← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
364. Reading the Commercial Real Estate Room: Office Bifurcation, Retail Divergence, & SASB Reality Checks
01:04:22
Loading summary
Transcript57 lines
- [00:22]
A
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 November 21, 2025. I'm Hayley Keene 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, markets are shifting their focus back to the Fed. With government data still out of sync after the shutdown, this week's release of the October FOMC minutes gave us a clearer look, if not clearer answers. The minutes showed a Fed that's increasingly divided, especially around the December meeting. Many officials don't think another cut is needed this year, while several said they could still support one, and a few even argued for more aggressive moves. Powell echoed that uncertainty in his press conference, saying a December cut is not a foregone conclusion. With markets now pricing in a much lower chance of a move next month, and policymakers still debating whether slowing labor or stubborn inflation is the bigger risk, investors are relying heavily on Fed commentary to understand where policy is heading as we close out the year. On today's show, we'll also dig into a topic that's getting optimism in office lending and how the narrative really depends on who you're listening to. Market chatter and headlines can paint very different pictures right now, and relying on a single data point can completely change your view of what's actually happening. We'll break down competing storylines, what the data shows, and why the office conversation has become so fragmented. And finally, we'll dig into some major trap trading alerts from this week. So Stephen, as we like to make you do for our listeners, help us make sense of the macro given the Fed split and the range of outcomes, and then tie this all back to risk in commercial real estate as we head into 2026.
- [02:20]
B
Absolutely, my pleasure. So I'll start with breaking down the macro picture and then shift into how that translates into CRE risk going into 2026. On the macro side, a divided Fed basically tells you we're not in a clean one way narrative anymore. We're in a higher for longer but maybe not that much longer regime that uncertainty widens the distribution of outcomes. So if you're an owner or a lender, you can't underwrite to one neat rate path and call it a day. You have to be honest about both tail stickier inflation and higher for longer on one side and a growth scare or labor market weakness on the other, where that really Matters is in Office and the 2026 maturity story. The risk is in treating office optimism as a single thing. The reality is the genuine opportunity is in high quality, well located assets with leasing momentum where you can refinance or recap at a new defensible basis. There's still a lot of structural risk in commodity, B, C space, older product and markets where demand is shrinking faster than capital costs are falling outside of office. I'd frame 2026 as a stock picker's market for properties and loans multifamily and industrial no longer look like can't miss anymore. You have to ask what's my true mark to market dscr? What does my rollover look like and how resilient is this capital stack if the Fed doesn't deliver the cuts that the market is hoping for or if my assumed stabilized occupancy and or rental rates fall short because the AI bubble deflates or worse pops. So the thing I'd keep front and center is this. Don't anchor on a single headline or a single Fed sound bite going into 2026. The risk is an ignoring dispersion. The opportunity is in doing the granular work asset by asset, market by market and capital stack by capital stack. And that is what we at TRUP love to do. We love to support investors with all of the data analytics and technology we can to help you fight through the noise.
- [04:29]
C
That was a great product plug, great company plug and a great response to Haley's question. The lead in every week. You're doing a great job Stephen and I like the way that you frame this as kind of a two part problem. The macro backdrop is definitely messy. I think the Fed split isn't just about rates. I think it's at this point about confidence and it's probably a lack of confidence at some level in the data that they have available to them. You know what I think is becoming more and more clear is that they can't agree on the next move. And that tells you inherently that there's no clear signal for them to anchor to. I think for the CRE folks this just means that the volatility that we've seen is not going away anytime soon. And I like that you're talking a little bit about the granular kind of blocking and tackling of the crew, you know, property by property, block by block type of narrative. Because that's where guess what? Money's actually made in the market. I mean we are in commercial real estate, are in a very much building by building, property by property Market by market type of business. The headlines are great directionally. They don't really give you an indication of how successful a particular buying opportunity or operator's ability to drive rents is going to be. So I think it's fair that we're kind of in this conundrum now of where we thought maybe there was a path to certainty with the government shutdown, with the labor market, with these things now being introduced. That path is a lot less clear at this point. And we've talked about this pretty much the entire year here. It's just the bifurcation of the office market. And that gap is not shrinking. I think the gap is probably widening at some level where, you know, the really high end, well amenitized class A stuff is not just doing better, it's doing incredible. And that's where the optimism comes. And I think the fear for some is just that that optimism is a little bit misguided because people think that maybe applies broadly to office on the whole, when in reality it's a very small subset now, not small in the sense that these are really large properties with really large loan balances and you know, trophy assets as you call them, but there's still a whole lot of that B and C stuff that's just sitting out there. And I think at some level, you know, this is a question for you, Stephen. How far post pandemic do we get before these BNC offices that haven't either been repositioned, repurposed, refinanced? Like when do people kind of say these buildings are just not viable?
- [07:03]
B
It's. It takes some sort of trigger event usually. So it takes either say a lease termination and a large drawdown in occupancy, and it takes a loan maturity or some other trigger event.
- [07:15]
C
Right?
- [07:16]
B
That's at least usually what we see. So honestly, the range of timing, it could be anything from five to 10 years, I think is fairly reasonable. I'm glad we're doing this office discussion this week. I spent an inordinate amount of time yesterday looking through every major CMBS SASB office deal, office in mixed use that had a really unfortunate amount of interest shortfalls that ate up to the originally rated AAA stack. And I did a deep dive on the 10 SASB deals with the largest interest shortfalls. This is a little teaser for our Year End magazine that we do with Siri Direct. Part of this analysis is going to end up in that Year End magazine. So more to come on that front. But what I saw when I was digging through every single one of These assets at a very, very granular level. I just kind of went cross eyed and sat back in my chair and just thought to myself, I don't see the light at the end of the tunnel for some of these assets. So for example, Peachtree center in Atlanta, as much as I want that asset to succeed somehow in some way, shape or form, that office, that office and retail mixed use development in Atlanta has failed in cmbs. Was it two or three times now? And wow, I mean that is a challenging asset. Seven, eight ground leases to deal with. So anyway, I don't want to get too off track or too in the weeds here, but yeah, I mean, to your question, Lonnie, how long does it take to work through this backlog of B C commodity office space? 5, 10, hopefully not more than 12 years, but it's going to take us a while. On the rate front. Have you looked at the rate cut probabilities from the CME Fed watch tool?
- [09:01]
C
Oh, it's plummeted.
- [09:02]
B
I mean, I think it's amazing.
- [09:03]
C
Yeah, they the reaction was pretty swift and pretty significant in the sense that probability of a rate cut in December is significantly lower than it's been over the last month.
- [09:16]
B
The probability of the Fed holding at their current range of 375 to 400 basis points. One month ago, 0% probability of a hold. By and large, the market was expecting a 25 basis point cut. One week ago it was a 37% probability of a hold, about a 63% probability of a 25 basis point cut. One day ago it was a 50, 50 coin flip. Now we're sitting at about a 2/3 probability of a hold and 1/3 probability of a 25 basis point cut. Absolutely monumental shift. So the data fog combined with the stickiness that we've seen in the labor market, the failure to really see more material weakness. We've had some weakness creep up, but I wouldn't say it's been material enough to really motivate the Fed speakers to change their tone. And then absolutely, the stickier inflation. I mean, gosh, what more evidence do we need than the rollback of tariffs for a lot of grocery aisle goods? That's a pretty big change and tells you just how worried on the political side of things we are about the cost of everyday goods impacting midterm election results.
- [10:28]
C
I mean, I don't think that's getting enough talk track. I mean with the new administration coming in and the shutdown and like all these other things that are stealing the headlines, you know, we did a Deep dive a few months ago, just kind of highlighting how much more it costs people just to survive. And for whatever reason, I know that's not a sexy talk track that doesn't get people elected and it's, it's not something that people want to spend a bunch of time talking about. But I don't know about you or Haley, but just look at the price of everything. I mean, it doesn't matter anymore. Like, okay, you know, haha, funny, the egg prices have come down. Like there's some stuff that was like really outlandish that have kind of come back. But on the whole you can't go to a restaurant, you can't go to the grocery store without spending some multiple more than what you did a couple years ago. And it's. I don't see there's an end in sight for that. I mean, like I don't. You have the crazy construction, you know, run up, you had lumber that kind of ran up. But like just for everyday living expenses, everything is significantly more with no end in sight. Yeah.
- [11:30]
B
What I worry is that we're going to have, you know, a head fake or a haha gotcha moment with threading the inflation needle that we thought, okay, well we're, we're threading that needle. We're good for a soft landing. We'll be able to gradually reduce rates and everything will kind of normalize. And like you're saying, Lonnie, the normalization and prices is taking so long that it's not like we're inflating wages and growing ourself out of this problem. The pain that's being felt on this K shaped consumer on the lower side of this K is very, very painful. And if you've seen the tick up in foreclosure numbers and delinquency rates, I mean you look across the spectrum of consumer performance data on the credit side, we're not talking 2008 levels or anything, but there's real pain that's materializing in the data. And once this kind of creeps up a little bit more in the socioeconomic spectrum, we can have a vicious cycle here. And all it takes is a couple of layoffs that are more directly related to reduced consumption to trigger that negative reinforcing cycle.
- [12:33]
C
So maybe give us a breakdown of some of these retail earnings because I think we're maybe starting to see a few cracks emerge here where consumers are starting to pull back some. It's not an all or nothing. There's definitely some positive news in the market on the retail side. But I know there are some of the retailers that have happened to revise downward their guidance on a go forward basis.
- [12:55]
B
Yeah so I love this week's earnings because we have some really good head to head earnings comparisons. The four main ones I want to call out are Home Depot versus Lowe's and then Target versus TJ Maxx. So first up, let's do the home improvement side, Home Depot vs Lowe's Home Depot reported Q3 sales of 41.4 billion, up 2.8% year over year, but earnings per share came in at $3.74, missing estimates. Comparable sales barely moved up 0.2% overall and 0.1% in the U.S. the company cut its full year profit outlook citing weakness and housing turnover, fewer storms and consumer uncertainty. Big ticket discretionary projects are slowing and operating margins dipped to 12.9% from 13.5% last year. Contrast that with lows. Sales hit 20.8 billion, up 3% and adjusted earnings per share was $3.06, beating expectations. Comparable sales rose 0.4%, driven by strong online growth that was plus 11% and gains in the pro segment. Lowe's also closed its $8.8 billion acquisition of foundation building materials, signaling a deeper push into contractor channels. While Lowe's raised its full year sales outlook to $86 billion, it did warn that earnings will land near the low end of guidance amid macro unce. The key takeaway here is that both chains are navigating a sluggish housing market, but Lowe's appears to be better positioned with its Pro Focus strategy and the acquisitions it's made recently. For retail real estate, we expect continued investments in omnichannel capabilities and contractor services rather than major store expansion. Now let's move to Discount Retail Target vs. TJ Maxx Target posted $25.3 billion in third quarter sales, down 1.5% year over year with adjusted EPS of $1.78, slightly above EST but well below last year. Comparable sales fell 2.7% and management cut full year profit guidance to $7 to $8 per share. The company flagged an affordability crunch and expects a weak holiday season. Target plans a 25% increase in capital spending next year to refresh stores and improve digital capabilities, but near term traffic remains soft. TJ Maxx, on the other hand, delivered a strong quarter sales of $15.1 billion, up 7% and and earnings per share of $1.28, beating expectations. Comparable sales jumped 5% and pre tax margins improved to 12.7%. TJ Maxx raised its full year outlook setting robust demand for off price apparel and home goods. Its treasure hunt model continues to resonate with value conscious shoppers. And inventory levels are healthy heading into the holidays. So really what it looks like to me is the Target love has really moved to TJ Maxx Treasure Hunt. So the CRE takeaway off price retail is thriving as consumers trade down, which bodes well for TJ Maxx store expansion and leasing demand. In contrast, Target's cautious outlook suggests slower growth and potential pressure on big box footprints. So the bottom line takeaway for Siri investors home improvement expect muted store traffic but ongoing investment of pro services and supply chain supporting industrial and distribution space demand discount retail off price formats like TJ Maxx continue to gain share, reinforcing demand for midsize retail boxes with traditional big box players like Target may focus more on remodels than new store openings.
- [16:26]
C
Yeah, I think you're seeing this in real time. You know, Target's not expanding their footprint, but they're trying to remodel, reinvent themselves to move away from some of the challenges they've had over the last couple of years. And we've seen this in the sales data with TJ Maxx, Ross and these others. Those type of shopping centers have been flying off the shelf and prices and cap rates that are really, really strong. And I think it just highlights that investors believe in this, you know, budget conscious consumer preferring to shop at those stores. You know, and I like the treasure hunt analogy here because that's what it sometimes feels like. Like if I go into TJ Maxx, I'll tell Ross, I'll tell you, like the OCD type A and me really comes out. It's, it's a little overwhelming because stuff is all over the place and that's the business model. But it seems to be resonating with these cost conscious consumers. So you know, hopefully for Target, maybe they can remodel their stores, maybe they can reposition themselves and they can have a comeback. I mean up until a few years ago they were kind of leading the pack from a big box retail perspective. And they've really, you know, had some challenges over the last couple of years that hopefully with some new storefronts or new remodeled stores, they can remedy some of those challenges. The Lowe's And Home Depot 1 is always interesting to me in the commentary that you put out. The storms impact definitely play a part in their profitability and it's kind of an interesting dynamic where for cre storms are a complete negative because it Destroys property, it increases insurance, all costs, et cetera, et cetera. But for Lowe's and Home Depot, there's some component of that that actually boosts some of their sales and profitability.
- [18:10]
B
You know, when I think about like what Walmart has been doing and doing well, what's driven their earnings, specifically the AI push. If I was in the C suite at Target, I would be pushing like heck to be doing a deeper dive on price comparisons for certain products that are going to target your kind of mid level consumer that it appears they've lost over time. Right. And do some very heavy targeted ad push. So as a very specific example here, Starbucks peppermint mocha coffee, the ground bean coffee in the bag, it costs like, gosh, almost twice as much to buy at the grocery store than does it Target.
- [18:48]
C
Right.
- [18:48]
B
You should be identifying opportunities like that where you can pull the consumer away from goods they're buying at the grocery store and get them into your store with some targeted discount ads. Because we know the consumers are shopping for deals exactly like that at this point. I feel like we're going to see some really interesting things over the next 12 to 18 months. As you continue to see AI push deeper into corporate strategy on the retail side.
- [19:12]
C
Yeah, I think there's a lot of ability for disruption across that for the reasons you just mentioned like price comparisons. And finding your niche as a retailer has never been easier with some of these AI foot traffic monikers and other things that you can track. It'll be interesting to see how they reposition themselves. I mean, I think Walmart, it's still early to see if they're going to reap a return on this large AI bet, but I'm, I'm on their side in the sense that I think that's where this is headed. I'm hopeful for all the retailers that this holiday season is fruitful for them, that they're able to drive sales and you know, at least there's not. It doesn't appear that there's an inventory problem. The supply chain challenges of a few years ago worked their way through the system, so hopefully it's a good productive year. I don't know if you or Haley do the Black Friday sales or whatever, but it seems like everyone already has their Black Friday sales running online for like the last two weeks. I feel like Amazon Prime Days has lost a little bit of its luster over the last couple of years and it feels at some level the Black Friday deals, especially now that they're, you know, no longer on Friday after Thanksgiving and they're online. Maybe some of you know, their allure has been lost as well.
- [20:20]
B
Perhaps. You know, I used to get really into it, especially when you got like the, the physical media, the magazines, the ads. Oh my gosh, getting that Thanksgiving newspaper that was stuffed with ads and like three times thicker than your regular newspaper got me so excited in the silliest way. I don't know what was, was so satisfying about unpacking that monstrous paper and diving through all of the ads.
- [20:44]
C
But man, we didn't have the Internet back then, Steven. So like that was, that's why it was exciting, because it was like that was the only way to find out about the sales. Like this. That's an example of how this instant gratification 24. 7 knowledge transfer world that we live in now has taken some of those small joys away because now you're getting text alerts and emails and push notifications and everything else before, before the ads even come out.
- [21:12]
A
So we talked a little bit about office and I know last week we looked at CRE brokerage earnings and talked a bit about the proof we're seeing from brokerages versus the headlines. I think in the Office segment this week we wanted to look at mixed headlines across the board. I know we have some updated TREP data here that looks at spread levels. So let's dig into what's going on in Office. How has the narrative changed and what are some recent headlines that might be contradicting and how did it all play out into the ecosystem?
- [21:45]
B
Yes, so we had a blog that got released at the beginning of this week looking at office commercial real estate spreads and specifically the headline here is noting that office commercial real estate spreads have hit their lowest level in 2025 as we have lender optimism returning to the market, or at least lender confidence. So credit spreads reflect a mix of factors, funding costs, expected losses, capital charges, market liquidity and and lender margins, making them a strong indicator of market sentiment and risk pricing. Unlike CMBS spreads, which are widely observed and frequently updated, CRE lending spreads are private, making real time pricing and benchmarking difficult to address. This TRUP gathers weekly spread data from CRE lenders nationwide and we segment those in broad loan to value bucket ranges and by property type. This data powers what we call Trep I, a weekly survey that tracks capital availability and underwriting trends across major property sectors with historical data going back to 2010. Recently, low leverage office spreads, those ranging from 50 to 59% LTV relative to the 10 year US treasury, have tightened by 2.5 basis points and now sit at 203.75. So let's round that up and call it 204 basis points. That's the lowest level this year, though still 36 basis points wider than the record tight that we have on record. This trend suggests growing lender confidence in office properties, particularly at the lower risk end of the capital stack. Trip I provides real time insights into CRE loan spreads, helping market participants benchmark portfolios and monitor risk pricing. I also should mention that Trup I is one of the inputs that we use for our brand new loan valuation product which we call Trep lv. So if you want to learn more about that, please reach out to us@podcastrupp.com we'd love to talk to you about our Trep I survey product as well as our Trep Loan valuation product. If you're a whole loan lender and you have the need to benchmark or mark to market your whole loans and you need a vendor that can provide this service for you, we are your firm, we are extremely price competitive relative to other market participants out there and have a very sound and importantly very transparent model. We are not like some of those other shops that have black box models that you have no idea what's going on. We have a very transparent process. So please reach out to us if you're interested in learning more.
- [24:22]
C
Podcastrep.com love the product plug Stephen, because it's needed in the marketplace. We're seeing an insatiable demand for this type of service and so yeah, echo the sentiment. You should reach out to us. And the Trap Buy survey is interesting just to kind of see what's happening in the marketplace. Like you said, it's an opaque part of the market outside of the CMBS spread data. And so, you know, we're proud of that data service that we've created, the consortium of participants since 2010. You know, we're now 15 years into that. We have the full history and so a lot of things that we can do to package that data are provided in a way that makes it useful for those that are in that space. And so, you know, we did talk a little bit about just the office sector on the lead in Steven and some of the bifurcation. I don't know if you saw the interview this week with Boston Properties CEO. You know, he, he didn't say anything groundbreaking. He basically said the office sector is overbuilt. But it is a topic that doesn't get discussed a whole lot in the sense that it is overbuilt and we're actually dealing with the ramifications of that right now. But I do think there's some positive signs. And you know, we, we said on the lead in that there was, you know, some optimism that maybe doesn't trickle down all the way across the full office sector. But if you look at some of these high level statistics. So CBRE put out a report that said vacancy fell 20 basis points in Q3 is now down to 18.8%. It's still historically high, but it marks the first year over year decline since early 2020. So you know, we feel like we've probably troughed on a price perspective and now you're starting to see, you know, maybe from a performance and operations perspective, you know, coming back from a trough here. Relative to vacancy, leasing activity outpaced the five year quarterly average. You know, this is led by financial services and tech firms. And we've actually seen a resurgence in San Francisco as an example of some of these AI firms taking down large swaths of space, which is a positive thing. And so if you look at the construction pipeline, it's shrinking towards lowest annual total in more than a decade. So while on one hand we're overbuilt, on the other hand we've kind of, you know, tightened the, the faucet here on the new construction. So hopefully we get to a little bit of a more balanced market sooner versus later. So Owen Thomas, who is the CEO of Boston Properties, they are the largest US office reit, said that he feels the market hit the bottom in 2024. He's optimistic about improving fundamentals. He thinks interest rates, if they continue to come down, could be positive obviously. And he's, he's a fan of the renewed capital flows. He said there's been a lot of major securitizations for his firm on trophy assets both in New York and Boston. And so it's not just New York that they're seeing, you know, increased activity now. He did highlight what we've talked about, the demand remaining in that concentrated premier workplace segment, you know, where the top 10 buildings, if you do a comparison, the top 10% of buildings vacancy only averages about 11% versus the 18% that CBRE mentioned. So you know, interesting perspective from someone that buys and sells and operates offices at scale across the US And I think I would agree with where he feels the market is today based on his comments.
- [27:47]
A
While the market chases the next digital trend, smart investors are rediscovering opportunity in something real. Cash flowing assets Built for scale and durability, Spinoso Real Estate Group is the nation's leading privately held operator of enclosed shopping malls, partnering with institutional and family office investors to acquire undervalued centers and unlock alpha through data, precision, leasing and operational excellence. Spinoso Real Estate Group Investing in Performance, not perception Visit spinoso reg.com to learn more.
- [28:24]
B
So I mentioned earlier in this podcast that I was doing a deep dive last night and really for the last couple of days on cmbs. SASB deals with a large amount of interest shortfalls. So I thought it'd be interesting to share some of that data with you just to get a sense of, well, what's out there. So let me first give you some background and context, especially for our new listeners or listeners that are not familiar with some of the CMBS terminology lingo. So SASB stands for Single Asset, Single Borrower. These are not your typical CMBS pools like we had pre 2008. SASB deals are backed by either one single asset or one single borrower that has multiple properties backing this one loan. And the SASB market, generally speaking, is thought to be those mega trophy deals, the creme de la creme. But like with any financial innovation, there's, well, occasionally some pockets of risk that are worth digging into so we understand where the opportunities and where the risks lie. So this list that I have compiled covers the SASB deals that are backed by either one or more office properties, or in some cases these are mixed use properties, but really the predominant use type is office. So you ready, Lonnie? The first deal that has the largest relative amount of interest shortfalls. So the metric I'm referring to specifically is the total amount of cumulative interest shortfalls that have been incurred by the mortgage pool. So in other words, interest is not being paid to bondholders and it's the total amount of interest that has not been paid to bondholders so far throughout the life of this deal. And I'm looking at that relative to the total deal balance. So we can put this kind of on an apples to apples basis rather than looking at it on a total dollar amount. And also I should point out, just because the interest shortfalls are large doesn't necessarily mean that the AAA bonds have been clipped. So the first deal up with the largest relative amount of shortfalls is CXP 2022 CXP1. As of our most recent data cut, this deal has incurred interest shortfalls of roughly 75 million, and that's relative to a current principal balance of $484.7 million CXP1 is backed by portfolio of seven Class A office properties totaling approximately 2.7 million square feet. These properties are located in gateway markets with roughly 40% in New York City, 27% in San Francisco, 24% in Jersey City and about 10% in Boston. Now what's unique about this CXP1 deal is that the capital stack is a bit odd. You have some senior notes that were not securitized. So the top tranche here is not the A class. It actually starts at the E class. So that tranche was originally rated BB minus by Moody's. It's currently been downgraded to triple C minus by Moody's and interest shortfalls have eaten all the way up. This is a rough deal. Next one we have is JPMCC 2020 MKST. So this is secured by 1500 Market Street A2 Tower Class A office complex in the heart of Philadelphia's central business district. This Property spans approximately 1.8 million square feet and includes offices and retail space connected by an atrium. This deal has just under $40 million in interest shortfalls. That's relative to a current principal balance of 368 million. So the shortfalls are eating all the way up to the originally rated AAA tranche. That A class tranche has been downgraded and now sits at triple C. I'll just do one more here. The third SASB deal with the highest relative amount of interest shortfalls relative to pool balance is Bfld 2020 EYP. So this mortgage pool is backed by Ernst and Young Plaza, a 41 story Class A LEED Platinum certified office tower located in downtown Los Angeles. Currently the interest shortfalls total $23.3 million relative to a current pool principal balance of 275 million. So interest shortfalls have eaten all the way up to the class B tranche. They have not yet clipped the Class A. So the senior most tranche here, the class A that was originally rated AAA has been downgraded. It now is split rated triple C single B minus. This property spans more than 920,000 square feet including office space and a portion of an adjacent parking structure with over 1100 parking spaces. This property was 78% leased at issuance back in July 2020, but occupancy has declined to about 69% with significant near term lease expirations contributing to cash flow pressure. And what's particularly interesting on this one is the largest tenant of the property is the GSA Secret Service, which occupies roughly 10% of net rentable area. Colliers is currently marketing this non performing loan for sale. So it'll be interesting to see what we ultimately find out for the liquidation price on this property because that class A tranche is really hanging in there, but it has taken a pretty significant price beating.
- [33:50]
C
You weren't kidding, Steven. You said you did a deep dive on this. So maybe for our listeners, give some perspective. Like I know the answer to this, having worked with Steven for a long time now. But deep dive means what, 2:00am, 3:00am before you went to bed last night?
- [34:04]
B
About 1:25am not too bad.
- [34:09]
C
We'll call that a medium dive, you know. Yeah, yeah, we get, we, you know, unlike really cool people or athletes or whatever, our flow state is like when you're just in the data and you're finding some nuance or some patterns or some things like it's hard to go to sleep when you're like digging through aaa, interest rate shortfalls and all this other stuff.
- [34:29]
B
It's, yeah, I've got like three screens, five applications, you know, three spreadsheets. I am just pinging back and forth between a bunch of analytics trying to get my mind wrapped around where's the risk, where's the opportunity, what questions need to be answered. There's, there's a lot to this analysis, but it's pretty rewarding when you finally are able to step back and say, all right, I can paint the picture. Now, who's that famous painter that used to be on Bob Ross.
- [34:55]
C
Yeah, Bob Ross, man. Yeah, Bob Ross. Although AI has turned Bob Ross into like a cult following at this point. Like even my kids know about Bob Ross. I've never actually seen Bob Ross. So.
- [35:08]
A
One more point to add on the topic of office. I attended Commercial Observers 2025 Fall Finance Forum last week with our CEO Anne Marie Dicola, who was on a panel with a lot of esteemed speakers from across the industry. And office was a huge topic. Keith Kurland, senior managing director and co head of New York City capital markets at Walker and Dunlop, was on her panel and was quoted as saying the brokerage has arranged billions of loans for Manhattan office assets this year with banks showing particular interest in lending on the asset class from their balance sheets. Kurland also said that that bank appetite for New York City office hasn't existed since pre Covid. So there were some interesting takeaways there. And it's always great to hear from the people that are on the front lines doing the deals, lending where they're seeing the office market as well.
- [36:01]
C
Yeah, some great perspective. And that as you mentioned, that Event was packed. It was chock full of, you know, top tier practitioners, industry executives, etc. They had a really robust lineup of speakers. And Anne Marie always does a great job when she's on those panels. I mean, she is a professional panelist and she actually got a quote in the commercial observers write up on this. It said that CMBS volume is on pace for a banner 2025, likely to reach 120 billion by year's end. As we've mentioned, it would be the highest total since 2007. She also noted that 75% of the CMBS volume has been single asset, single borrower, SASB deals, which Steven was just talking about in detail. And most of those transactions have been class A office properties. So Kyle Jeffers, who's the Chief Investment Officer at ACOR Capital, said his firm is aggressively going back into the market with most lenders lending at a basis that's been significantly reset below replacement cost and that his firm recently financed an office building deal that was 30% of the previous owner's basis. So he was quoted as saying, you can't predict the bottom, but it certainly feels like we bounced off the bottom and on our way back up. So this is the time to be leaning into the market. And so Stephen, if we went through the archives and we went back multiple years, I think we were saying this at scale, like the only thing the office property market needed was a reset in basis. And I would contend even with my leading question earlier in today's show, these offices are viable at 50, 60% of their previous basis. They can operate at 70% occupancy and still cash flow. The class B and C offices that were purchased at the peak of 19, 20, 21 cannot, with the current basis, operate at 60, 70% occupancy and cash flow. And so if they're getting deals done at about 30% of the previous owner's basis, you got to feel pretty strong about the optimism around those types of deals on a go forward basis.
- [37:58]
B
Yeah, and where we're really, where I kind of draw the line between optimistic and concerned at the current point in the cycle is when we start seeing valuations on an as stabilized basis and leverage being offered on an AS stabilized basis. Because every time, not to be too biased and myopic, and using Peachtree center as an example, but what got that loan into trouble time and time again was the forward projection that, oh, we're going to be able to stabilize this asset. The business plan will work this time. The demand's out there when really we're fooling ourselves. Demand has reset lower period for some of these assets and in some cases it might still have further to drop. I'm trying to remember who it was, what panel. It was a recent panel I was on over the last year. Somebody pointed out a really important aspect of the office market and underwriting and where we need to be honest with ourselves and that's that capex for so many deals is routinely underestimated. You know, we're not honest about the true amount of capex between improvements, leasing commissions, tenant improvements that it's going to cost to get these assets up to market standard. And anytime you are too optimistic about how little capex you can spend along with how optimistic you are about occupancy, that's the really dangerous mix that I'll be looking to see if we start seeing it creep back into the market at any point. But right now we're not there yet still. I would say probably six to 12 months away from maybe seeing that creep back in.
- [39:32]
C
Well, we've talked about that and we've actually put some research out on just how capital intensive some of these office buildings are. And even when they're not needing completely remodeled or redone, just the operational expense of managing these buildings. I think that's one of the nuances of this downturn was with all the institutional capital flowing into CBD office for the last 15 or 20 years, nobody really paid attention to just the operational expense because you were at 95% occupied, you had really great tenants and it just, it worked. But when These buildings are 60% occupied, those elevators still have to be serviced and maintained and the lobbies still need to be renovated. And it doesn't matter that you're only 60% occupied. The costs are still there and there's not as many tenants to cost share those reimbursements. And so it's, it's a very labor and capital intensive property type that just kind of was under the radar, has been exposed now and I guess just gets doubly expensive for these buildings at, you know, are 60% occupied and need extensive renovations. To your point, Stephen, those are going to be really problematic. And that's where you have to have the reset in basis. I mean, it's just simple math. It's good to see some of these transactions. And I will say, you know, we've been to the last couple of crafts conferences, we've been on a bunch of panels ourselves, Stephen, and I can't remember the last time where you had multiple lenders on a panel basically saying that they're excited about Office, even if it is just the top tier of the segment. It's nice to see that there's at least an avenue now for people to have access to capital and funding for some of these assets.
- [41:02]
A
And I'll turn us to our Deals and data property type segment, but we're sticking with Office here. I mentioned that we have a lot of big trading alerts this week and for those of you who don't know, we send exclusive trading alerts to our clients via email as soon as we get new data on a loan. And there's been an appraisal reduction, a move to Special servicing or a change that we deem noteworthy. And we want to keep you updated on we will share a few of those here today. And this first one is about a Manhattan trophy office that received an appraisal reduction.
- [41:41]
B
Yes, According to our November data, the 650 Madison Avenue loan that has a current balance of $800 million had its collateral reappraised recently at a reduction of over 20% its original value. The property was appraised at 1.2 billion at securitization in 2019 and an October appraisal has reset that value now down to 950 million. The loan does not mature until December 2029. The loan was transferred to special servicing in September 2025 due to payment default when a waterfall shortfall was not funded by the borrower. Several pieces of that loan are showing 30 days delinquent, while others are still showing current or less than one month behind on payment. Special Servicer Commentary reports that it will continue discussions with the borrower while evaluating all available legal and resolution options, including potential remedies such as a foreclosure or loan sale. No decisions have been made and the loan remains under active review, so stay tuned for more on this loan. The collateral is a mixed use property on Madison Avenue between 59th and 60th Streets in the Plaza district of Manhattan. The property was built in 1957, renovated in 2015 and has retail tenants on the ground floor with office spaces above, which spanned over 600,000 square feet over the first half of 2025. The loan posted a DSCR based on net cash flow of 0.82 times with occupancy at 74%. We have two more trading alerts here for you next one Chicago West Loop office Ground Lease loan has been sent to Special Servicing. According to our November remittance data, the 167 million 300 South Riverside Plaza loan was transferred to Special servicing for imminent monetary default, the loan became delinquent for the first time during its life. In November, the loan had an anticipated repayment date, also known as an ard, which is a targeted payoff date. If the loan is not fully repaid by the Arduino, the loan can remain outstanding. This differs from your standard balloon maturity where the loan has to be paid off by its fixed maturity date. So in other words, you basically have a fallback plan if the loan does not pay off at maturity. For these ARDs, special servicer commentary reports that the original ARD was in May, but the loan has not been paid in full at that time and so a cash trap was subsequently put in place. So let me give you some more details on how this ARD structure works. In the event 300 South Riverside Plaza is not fully repaid by that ARD, the interest rate will increase from the initial interest rate of 3.95% to the greater of 5% above the current interest rate or 5% above the 20 year interpolated US treasury rate. After the ARD, the lender may apply any excess cash to reduce the principal balance of 300 South Riverside Plaza. So in other words, the interest rate is going to go up and this loan can hyper amortize to the extent there is excess cash flow and the servicer deems that the appropriate use of cash flow the loan collateral is a ground lease on the land beneath a Class A West Loop office along the Chicago River. The property was built in 1983 and renovated in 2012. The top tenant at the space is Cars.com who reportedly downsized earlier this year. For the full year 2024, the loan posted a DSCR based on net cash flow of 1.79 times. So for our last office trading alert here, this was for a Baltimore CBD office value that was slashed below the loan balance. According to November remit data, the value of the asset behind the $102.2 million 100 East Pratt loan was cut by more than 80% in its most recent most recent appraisal and that value now sits well below the outstanding loan balance. The asset was originally valued at $187.8 million at securitization in 2016. This first appraisal revision during the loan term has reset that value down to 31.5 million. The borrower has indicated that they will not fund shortfalls and would like a receiver appointed and a friendly foreclosure to proceed. This loan has been one to watch since December 2020 when we first Alerted Tripwire readers that T. Rowe Price would be leaving its headquarters at this building. The tenant eventually terminated its lease in January 2025. Most recently, we covered this loan in the June 2025 edition of Trupwire when it transferred to special servicing in late May for eminence balloon maturity default. T. Rowe price had leased 443,000 square feet, or roughly 67% of the 662,000 square foot building. And this tenant, believe it or not, Lonnie, this tenant has been in place since this building was constructed in 1975. I mean, that's a fantastic headquarters run. And this lease agreement was set to run through 2027. The firm exercised an early termination option in mid 2024, subject to a $20.4 million termination fee, and vacated this past January. T. Rowe Price, located about a mile away to 1307 Point street in the harbor Point section of the city. Other tenants of the property include PwC and Design Collective. Each tenant occupies about 5% of the space, and their leases run through 2030 and 2033, respectively. During the first quarter of 2025, the loan posted a DSCR based on net cash flow of 1.81 times with occupancy at 90%. So I'm sure we'll have more updates on this property, this loan, in months to come as the details roll in, because this is a big one that we've been watching for, gosh, five years now.
- [47:29]
C
You know, we should probably do some analysis, Stephen, on some really long tenured tenants in the CMBS universe. Like, I don't think that's something that we've done any type of analysis on, at least in the six plus years that I've been here. But 1975 to now is a pretty good run for a tenant, you know, and it would be an interesting dynamic to see. Did, did the building owners do a good job of keeping their rents at market? Were they staying there because they were getting a below market rental rate and so there were some benefits to staying there until they decided to. To leave. What is a termination option in this case? You know, we know it's 20 million, but what does that look like, you know, compared to other market factors for similar, you know, tenant termination options, etc.
- [48:13]
A
All right, let's move on. We'll turn our attention back to retail. We have some large stories to cover this week. The first one here is about a regional mall portfolio loan that transferred to special servicing.
- [48:25]
C
Yeah, so this is, you know, Updated November data, $488.7 million Starwood Regional Mall portfolio transfer to special servicing due to imminent monetary default. This isn't the first time that we've talked about this loan. We last mentioned this back in September of 2020 edition of our Tripwire newsletter. They surrendered seven mall properties following a loan default, including the top collateral property property in this portfolio. That property was Plaza West Covina. That property appears to be under contract again. This loan had not been delinquent in the past 12 months, but has been delinquent eight times during its life. The collateral is a portfolio of regional malls, including Plaza West Covina in West Covina, California Parkway Plaza in El Cajon, California, Capital Mall in Olympia, Washington, Franklin Park Mall in Toledo, Ohio, and Great Northern Mall in North Olmsted, Ohio. Properties were built between 1971 and 1979. All were renovated sometime between 2011 and 2016. Collectively across the portfolio, it spans about 3.7 million square feet. Top tenants at each of the properties are Best Buy, Regal Cinemas, Macy's, rave Cinemas and JCPenney. And they have leases that run through January 2030, January 26, February 29, May 2030 and March 2029 respectively. Appraised value in November of 2021 was 561.6 million, which was a significant reduction from the securitization value of 1.2 billion back in 2018. And as we've seen with some of these regional malls, Steven, you know, if you look at this one, during the first half of 2025, debt service coverage and net cash flow was sub 1, it was 0.71x. Occupancy was at 82%. So this is a story that we've covered for some time. This is definitely a struggling portfolio. Not sure if there's a way to kind of keep these properties as is or if they're going to have to start trying to break them apart. Maybe you see some of these lower tier mall operators come in and scoop some of these up and try to reposition them. Yeah.
- [50:37]
B
What was interesting when I started digging through the collateral, each one of these malls, there was a shocking number of property listings. Not the had nothing to do with the mall itself, but out parcels like some of the surrounding strip centers. I mean, shoot, even the anchor tenant spaces that are empty at a couple of these malls, I think two of them maybe had the big box anchor properties that were listed for sale. So I just can't help but think that fortunately we have the right operator here for the right assets. You know, Pacific Retail Capital Partners talked a lot about densification and they're basically their rehab strategy. And it's needed on some of these properties. You look at them, they're good locations. The good, they have the right metrics. It's just they need, they need something new.
- [51:26]
C
Yeah. And we'll see how they reposition if they can. Some of these, whether it's just as a mall but with maybe a different tenant stack or with maybe some experience components or whatever. But this isn't, it's not new. I mean, well, it hasn't been delinquent in the past 12 months. You know, I'm being delinquent eight times over. Its life is just not a great sign, you know, one that maybe hits a little closer to home for us. Lubbock, Texas Mall South Plains Mall have you, you shopped at the South Plains Mall? Very frequently, Steven.
- [51:52]
B
You know, we, we made it there occasionally. The kids love those little like cars that you can drive around the mall always begging to go on those. At that point they were too little to go on them. But this mall, holy smokes. When you want to talk about like how far your regional pole is, this mall is packed. And I'm willing to say like folks are going to drive as much as one to two hours to come to this mall because, well, Lubbock's out there. When I say out there, folks, if you, if you don't know where Lubbock is, you haven't been there. You can drive four and a half hours in any direction before hitting another major metro. And there ain't nothing out there in the High plains. It's beautiful, it's gorgeous. But Lubbock is Lubbock and South Plains Mall is the big center of commerce. So yeah, this one does hit close to home.
- [52:40]
C
Yeah, it's a little bit of a sad story in the sense that despite it being busy, they've recently been transferred to special servicing due to imminent balloon immaturity default. This is a big mall. As you mentioned, Stephen, this is what we would consider a super regional. It's at 1.25 million square feet. It is located in Lubbock. It was built in 1972, fairly recently renovated back in 2015. The loan's currently in the grace period. It's not been delinquent for the entire life of the loan. The commentary reports that the borrower and lender are engaged in modification negotiations ahead of the loan schedule maturity. The borrower reportedly approached a 36 month maturity extension and the servicer indicated that if agreed upon any extension may be shorter in length than 36 months. Six months and or any other conditions may be required. Which means they want a little bit of cash money deposited to get the extension that the borrower is hoping for. So this is one that we'll keep monitoring. With its most recent transition into special servicing, financials for this paint a much better picture than the previous mall story. We just talked about 1.75x but occupancy is still pretty low, only at about 80%. So kind of interesting to see. I'm assuming that probably has some big box connotation is why it's dragging that occupancy down, especially if DSCR is so strong. So not much to do out in Lubbock. I don't know. Did you ever get caught in one of those crazy dust storms out there when you lived in the Lubbock area?
- [54:05]
B
No. Yeah, I think it was, you know, maybe the first week of classes. I was driving home on, gosh, the main road, main loop road there and all of a sudden things just went orange. It's wild. It was like just like out of a scene from Mission Impossible, you know, where that boo blows in. It's, it's for real. And heaven forbid you have an uncovered pool. I mean you have to have a special type of filter for your pool out there to deal with all of that dust and sand.
- [54:33]
C
Yeah, it's unreal. So the Lubbock has been the beneficiary of some really cool stuff in the Nil arena in college football and other sports. So maybe more people will get out there to Lubbock than what they naturally would have done without that. So maybe one more retail story here and then I think Haley will probably close this out for this week, but Bearings buys a Chicago area retail center. They paid 54.5 million or $365 a square foot for Market Meadows 149,000 square foot shopping center in Naperville, Illinois, about 31 miles west of Chicago. Charlotte, North Carolina investment manager acquired the retail property at 1201 through 1315 South Naper Boulevard from Shorewood Development Group out of Buffalo Grove, Illinois. Principal Asset Management provided a 27.25 million dollar loan for the financing of this property. To facilitate the purchase, the seven year loan, which pays a fixed rate coupon, was arranged by our friends at JLL Capital Markets. Market Meadows was built in 2020, really strong occupancy at 98.3% leased with 67, 000 square foot jewel Osco Grocery store anchoring the center. Other tenants include US Bank, BMO Bank T Mobile, Chipotle Jersey Mike's and McDonald's. So great story coming out of the Naperville Marketplace there. $365 a square foot. Again, really strong sales price for this grocery anchor type of center.
- [56:01]
A
A lot of coverage this week guys, and as always we had a lot more stories in all of our newsletters. Send us a note if you somehow need more from TRAPP after our podcast, but we have a lot more data and coverage research, so reach out to us. We are always happy to work with you, build a special dashboard for you, build custom reports, or just show you some of our tools in programming notes. This week, if you're a very early listener, you still have a chance to apply for our Trep Futures CRE Leaders program. We have extended our deadline so you have until Friday, November 21st. If you are graduating or you know someone graduating in December 2025 and they are in the commercial real estate or CRE finance industries and you want to be recognized by TREP as a future CRE leader, reach out to us. We'll get you the details on how to apply and we'd love to hear from you. We've had so many incredible students who were named trip future CRE leaders and are now leading teams doing big things in commercial real estate and it's great to build those connections and just see you from the start of your career. So reach out to us if you're in commercial real estate education in some capacity too, and you just want to learn more about how you can use our data in the classroom, use our data for dissertations or research papers. Send us a note and we can talk to you about that too. This week we also released a special guest episode of the Trepwire podcast with John Santora, the CEO of WeWork. John is a seasoned leader in the global commercial real estate industry. He has decades of experience at Cushman and Wakefield, and he really took over WeWork to bring it a fresh perspective, new light, and to really reimagine the world of coworking and leasing and the office market. So if you want to hear all about John's background, the cyclical nature of CRE and WeWork's evolving role in the market, you can find that episode on Spotify, Apple, or wherever you're listening to this. Or send us a note and we'll send you the link to that episode. But it was really cool to have him on the show and hear all that he's doing to reinvigorate the We Work brand. Turning to shout outs a few more this week, Trevor D. Reached out and he's a weekly listener of the show and was giving a presentation and wanted to see if we could share some data. We sent over some reports and research but come back to us Trevor, if you ever need anything else. He was interested in the wall of maturities and the amount of loans that keep getting extended and he said he will gladly take a shout out on the podcast. So thank you Trevor for reaching out and wanting to use some of our research and data in your your presentations. Kevin A. Asked to be signed up for our webinars. Tommy S. Was interested in the latest CMBS delinquency report. Amy G. Is a big fan of the podcast and thanked us for all the info and was interested in learning more about Trep's AI solutions that we covered on a recent episode of the show. Sarah T. Loves the podcast and was interested in the WeWork episode. She was excited to listen to that one and Dennis said that we had a great episode with John Santora. So thank you Dennis for being an early listener and giving us that feedback right away.
- [59:32]
C
Yeah, that was, that was a great guest podcast. I mean John has a really incredible perspective on the market. Spent about 50 years in commercial real estate. I think he said 47 years at Cushman and Wakefield before taking the role we work. So if you haven't listened to that episode, you should definitely check it out. He, he brings some stability, level headedness and just a good go forward action plan for the firm. I wanted to just toss this out, Haley, to you and Steven as we close this week. When people listen to this podcast this week, there's only going to be 40 days until the end of the year. What do you think about that? I mean, it's just crazy, crazy.
- [60:05]
A
This year feels like it's moving faster than the last few. I don't know if we're just so far removed from COVID we're back into the swing of things in the office, but I cannot even believe that it's Thanksgiving already. What are you guys gonna do for these last 40 days? Have any goals?
- [60:24]
C
Try to sell some stuff. We need. We need to sell some stuff. You need to buy some cre, data analytics, insights, subject matter, expertise, platforms, loan valuation. You should reach out to us. It's the end of the year. It's a good time to reach out to us. But yeah, I think I'm with you. It feels like, you know, the days go by very quickly now and, and then even the years go by quickly and you know, we do this show every week so you would think that it would be a little bit like we'd be like, oh, it's almost end of the year. We're excited about that. Obviously we love doing the show, so we were excited to do it every week. But I can't believe that we're already at the end of the year. I mean, it is just really crazy how fast it's flown by. And I would attribute it some to just the positivity and optimism around the marketplace. It feels like coming out of COVID there was just such a downturn in the market and this year really felt kind of refreshing. And I think the issuance and other things kind of paint the picture, like a lot of transaction volume and it's been great to cover it. I'm excited for the next couple of weeks. We'll close out the year with some predictions and look forward to the 26. And so let's get on to 2026. It's going to be even better than 2025.
- [61:28]
B
Yeah, we need, we need a nice, positive, catchy phrase for 26. You know, we had like the survive until 25, whatever. You know, what's, what's going to be our phrase for 2026.
- [61:40]
C
I saw some stuff on LinkedIn, you know, people trying to like create some catchy phrase for 26 and I don't think any of them really, like, these don't feel quite right yet. So maybe we can send that out to the listeners. If you got a cool catchy frame or phrase for 2026, send it to us podcastrep.com and if it's good, maybe we'll make you podcast famous. And that can be kind of what we refer back to as we head into 2026. Thanks.
- [62:05]
B
Love it.
- [62:06]
A
And our last shout out here is for the team at Spinoso Real Estate Group. We are so excited to be partnering with them again. If you don't know Spinoso, look them up, check them out. We have had the CEO Carmen Spinoso on our podcast and it is so exciting to see what they are doing in the retail space to really make retail right. And Lonnie, you would love this because they're really leaning into the retail renaissance of it all and doing big things, winning leases, working with really interesting tenants. So we're very excited to be partnering with them again and getting to talk to their team there. We'll give a shout out to Kristen B. And Camilo S on their team.
- [62:50]
C
Yes, that's. It's great to see and we love partnering with them. Carmen was on our show and his strategy, his vision, his ability to execute has been unparalleled in the space. And it's really great to see them continuing to kind of lead the that regional mall space back to some prominence when they take over. I mean, they he said it starts with leasing it, picking up the phone, doing your outreach like nuts and bolts, tacking, you know, blocking and tackling, and happy to have them back as as partners and looking forward to more positive stories coming out of the Spinoso Group in 2026.
- [63:25]
A
And one last thought here. Speaking of how is it already Thanksgiving for any new listeners here, we do not take a week off. We will give you an episode next week. It might be released a few days early because we don't want to throw this episode at you while you're having Thanksgiving dinner, but you will hear from us next week. If you have anything you want us to talk about, a topic you've been needing more details on, or something interesting that you're seeing that you want us to weigh in on, send it our way and we'll try to make it a segment on next week's episode. So with that, we'll close. Thanks to our producer, Mariana Sabrana. 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 podcastrup.com and subscribe to the Tripwire podcast with your favorite provider. Thank you for listening and stay well.
- [64:17]
C
All right.