll definitely be keeping an eye on. I mean the home builders have clearly felt the pressure. We've talked about that at some level too. It's, it's, it's grinding to a slow halt. But the market as you mentioned, I mean like there's these other forces that just keep things propped up. I just don't know for how much longer that can happen. And in residential it's a, it's a whole nother ballgame and prices got run up so quick and so far in a lot of these major markets that there's going to have to be a reset in pricing. Did you see one of the REIT announcements, another acquisition announcement? Plymouth Industrial REIT announced an agreement to be acquired by Mac Aurora for 2.1 billion. They said they entered into a definitive merger agreement and that they were going to acquire all outstanding shares of Plymouth common stock and outstanding limited partnership interest for $22 a share, all cash transaction valued at approximately 2.1 billion, which includes the assumption of certain outstanding debt, not to mention some of the bank stuff that we, that we saw with Huntington and Cadence as well.
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Yeah, I mean that was, that was absolutely fantastic to see. And ultimately, I mean we've been waiting for these sort of transactions to come across both, both on the REIT side and on the bank side. There's lots of room for consolidation and M and A activity like this is the market that is ripe for M and A. So I'm excited to see what we get on the next three to six months. Exactly how much more M and A activity we continue to see. Because that was another thing that popped out in the bank earnings to me was the comments about strategic M and A activity going forward. And I haven't gone through the REIT earnings to the same degree, but I suspect we'll see some comments on that front as well.
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When on the bank activity, Steven, do you. I think that's a signal of a, of a shift and just cycle. Right. And where we're at in the cycle, I mean what are your thoughts on that?
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Yeah, a hundred percent. I mean basically if you want to not just survive but thrive, you're going to have to go out there and find some acquisition targets and at the end of the day you're not going to be going up against the fortress, you know, JP Morgan, but you're basically trying to ensure your foothold over the medium and long term if you're a regional or community player. The fact of the matter is we have probably way more banking institutions than we really need. I do like having a strong amount of diversity because that I think encourages creativity and kind of open ups. The open. Keeps the number of channels open that we need in the capitalist economy that we have in the US But I fully expect to see a good bit more M and A activity. Cause I think. Yeah, I think I've already said it. There's just no need to have this many institutions. There really isn't and that sounds bad. Maybe I should reframe it.
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Right.
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The scale you're going to get by combining I think is the most important thing. The efficiencies, the gains that you're going to get through M and A is really important.
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That's the focal point, Steve, is like the efficiencies. It's not that you don't need all these institutions per se, but can you create some economy of scale? Can you create some efficiencies? Can you offer your more competitive products at a broader with within a broader scope by having some M and A activity and entering new markets, etc. Etc. I think that's, that's the takeaway here is that the market just needs to become more efficient and then it organically does through just the system that we have in place.
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Yeah. Let's turn our attention here to talk about an analysis that we just released this week that looks at the $4.8 trillion CRE debt universe. This was an interesting one for us because we've always analyzed the Fed flow of funds data but now we're bringing it in house and we're trying to paint the picture of all of the different lender types. Who's lending, where is debt, what's maturing? And in this new report we found that bank loan balances are rising modestly and life cos and securitized lenders are accelerating as well. So let's look at the whole, the whole universe of commercial real estate debt outstanding and walk through some of the findings for this report and then we can offer it to our listeners.
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C
Let me give you a couple of bullets here Steve, and then you can kind of give us some, some context on them, a couple of high level takeaways. I don't think this comes as a shock to anyone but of the 4.8 billion banks and thrifts make up the largest share. They currently hold about 1.83 trillion or about 38% of the entire market. GSEs set at about 1.08 trillion or 22.3% of the outstanding balance. Insurance companies currently at about 802 billion, 16.6 and then securitized debt just under under the insurance companies at 707 billion or 14.6% of the total. And there were some pretty interesting takeaways in terms of just year over year comparisons and where some of the growth is coming from.
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A
So yeah, let me first talk about what we've done here because we've revised the methodology relative to what we had done in the past with our CRE debt and maturity forecasts. So what we've done here is we've leveraged all of the in house data we have at trap. So a lot of folks, I would say, you know, many folks have known us primarily for our CMBS and securitized real estate data. Right? That's trup's bread and butter. But we also have a data consortium for life insurance and banks. So we have loan level look through to really a majority of debt sources in the US Banks, life insurance companies and CMBS or securitized sources are the three dominant sources of funding. So what we've done here is taken the loan level maturity schedules that we have for banks and life insurance companies and then for CMBS and securitized, well we have full transparency on that market. So there is no estimation. But for banks and life insurance companies we've taken the cross section of data that we have in those areas and Basically projected it top down on all debt outstanding. That data that comes from the Federal Reserve Z1 report. So essentially what we've been able to generate is a maturity forecast based off of the balance sheet structures of data that we have at Trep. And ultimately, I would say just for my two cents, I reviewed the methodology when we were looking at changing from the prior method to the new method and honestly it made a lot of sense. We were having to make structural assumptions under our prior methodology and this new approach is taking basically known empirical maturity distributions and projecting them down. And the result was, I think, very much intuitive. For me there were some material changes, but again it was very much more in line with what I think is occurring in markets than what the structural assumptions we had made in years past. Because markets evolve, markets change. We've certainly seen a stronger preference for shorter term debt over the past five to seven years. And so this new methodology is taking that into account now in terms of the year over year growth by lender types. I mean, gosh, you both have said it like insurance companies have really been pushing hard. It appears that their allocations to CRE debt have increased in a noteworthy way. And certainly from what I've been seeing in the earnings release commentary, this I think helps pull this full circle that the competition out there for CRE debt from private debt funds, from insurance companies and securitized lenders, it's been ravenous. And so banks are really struggling to keep up. But I think each debt source has very specific targets that they're trying to hit in terms of the loan structure and underwriting criteria. So there's, there's room for all. And right now it's just a matter of how much tighter can spreads go. I mean they've tightened dramatically, but from what I see there's still potential for them to run a bit tighter from here. So this is a bit ad hoc, off the cuff, but my guess is that we could see spreads grind tighter by another 15 to 30 basis points over the next six months if macro conditions continue to be conducive.
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C
Yeah, and I think if that happens, this issuance boom continues. I mean like you're going to continue to see an appetite and we're going to talk about, on our Market Pulse webinar this week just some of that phenomenon with what the downstream implications are these tightening spread environment and what, what it means for deals. And so I like how you frame that like the market is dynamic and has shifted, Stephen. And so some of our methodologies have shifted as well. And if you haven't got a copy of this report yet. You can always request it. Just email us@podcastrep.com or you can download the report from our website. I think people, you know, have, have historically relied on this data to give them some insights into the broader universe. And I feel even more excited about some of the new things that we've done to enhance this to make it more reflective of kind of where the current lending environment is given, given the current status.
- [31:25]
A
Yeah. And I think one of the sections of this report that the readers will really appreciate is the maturity distribution schedule, which that makes it incredibly clear what we're seeing on balance sheet composition for loan structures. That's a very, very useful table, very informative. So be curious to hear what our audience thinks, how they're receptive to it. But yeah, this was a really great job by Andy and Rachel.
- [31:52]
C
Yeah. To that point, Stephen, on the maturities, just toss this out there and we'll move on to our deal segment. But banks have about 600 billion 598 billion maturing through 2026. So if you go back to what we said earlier, their total exposure, that's about 33% of their total outstanding balance. So it'll be a very interesting, you know, active time for them in the market. Notwithstanding everything else that we've discussed on.
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B
The POD today, the premier event for commercial real estate finance professionals is back with CRE Finance Council's CREF C Miami 2026 conference. From January 11th through 14th, 2026 join top industry minds for a multi day experience filled with expert led sessions, high impact networking and keynotes you won't want to miss. Attendees will gain unique market insights, unmatched networking opportunities and a perspective into the future of the industry. Visit crefc.org to register today. So before we get to the deals and the property type news segment, Lonnie, we do have some breaking news. If you are a TREP client, you would have seen an alert in your inbox today about our October 2025 delinquency rate. And we found that the TREP CMBS delinquency rate was back on the rise again in October 2025 with the rate jumping 23 basis points to 7.4%. Some of the major takeaways here is in multifamily which rose 53 basis points to 7.12% and topped the 7% mark for the first time in nearly 10 years. So we have a lot of findings in here across all the major property types. You can check out some of the newly delinquent balances and see really the insights on how this has trended historically. If you're a client, you would have gotten that in your inbox like I mentioned. Or reach out to us@podcastrep.com and we can share the full report with you.
- [33:47]
C
Well, questions for you on this, Stephen. I know we're going to spend a lot of time on this on this episode, but that multifamily rate is getting to a level of concern at some level now for those that are new listeners, or maybe you haven't heard us talk about this. What we're talking about when we mentioned the multifamily delinquency right here is strictly just the CMBS portion of the market. It does not include Fannie and Freddie or any of the agency debt, which is considerably less. But are we seeing some of these 2021ish vintage 2020 vintage, you know, starting to play their way out here where they paid incredibly low cap rates for these Class C vintage properties? The value add plan or even just maintenance plan of rent growth and expected ability to manage expenses have not gone to plan. And so you're just seeing an influx of that vintage play itself out here. Or is this something more systemic?
- [34:38]
A
Yeah, this is something that I'll have to be digging in more to over the next week. But I'll say just on some stories that I've been following that I've seen, I mean, shoot, this week in the rundown on Monday we had a story about a 2 year old Texas apartment loan that's defaulted. And so the short answer to your question is yes, I think we are starting to see some of that peak underwriting begin to show cracks and falter. But since you highlighted it, I mean that is an important distinction we need to make here. This is the private label CMBS multifamily delinquency rate. It is not the Freddie Mac Fannie Mae stuff, which is really the lion's share of securitized multifamily debt out there. And if you look at the Fannie and Freddie multifamily delinquency rates, it's substantially lower. It doesn't give us the same level of a concern. So the tendency to have the multifamily delinquency rate pushed around massively up or down just due to one or a handful of large deals, it's probably exacerbated more so than what you see in other property types.
- [35:43]
B
Yeah, why don't we stick on that subject then, Steven, let's talk about this two year old loan on the Texas apartments that defaulted.
- [35:50]
C
An interesting deal, Stephen. The mews that located at 3035 West Pentagon Parkway in Oak Cliff area of Dallas and Eden Point, 1307 Willcrest Drive in Houston's Briar Forest neighborhood, constructed in 1969 and 72 respectively. You know, typically classified as workforce housing properties. Monthly rents at origination a couple years ago averaged almost $1,200 for the Muse and 1296amonth for Edenpoint. So monthly rents two years ago when the loan was originated averaged $1,194 a month for the Mews and $1,296 a month for Eden Point. In contrast, the average monthly rent for the area around the mews was around $1,351 per unit. According to Matthews, the area surrounding the Eden point property was 1361. Average rental amount per month. You know, they both benefited from a Texas tax abatement program which requires a certain number of units to be set aside as affordable. Given the age and the more recent renovations, they could be in need of work. Loan servicer notes indicate possible life safety issues at that Eden Point property. So if you look at some of the details behind this, some of the financial part, the loan became 30 days delinquent for the first time in October. Its status had toggled between current and less than one month for most. The year doesn't mature until 2020 33. So you know, Steven, this, this property from the financial perspective, 2024 loan posted DSCR at 1.39x but the loan was recently transferred to special servicing due to appointment of receiver tied to the, the safety issue at the Muse that we talked about earlier.
- [37:27]
A
All right, so Lonnie, this one's, this one's a funny one because as you, you noted, the, the financials don't look like the same level of distress that you'd expect for a loan that's in this situation. In other words, if that 1.3 times 3, 9 times debt service coverage is correct, what's the problem here? But I think this is a bit of a reporting anomaly. So this is a 2023 securitization vintage that spanned into 2024. So in other words, the financials that we're looking at in one part are the underwritten and then the actual financials are still catching up. So when we look at the servicer watch list commentary, we see that the 2024 financials did start to falter and a cash trap was triggered because the DSCR had fallen below the 1.15 times threshold. The actual DSCR back in 2024 and early 2025 actually dropped to as low as 0.71 times and I think was clawing its way back up to 1.0 times. So there was some cash flow stress that wasn't projected at securitization that obviously hit this, these two properties and this loan very, very hard. And so I'll be interested to watch this one closely going forward as we continue to get more data and more updates on it. I pulled up some additional data we had on this one and this is one of the first things, just some, some insider baseball and insight into my process. One of the things that I like to look at when you see a head scratcher like this, an early term default is I like to go immediately to the sources and uses of funds and see is this an acquisition, Is this a refinance? Is this a cash out refi? So we see the $81.61 million in loan proceeds and then under the uses we have a loan payoff of 60.4 million, closing costs of 10 million, get funded return of equity of 7.99 million and then funding upfront reserves of 3.1. Three point. Yeah, a little over 3.1 million. So Lonnie, help me out here. What's the problem? When we see on the uses side, return of equity close to $8 million.
- [39:42]
C
I mean this is a tale as old as time. We see this, we've seen this with office, we've seen this with retail, some of the large legacy malls. And it seems like now we're seeing this with some of the multifamily where you just buy it, cash out, refi, lever up and hope for the best. And I think this is an example where sometimes those things go south and you know that disbursement of funds in the form of a return of equity on a refi property doesn't perform at the new debt level.
- [40:12]
A
Yeah. For an asset class like multifamily, if I was running a multifamily only default model, if I had the data and could do it, I'm just speaking openly, not, not in a truck capacity. This is my academic hat here, my academic researcher. If I'm trying to specify a default model for multifamily, one of the variables that I'm going to try as hard as I can to get is sources and uses of funds. Right. Loan purpose. And what's fortunate for us at TRUP is we have that variable.
- [40:39]
C
Yeah, it's always it's an interesting exercise when you go through some of the loan docs and you see how the sources and uses laid out. I mean, obviously you have future funding commitments TI sometimes you have, you have a lot of different uses for those funds and it almost tells the story before you actually execute the deal. There's definitely some risk premium built into some of these just based on the way they structure that. And so this is like you mentioned, we'll be keeping an eye on this. You'll be seeing this in Tripwire as it continues to progress or revert back into normal operations. But I think, as you mentioned, Stephen, you'll be spending some time over the next couple of weeks looking at some of this vintage multifamily or excuse me, multifamily by vintage to see if we're starting to see some of those cracks show themselves.
- [41:29]
B
So let's stick on the apartment theme. We've seen a lot of transactions that we covered in our newsletters this week. Let's start with an apartment sale in Palm Beach Gardens, Florida where we saw a TA Realty affiliate buying and apartment complex for $193 million.
- [41:48]
A
Yes, an affiliate of TA Realty has bought the San Marino at Mirasol Apartments, a 476 unit property in Palm Beach Gardens, Florida for 193 million or just over 400, 405,000 per unit. The Boston company purchased the complex from Livecore, a Chicago based affiliate of Blackstone, which had bought it in 2017 for 103 million. So a really, really nice gain or the past eight years on that property. TA assumed the property's 108.55 million of Freddie Mac debt with a coupon of 5.08% that doesn't mature until 2033. San Marino at Marisol was built in 2005 on 30 acres at 99 Portofino Drive, about 50 miles north of West Palm Beach. The property was 96% occupied and generated 9.26 million of NOI during the 12 months through June. That would give TA's purchase price a capitalization rate of 4.8%. The complex has a mix of one, two and three bedroom units with monthly rents between 2,149 and 5,657 per month, according to apartmentratings.com Next up we have a Mesero fund has bought an Atlanta area apartment complex for 87 million. This works out to just under 291,000 per unit for the 299 units. 1105 Town Brookhaven Apartments in the Atlanta Suburb of Brookhaven. The investment vehicle, Mesereau Financial real estate value fund 5 purchased the property from Wafra of New York. The property at 1105 Town Boulevard was completed in 2014 and serves as collateral for a $57.2 million Freddie Mac loan that pays a floating rate pegged the SOFR plus 200 basis points. That loan is set to mature in 2032. The 1105 Town Brookhaven complex was 95% occupied and generated 4 spot 74 million of NOI through the 12 months ending in June, giving Mesereau's purchase price a 5.45% capitalization rate.
- [43:53]
C
I think the takeaway on both those stories, Steven, is just how sticky the cap rates have been in multifamily. I mean, we've seen some of the other asset classes see some, you know, quantifiable expansion of cap rates, and in multi family, for the most part, it's been pretty sticky. I mean, you know, maybe you could argue the one here in Georgia at 5.4 or 5% is, is significantly higher than we saw during the peak, but still on a historical basis, very aggressive cap rate for, you know, a property that's sitting at 95% occupancy. So yeah, you can cut that part out.
- [44:28]
A
Well, I mean, when you look at the gains, the asset value gains that are being harvested on holds between four to 10 years, I mean, it's eye watering. I mean, that's the name of the game in real estate so many times is it's not necessarily all about in place yield, it's banking on the exit.
- [44:48]
C
Yeah, but that's the part that I get a little bit nervous about is like when we're talking about a run of the mill, you know, Brookhaven, Georgia apartment complex, Atlanta suburb, trading at almost 300,000 a unit. Yeah, I mean, that's the part where I was asking earlier, like we've not seen any price capitulation broadly outside of office. And like we said, I mean, you're paying, you're just paying more for every dollar of noi. I mean, at some point, you know, in this instance, the rents have probably grown and so they've been able to make it work. And so there's been realized appreciation in the asset value as evidenced by the sale here. But I mean, are we going to enter into a market in the next two or three years where Suburban Atlanta Multifamily is trading for 350, $400,000 a unit?
- [45:34]
A
I'm with you. I don't see the trajectory as sustainable absent some broader Economic support. I mean gosh, it pains me to think what the entry level income has to be to be independent, self sustained as an undergrad coming out of college right now, I mean you look at the apartment costs at so many places and maybe I'm showing my age here and it's really not all that different than when you and I came out of undergrad. But it feels like the price point is choking the budget a lot harder on the younger cohort, the early, early twenties.
- [46:15]
C
Yeah, it's, I mean it's considerably different. I mean like we in our day, back in our day Steven, when we walked uphill both ways through the snow to college and we actually had to register for classes using a telephone system and there was no such thing as the Internet back in those days. You know, you were not seeing apartment units at $290,000 trading at $290,000 a year. I mean super high end. Maybe outside of San Diego, San Francisco, New York, you might have seen some 2 to $300,000 per unit prices. But suburban garden low rise type of multifamily assets were trading in the 75 to 125 range. Those were aggressive prices. I mean this is some multiple of that and it's, I'm all for it. Like listen, let's, let's pump it up, let's keep it moving. Let's, let's, let's keep the liquidity and let's keep the, keep the market going. And it, you know, I guess this is, we're just seeing it play out real time of this is our get off my lawn moment in a real estate context of suburban Atlanta multifamily garden low rise, 300k a unit just is what it is. It's 5 and a half cap, 300k a unit on Freddie Mac financing. Okay, that's just the market now. I just showing my age to our listeners. I mean it just, this does the math, doesn't math here. But there's too many of these transactions. There's too many. It's not just limited to the major markets. I mean we're seeing it across the U.S. it's, it's just a dynamic that I think we will see itself play out. Either it will crash and burn at some point and the entire thing is going to come crashing down or there'll be assistance or programs or things that just kind of keep the, keep the train going down the track.
- [47:48]
A
That's right. And in the meantime we'll get to keep making comments like I remember the day when industrial traded at 45 to $65 a square foot, that's what it was.
- [47:58]
C
I mean, you're looking at warehouse space. Like, if you're talking about just typical run of the mill industrial, big box, 60 bucks a square foot. Anything above. I mean, if you got close to triple digits, you had some California buyer that was just going to be a remote owner and didn't know what they were doing. And just trying to place capital on a real estate investment. Now we can't buy anything. I mean, it's just. I love it, I love it for the owners. Let's do it. But it's, it's an interesting construct. I mean, at some point we might need to do just some broad analysis. Let's, let's pick three or four markets. Let's go back 10 years and let's see, you know, let's, let's play a game, you know, guess that price. Maybe Haley can quiz us on what we think prices were 10 years ago for some of these things on a per foot or per unit basis compared to what they are now. I think people will be shocked.
- [48:41]
A
I like it and we have a.
- [48:43]
B
Lot more to cover. But I want us to close here with two of our office trading alerts that we sent around this week. I'll start with the first one here where a Silicon Valley office portfolio received a value reduction.
- [48:57]
A
Yes. According to our October data, the collateral behind the 120 million Zappatini portfolio was recently reappraised at a reduction of nearly 25%. This was the asset's first appraisal reduction following its value at securitization of $187.4 million in 2019. So this most recent appraisal put the value at the property down at $144 million. We mentioned this loan in July 2024 in Trupwire when it transferred to Special Servicing for balloon payment, maturity default following a stint and foreclosure. The loan status flipped to REO in October after a foreclosure sale was conducted. Per special servicing commentary, the loan collateral includes 10 Flex Office R&D properties in Mountain View, California within the San Jose Santa Clara Sunnyvale MSA. The collateral properties were all built in the 1960s and 1970s except for one property that was built in 1990. The oldest of the cohort was renovated in 2017. The 30,000 square foot property at 1350 West Middlefield collateralizes the largest portion of the loan with an allocated balance of 14%. During the full year, 2024, the loan posted a DSCR based on net cash flow of one spot 32 times the second trading alert we have here is for a Seattle urban office loan that has entered special servicing. According to our October data, the $101 million Hill 7 office loan transferred to special servicing due to imminent monetary default. The loan has not been delinquent during its loan life. Special Service or Commentary reports that a significant tenant HBO vacated at their lease expiration in May 2025 resulting in reported insufficient cash flow and cash needs to re tenant the property. The loan collateral is an urban office property in Seattle that spans just over 285,000 square feet in total. The property was built in 2016 and we don't have any renovation data on file. The top tenant is Redfin, with 40% of square footage on a lease that runs through July 2027. HPO occupied about 40% of the space across two leases prior to their vacating the property. The collateral's appraised value at securitization in 2016 was 202 million. Over the first half of 2025, the loan's DSCR based on net cash flow was 2.98 times with occupancy at 94%.
- [51:20]
B
All right, so let's turn to programming notes. I want to start here by saying that our team will be in Louisville, Kentucky next week. Or if you're listening to this on Monday or the week of November 3rd, we will be in Kentucky at the SIOR Conference. We know a lot of you guys that are in SAOR or our saors listen to our podcast. So if you're going to be there, send A note to podcastrep.com we'd love to book time with you. We have some exclusive offerings for the attendees at this event. We have a CRE Market Dashboard that digs into office and industrial data. You could look at it at the state level. You can get granular. And if you're an attendee at this event, we will be giving you exclusive, exclusive access. So reach out to us. We'd love to book time with you there. We'll have members of our TREP team at a booth. We will have our very own Head of Lending and CRE product Sumit Grover speaking on a panel. So go check out his session and if you won't be there and you're just interested in seeing some of our data or learning about what we're giving away, send us an email and we will talk to you and see what else we can provide. We are still accepting applications for the future CRE Leaders program. If you are a December 2025 graduate, you could be named a TREP Future CRE Leader and join a cohort of really outstanding individuals who studied CRE or studied something adjacent to CRE and are looking to join the commercial real estate or structured finance industry and really want to make an impact. So pass this message along. If you know anyone that is graduating from any level of degree in December 2025, we'd love to have them submit a an application and we could award them a TRAP future later. Coming up on Wednesday, November 5th at 2:00pm Eastern, we are hosting another webinar about whole loan valuation. This one is specifically designed for banks where we will explore best practices in portfolio valuation, credit risk analytics and regulatory alignment to ensure, ensure, accurate and defensible whole loan valuations. So you can join our Head of Research Andy Boettcher and Director of lending solutions Ian McCready and our lending VP Robbie Holdich on this exclusive webinar. We'd love to have you join. You can get a demo of the TREP Loan valuation system and Turning to shout outs we heard from our friend and loyal listener in Japan this week, Soichiro AI. He let our colleague Keith know that he has been listening to the podcast since show started and has not missed an episode. He gave us each a shout out and enjoys our insights and said even though he listens from the Far east, he really enjoys tuning in every week. So we always appreciate hearing from you and it's so cool to see. Maybe you can give us some insights on into what's happening in the Japanese commercial real estate market. Our friend Heather B. Reached out and we are going to reconnect about getting Trep into her classroom and finding ways to work together. So it's so great to see what you're doing to educate and get students in commercial real estate even further involved in the industry. Heather so thanks again for reaching out. Our friend Topher S, who we may call the king of AI, had a very special LinkedIn post where he said that where he said that he and Lonnie and several other people took part in a pretty special podcast. This was actually your on stage panel at the at the Counselors of Real Estate Conference and they recorded it and turned it into a podcast. So he gave us a shout out just for being invited to be on the stage with you, Lonnie and take part. And I know we feel the same way to take part in a panel with him and all of the other experts on there. So if you're interested in hearing this AI and real estate panel that Lonnie took part in. Send us an email. We have the link to that and we can share it with you. Tony W. On LinkedIn shared our latest CRE Mortgage Universe report. Julie P. Wanted to see our maturity data for loans in Florida. So we are going to get you set up with our teams and maybe working on some custom reports and dashboards that we'll build for you. We spoke with our friend Dante AKA Strip Mall Guy this week. He's always great to connect with and it's so cool to see what he's doing and working on. I think just this week he was speaking to students at Cornell University about what it takes to work in this crazy world of commercial real estate. So always great to talk to you, Don. Another friend we got to catch up with this week was Faraz C. He introduced us to some of his BKREA team members and he's excited to see our TREP teams at the SIOR conference next week. Dan B. Also said he's excited to meet our team at S. Rachel W. Was reaching out to learn more about our Market Pulse webinars and make sure she's signed up. Spencer S. Was also interested in our Market Pulse webinar and our Future Leaders program. And then we have a very cool shout out here to the team at WeWork who we have talked about on so many podcast episodes. I think we joke that we're always mentioning WeWork, but they have had some really exciting changes at the firm. They have a CEO, John Santora, who's really taken over and brought new life and strategy and operations to the firm. So we are actually going to be interviewing John Santora on an upcoming guest episode. So thank you to Tiago V and the team at WeWork for coordinating this with us. We're so excited to get John on and really hear from the backbone behind We Work, where they're going and what the future holds for them.
- [57:03]
C
Yeah, it's been exciting, Haley, to see the transformation from a leadership perspective at We Work and we'll we'll try to dig in and get some insights from John on just kind of how and what and why and where they are today and where they see themselves going. So this will be a really great guest episode. You know, we've had some of our relationship managers down in the Dallas office this week. We've had multiple client meetings, lunches, other things. I mean, there's been some real momentum over the last month or so. It's been great just interacting with our listeners, our clients, our users, our prospective users. It's really great to see and it's amazing having people come down from New York to Dallas. They love the, the warmer weather here and the good Mexican food. We've gotten a lot of great comments on our great lunches here in the Dallas metro. Have a nice dinner plan tonight with one of our, our users and podcast listener and friend of the firm that we got to to meet in our TripConnect event last, last May in New York. And so looking forward to that and let's keep the momentum and we've had some really great shows the last couple of weeks. I've had several people text and say they're digging the, the vibe and really positive feedback for Stephen on the intro last week and kind of where we're at. So hope you guys are enjoying what we're putting out. We still enjoy bringing it to you and we might have some exciting stuff coming. You know, we call that a tease, I guess, but more to come on that in the coming weeks.
- [58:23]
B
I can't close while recording on Halloween week without asking you guys, are you dressing up as anything?
- [58:29]
C
Okay, so I'm not really a dresser upper on the Halloween holiday. My kids are kind of aged out of that. Although it seems like the last couple of years when they said they weren't going to do any trick or treating. Like the day of they jump on the trailer in the neighborhood and they like ride around with their friends and go get candy without a costume on. I will say if I'm forced to throw something on, I have this old referee shirt, like an NBA ref shirt. Sometimes I'll throw that bad boy on with a whistle and a clipboard, make it look like I'm doing something. But yeah, I'm not really one of those guys that goes all in on the, on the Halloween stuff.
- [59:01]
A
You know, I might throw something on. I, I guess if I really wanted to be like the, the podcast cheese here, I could, I don't know, put a dollar sign on my chest and carry around a balloon. And what would I be, Lonnie? That scary balloon payments.
- [59:16]
C
Oh.
- [59:16]
A
Oh my gosh. All right, that's terrible.
- [59:20]
C
And with that, we'll close.
- [59:22]
B
Thanks to our producers, Carly Santo and Mariana Sagrana. 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 listening and stay well.
- [59:40]
C
All right.