365. Cooling, Not Crashing: Thankful for CRE Bright Spots & A Ground Lease 101

Summary

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The TreppWire Podcast: Episode 365

Cooling, Not Crashing: Thankful for CRE Bright Spots & A Ground Lease 101
Date: November 26, 2025
Participants: Hayley Keen (Host), Lonnie Hendry (Chief Product Officer), Steven Buschbaum (Research Director)

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Episode Overview

This special Thanksgiving-week episode examines the current state of the commercial real estate (CRE) market, reflecting on the year’s “cooling, not crashing” economic conditions. The hosts share what they’re thankful for in CRE, discussing bright spots that have emerged despite challenges. They also provide an educational segment: "Ground Lease 101", demystifying the concept, its mechanics, structural risks, and real-world case studies that illustrate both the opportunities and pitfalls of ground leases in CRE finance.

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Key Discussion Points & Insights

1. Macro Market Setup: Economy Cooling, Not Crashing

• Economic Context (01:42–05:01):

  • The US economy is cooling but not collapsing; inflation has eased but is still above the Fed’s 2% target (~3% YoY), and “growth has come off the boil,” keeping the “soft landing narrative alive, just more fragile than it looked six months ago.”
  • Labor markets show slowing job gains and marginally higher claims.
  • Data disruptions due to a government shutdown have led to “flying in a bit more of a fog,” making the Fed and market’s data-dependent decision-making more challenging.
  • Rate cut probabilities have fluctuated, with the market trying to gauge the December Fed meeting.

  “This doesn’t feel like a race back to zero. In fact, I would argue it’s definitely not a race back to zero. It feels more like small, data-dependent adjustments from here.” – Steven Buschbaum (02:54)

  • CRE market stress remains uneven:
    • Office: Most acute distress, high refinancing risk.
    • Industrial, necessity-based retail: Resilient.
    • Hospitality (luxury end): Holding up well.
    • Multifamily: Heavy new supply, but absorption is decent due in part to the still-frozen for-sale housing market.

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2. Rate Outlook, Market Fragility, and Fed Conundrum

• Fed’s Dilemma (05:01–07:53):

  • The consensus: "The soft landing narrative is not out of the picture, but it’s more fragile."
  • Fed policy seen as unlikely to have a significant immediate impact whether they cut or hold in December.

  “At this point, I would contend if the Fed cut rates 25 basis points in December or they left them the same, it’s not materially going to change the marketplace.” – Lonnie Hendry (06:37)

• AI Bubble and Data Centers (09:27–12:26):

  • Concerns about over-building and single-purpose risks in data centers, analogous to Amazon’s specialized warehouses—residual value risk if the main tenant leaves.
  • Discussion of OpenAI’s new Shopping Research tool for holiday shopping.

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3. What We’re Thankful For in CRE: Bright Spots of 2025

Reflection Segment Begins (12:34)

a. Less Office Distress Than Feared (13:13)

• Office delinquency rates landed at the lower end of forecasts:
  • Projections were up to 14%–20% delinquency; actual rates peaked at ~11%.

"I’m just thankful for the fact that we didn’t hit the bearish end of our delinquency forecast, especially for office." – Steven Buschbaum (13:13)
"My forecast … was proven to be way too negative. I think I was at 18–20%. We peaked out at just over 11." – Lonnie Hendry (14:47)

b. Improved Price Discovery (14:47)

• More distressed assets are trading, bid-ask spreads narrowed, especially in major markets.
• Market now has enough transactions to gauge asset values, particularly for distressed office.

c. Resilience in SASB and CMBS Markets (SASB: Single-Asset Single-Borrower) (17:31–19:24)

• Despite SASB-specific distress stories, demand for new issuance and bond over-subscriptions remain robust.
• CMBS issuance on pace to hit $130B in 2025, potentially back to pre-GFC (Global Financial Crisis) levels next year.

"The allocation has remained strong for CMBS and for SASB pricing and the spreads have pulled back in.” – Steven Buschbaum (17:39)

• Liquidity has returned, enabling necessary asset repricing.

d. Multifamily Strength & Rate Stabilization (20:29–22:43)

• Multifamily supply being absorbed without a spike in distress.
• Ten-year Treasury yields have stabilized near 4%, and rate volatility has abated.

"The fact that we’re continuing to see multifamily resiliency and that absorption holding in there is encouraging.” – Steven Buschbaum (21:24) “We’ve kind of hit a range of stabilization on the rate side where people feel like they can transact and make things work.” – Lonnie Hendry (22:43)

e. Consumer Resilience (22:43–24:14)

• Despite cost of living increases and softening job market, consumer spending remains stronger than expected.

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4. Fed Chair Speculation & Future Risks (24:14–28:10)

• Discussion of likely Fed Chair candidates (Waller, Hassett, Myron).

• Concerns about politicizing the Fed and what fast rate cuts could mean for asset inflation and market credibility.

  "We should really be concerned about credibility and what that means for longer-term rates." – Steven Buschbaum (26:07)

• Political uncertainty could be a “wild card for 2026.”

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5. Ground Lease 101: Mechanics, Risks & a Real-World Case Study

Educational Segment Begins (29:35)

a. Definition & Mechanics (29:35–30:55)

• Ground lease: long-term land lease (50–99 years) where the tenant/developer builds on land they do not own.
• Key structural point: Tenant (ground lessee) owns leasehold interest; landlord retains fee interest.
• Used to reduce upfront costs and allow landowners steady, long-term income while maintaining control.

b. Why Use Ground Leases? (30:55–32:16)

• Landowners: Retain asset, collect predictable rent, benefit from appreciation.
• Developers: Lower equity needs, sometimes better economics than land loans, access to otherwise unavailable sites.
• Trade-off: Complexity, especially in lease terms (rent resets, extension options, default triggers).

c. Major Risks (32:16–33:53)

• When the lease term shortens, especially the last 10–15 years, uncertainty about future rent resets and extension options can dramatically reduce leasehold value.
• Lenders treat ground rent as senior to mortgages, making non-payment a severe issue.
• Appraisers and rating agencies discount future value when lease expiration approaches or terms are ambiguous.

d. Case Study: 1407 Broadway, Manhattan (33:53–37:12)

• 1.1M sq/ft office tower, part of a 2019 SASB CMBS deal.
• Value dropped from $510M (2019) to ~$120–136M—a 75% plunge.
• Causes: Some market-driven (soft office demand), but much due to the ground lease expiring in 2030 (with only one 18-year extension option, ending in 2048).
• Uncertainty after 2048 makes future cash flow/value highly questionable, causing distress and loan delinquency.

"The lesson from 1407 Broadway is that ground leases are a double-edged sword. … When the term gets short and the reset math is uncertain, they can erase hundreds of millions of dollars in value even for well located assets." – Steven Buschbaum (35:11)

e. Real-World Example in Residential (35:18–37:12)

• Lonnie shares a story from Austin: A condo on university ground lease with 16 years left, valued as a finite-lifetime asset – buyers must be aware of potential rapid value decline as expiration approaches.

f. Key Takeaways for Ground Lease Analysis

• Don’t just look at occupancy or cap rates—always ask:
  1. Who owns the dirt?
  2. How long does the ground lease run?
  3. What happens at the rent reset or at expiration?

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Notable Quotes & Memorable Moments

• On market resilience:
  "As we carve the turkey this week, it doesn’t feel like a 2008 style air pocket. It feels more like a long bumpy slog where capital is being repriced, lenders are triaging problem loans, and structure really matters." – Steven Buschbaum (04:37)

• On delinquency forecasts:
  "My forecast for delinquency, especially in the office sector, was proven to be way too negative. … We peaked out at just over 11. So that’s great for the market." – Lonnie Hendry (14:47)

• Ground lease caution:
  "When the term gets short and the reset math is uncertain, they can erase hundreds of millions of dollars in value even for well located assets." – Steven Buschbaum (35:11)

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Noteworthy Timestamps

• [01:42] Macro overview: “Economy is cooling, not crashing.”
• [13:13] Reflecting on what they're thankful for in CRE.
• [14:47] Discussion of office distress and improved price discovery.
• [17:31] SASB and CMBS resilience, liquidity back in the sector.
• [20:29] Issuance and interest rate stability.
• [29:35] Ground Lease 101 begins: Definitions and basics.
• [33:53] Case Study: 1407 Broadway.
• [35:18] Residential ground lease anecdote and general warnings.
• [38:12] Programming notes, conference teasers, and listener feedback.

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Listener Feedback & Slogans for 2026

• “Get back in the mix in 2026” and “Taking their licks in 26” among listener-submitted slogans (41:51–42:22).
• Listener comments highlighted regional banks stepping up CRE lending, alternative lenders becoming more prominent, and hopes for continued momentum in 2026.

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Tone and Style

The conversation reflects Trepp’s data-driven, analytical approach, but remains conversational, accessible, and occasionally playful (humorous asides about muscle cars, OpenAI shopping tools, and podcasting at 3 a.m. pepper the episode). The hosts regularly emphasize transparency and responsiveness: “We’re just normal folks that love what we do... we appreciate everyone giving up an hour of their week every week and listening to our show.”

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Summary

• Market Summary: 2025 was not a crash year for CRE—stresses are real, but bright spots abound and recovery outweighs worst-case fears.
• Thanks in CRE: Lower-than-feared office delinquency, improved liquidity and price discovery, strong SASB/CMBS demand, absorption in multifamily, and stabilized rates.
• Ground Lease 101: Know your ground lease—duration, extension options, and resets drive value and risk more than almost any other structural feature in CRE deals.
• Looking ahead: 2026 could be a “get back in the mix” year, but uncertainty remains around rates, political influence on the Fed, and how distress will work its way through office.

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For questions, feedback, or to share stories for future episodes, listeners are encouraged to email [e-mail].

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Transcript

[Steven Buschbaum]

Foreign.

[Hayley Keen]

Welcome to the Tripwire Podcast, the show where commercial real estate meets data and insights. This is our week in review for the week ending November 28, 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 Buschbaum, Research Director. This week we are recording a little early ahead of the Thanksgiving holiday. But despite a short week in the US the big picture is pretty simple. The economy is cooling, not crashing. Inflation has eased but not finished, and the rate outlook is still stuck in higher for longer light. With the shutdown delaying some of the usual data, the Fed and the market are still flying a little blind and the uncertainty is flowing into crew. On today's episode, we'll dig into the latest in the macro news, but we'll also have a few special segments. We will kick things off by sharing what we're thankful for in commercial real estate. There were some challenges this year, but there were also a number of bright spots worth highlighting as we head toward year end. Then we'll do a 101 on ground leases. Ground leases can be tricky and whenever one pops up in a deal or a workout, we get a lot of questions. So today we're going to break down what a ground lease actually is, why these structures exist in the first place, what the risks are, and then we'll walk through a real world case study. So Stephen, before we get into these special segments, give us a quick macro setup for where things stand as we head into the holiday week and how it all connects back to commercial real estate right now.

[Steven Buschbaum]

So since we're recording this on a Monday of Thanksgiving week, the big picture story is that the economy is cooling, but it's not falling off a cliff. Growth has come off the boil and the soft landing narrative is still alive. It's just more fragile than it looked, say six months ago. So on the inflation front, the latest readings have year over year, price growth running just under 3%, well down from the peak scare, but that's still far, far north of the Fed's 2% target. At the same time, the labor market has lost some momentum, job gains have slowed and claims are drifting higher slowdown. So the sense of the effortless strength we had a year ago simply just isn't there anymore. And the wrinkle this month has been that long government shutdown, which delayed a lot of the usual data releases and has kept the Fed and the market flying in a bit more of a fog and in some cases blind more than usual, but I would tend to say a fog. It seems like there's plenty of data out there, it's just our regular routine has been disrupted significantly. We did get another rate cut this past October, but the tone out of the Fed has been very cautious since then. This doesn't feel like a race back to zero. In fact, I would argue it's definitely not a race back to zero. It feels more like small data dependent adjustments from here with the 10 year holding a little above 4% off the highs, but still well above the pre Covid world. Now a fun part for us is guessing where the rate trajectory is going forward. The setup going into December for this Fed meeting is basically it's spring loaded. The market implied odds for a 25 basis point cut have ping ponged back and forth and this past week's delayed labor report was a big reason why they snapped higher again. On last week's episode, I think if our listeners will remember, we had mentioned that it was about a 5050 odds between a hold and a cut. Well, with this job report the unemployment rate ticked up a tenth of a percent, whereas economists had expected it to hold steady. But headline job gains came in almost twice what was forecast, even as the August payrolls revised down. So you've got a data print that's soft in one dimension, surprisingly strong in another, and frankly, it's messy under the hood. That combination makes the December meeting both highly eventful and unusually hard to handicap. You can defend a case for a rate cut or a pause, depending on which part of the report you want to emphasize. For Siri, that mix of slower growth, stickyish inflation and still elevated borrowing costs keeps us in a grind it out environment. Stress is uneven, refinancing risk and rising delinquencies are most acute in office, while industrial necessity based retail and at least the more luxury end of the hospitality market has continued to look relatively resilient. Multifamily is digesting heavy supply pipeline, but it's getting some help from the for sale market that's still largely frozen by the golden handcuffs or the rate lock in effect. So as we carve the turkey this week, it doesn't feel like a 2008 style air pocket. It feels more like a long bumpy slog where capital is being repriced, lenders are triaging problem loans, and structure really matters, and that sets up today's episode nicely. There are still bright spots to be thankful for in Siri and in a higher for longer selective Liquidity world. Understanding how things like ground leases get stacked can be the difference between a manageable workout and a wipeout.

[Lonnie Hendry]

Yeah. So Steven, I think you've, you've kind of highlighted all of the, the current conundrum that the Fed is in, that the broader economy is in, that all of us have experienced real time. I mean, the soft landing narrative is not out of the picture, but it definitely is more fragile than what I think we would have expected it to be heading into the end of 2025. The job stuff is definitely concerning. I think we're really starting to come to grips like we did with higher for longer interest rate narrative. The softer labor market I think is becoming more persistent than what we maybe thought it was going to be the last couple of months. The shutdown obviously didn't help with any of this. And then here we are kind of the last 60 days of the year or so where everything kind of just slows down outside of maybe retail sales. So it's an interesting time for CRE investors. It's an interesting time for just investors broadly. I'm pretty optimistic though. I think if we can weather the next 60 days without some significant negative implication to the marketplace at this point, I would contend if the fed cut rates 25 basis points in December or they left them the same, it's not materially going to change the marketplace. And then we start off 2026, I think with some pretty positive outlook on where we're headed. I mean, at that point, the government hopefully will have a more permanent funding bill in place. We'll kind of have a little better understanding of how and where and what tariffs are going to be going forward. The tariff inflation should hopefully have worked its way through some of the system at that point, or at least we feel like we have a better sense of what that looks like. You know, we'll have some retail sales coming out of the holidays that we can look back on. And you know, for the most part we should be looking forward into what I think is a more stable marketplace in terms of where interest rates are going to be 10 years that maybe make a little more sense for us than what we have seen this, this last year. And just generally, you know, people coming to terms with where we're at. I mean, I definitely agree with you. This is, you know, it's not falling off a cliff. It's not 2008, but there are still some unresolved items in the market that the buyers and sellers and others are dealing with. I mean, we've, we've Started to see some price discovery. We're going to talk a bit about that throughout the podcast today. We've started to see some other things that are positive for the marketplace. And you know, I just got done recording on a, I was a guest on a podcast this morning and you know, I think the tale of two markets is, is very real. I mean, that was part of the back and forth with me and the host is just, you know, seeing that play out. He's, he's on the lending side of the equation and it's the same for them. So, look, I'm with you. I think we're kind of coasting or gliding into the end of the year. There's no, you know, warning buzzers in the cockpit, you know, making you think you're going to have a crash landing. But you're, you're probably looking at things a little bit more closely than you would have if the government hadn't shut down and the labor market hadn't softened the way it did.

[Steven Buschbaum]

Yeah, it's wild to see the change in probabilities. I don't know if you've looked at the Fed watch tool this week, but the odds of a 25 basis point cut have almost doubled from last week. They had gotten to, I don't know what the exact low was, but about a week ago it was roughly 42%. We're now standing at 81% chance of a cut. So absolutely wild back and forth. It's also been interesting to see on the equity side of things what's been going on with the sell off in the tech industry and the concerns about the AI bubble. I've heard so much talk this week about the perspective broadening out in the rally or just the run up in stocks going into 2026. So basically, to me it sounds like AI will underperform the broader market. You have a lot of stocks trading at a discount. I can't remember what the exact number was, but it was a shocking percentage of the s and P500 or whatever the equity benchmark was being priced at a discount to book value. And so to me, that, that's really, really optimistic for our prospects in 26. If you do have this broadening out in appreciation throughout the rest of the market, we get a dial back for the AI trade. Hopefully we don't get over our skis for funding all of this data center infrastructure build out on, you know, debt alone. Yeah, it's going to be very telling where we're going to end up, say two, three, four years out over the first, I wouldn't even say the first part. I'm going to call it the middle 2/3 of 20, 26, 2nd and 3rd quarter I think are really going to be the telling points.

[Lonnie Hendry]

Well, you want to talk about seeing some economic drag if people actually start believing in this AI bubble stuff in the financing of these data centers. You want to talk about a purpose built building, single purpose built building. We've had some discussions on the podcast around some of these Amazon build to suits with the distribution facilities. They have crazy land to building ratio, significantly more truck traffic than other buildings. And if Amazon ever decided to leave, the residual building value is significantly less to someone other than Amazon. And so imagine for these data centers, if it turns out that we can't ever get the compute costs to where they need to be or the efficiency gains are not there, the folks holding the mortgages on these could be in some severe struggle because there's no market for this outside of just use as a data center at least today, I don't know. Did you see OpenAI announced its new shopping research tool just in time for the holidays?

[Steven Buschbaum]

No, I haven't, I haven't looked into this yet.

[Lonnie Hendry]

So I think they just pushed it out today. It's called Shopping Research. So I see Hayley grabbing her phone, I think she's going to try this out. But basically if you have a logged in account for ChatGPT, so whether you're free, a Go plus or Pro user for web and mobile, basically all you do is you just provide a prompt that says find the quietest cordless stick, vacuum for a small apartment or help me choose between these three bikes. It asks you some clarifying questions. Then it scans all trusted retail sites and reviews and then it builds a personalized buyer guide with comparisons, trade offs and links to retailer sites. And it's interactive so you can actually say not interested in this or more like this. And then it helps, just like everything else, fix the algorithm so you get more germane results. So it's powered by GPT5 mini and it's got, you know, based on internal, you know, statistics about a 65% product accuracy at this point. So for a launch before the holiday, this could be really interesting. You know, if you have those hard to buy gifts or hard to shop for folks, maybe you use the shopping research tool and it helps you narrow down what gifts you should buy, finds them for you and actually helps you order them and ship them.

[Steven Buschbaum]

So how does this work? I mean, do I, do I just go into ChatGPT like regular chat mode. And it'll just know it needs to push me into shopping research.

[Lonnie Hendry]

It's saying it's a feature called Shopping Research. I haven't had a chance to try it yet, but I would assume you could either probably prompt it with I want to use shopping research. What do I need to do? Or at some point it'll be listed as almost like an agent in the login and it actually says you can tell that you can provide specifications for like what you're looking for and it'll actually customize. It's like if it, if you build a profile for who it is that you're shopping for, it'll take that into consideration beyond just the ask.

[Steven Buschbaum]

Interesting. I'm trying it right now for a sliding miter saw and seeing if it will highlight the one that I'm in love with, which is the Festool sliding miter saw. Ridiculously priced, but feature rich. That thing is amazing.

[Hayley Keen]

Guys, I know this is a special episode, but we don't have to get all off the rails here.

[Steven Buschbaum]

Hey, it's Thanksgiving.

[Hayley Keen]

It's Thanksgiving. And on that note, we want to do some reflecting. We will do this again towards the end of the year, but I think as we talk through what's happening in the economy and you guys are giving your takes on the changes in AI and technology, we should also think about how we started this year in commercial real estate and maybe what's changed since. And also just in general, what are we thankful for in the commercial real estate industry? Is it that distress didn't hit as high of levels as we thought? Is it that if there was distress, we're seeing it get worked out in a better way? Walk us through some of the key things that you guys are thankful for in commercial real estate this year.

[Steven Buschbaum]

Well, since we have that specific data point, I'll. I'll start there. And one thing I'm thankful for and also have reflected on is I'm just thankful for the fact that we didn't hit the bearish end of our delinquency forecast, especially for office. The bearish end of my forecast was pushing like 13 14%, which I had some thought about why that could be possible, but we ended up right at what the baseline was, at least for what I had laid out to generate my forecast back in December of. Gosh, December of 2024 seems like a lifetime ago. I looked at maturing office loans over the course of 2025 and basically put a 100% probability of default on loans with a debt yield below 8%. I mean, we've seen the summary stats. More than happy to share some of our blogs on office loan performance. But the bottom line is the maturity default probability for loans with a debt yield below 8% have been astronomical these last two, three years. And let me just get to the brass tacks here. The forecast was for the delinquency rate to hit about 12% by mid-2025. Well, we only ended up hitting about mid 11% by July 2025. And so we ended up at the lower end of the forecast. For me, I'm thankful for that. It still is a record high delinquency level, but it's nowhere near the bearish projections that we had laid out that I think really would have us probably feeling a lot more uncomfortable at this point of the year than where we had started out.

[Lonnie Hendry]

Yeah, I mean, my forecast for delinquency, especially in the office sector, was proven to be way too negative. I think I was at 18 to 20%. We peaked out at just over 11. So that's great for the market. It's great for market participants. And to your point, Stephen, just broad distress has been less than what we had assumed. Not without some, you know, extensions and modifications and some things that's hard to, to plan out. But I'm, I'm thankful for that too. I mentioned a little bit earlier, I mean, price discovery is finally happening at scale. I mean, we've been tracking, you know, say, office distress since COVID and you know, you'd have these onesie twosie deal in certain markets, but you didn't think you hit critical mass where you had enough sales transactions to actually know directionally if prices had bottomed out or where they were. But I think at this point in most major markets, we've had enough price discovery to kind of know what a distressed office asset should trade for. We know what the cap rate should be on those deals. We know that there's been, you know, this bid ask spread has kind of come in to where you can actually get deals done. There still needs to be a lot more of that. I mean, I don't think that we as evidenced, you know, seven and a half percent overall delinquency, almost 12 in the office sector. There's still a lot of distress to work its way through the system. But at a high level, I think the wheels have started in motion and we should start seeing those things, you know, transact, you know, if not the last couple of months of this year, certainly within the first couple of quarters of 26, you know, in addition to just seeing price, you know, discovery and you know, some of these transfers taking place on the distress stuff, Stephen, you know, we've been talking about this narrative of two markets for a while and I think we can all be appreciative and thankful for some of these really large deals starting to make their way through the process. So I mean Brookfield bought a set of older, lower cost warehouses this last year for $428 million. SL Green buying, you know, New York City's Park Avenue Tower was one of the biggest deals of the year. 36 story building in midtown Manhattan. So it shows that that desirable office space and great locations is really, you know, taking front and center stage. And we've seen, you know, those are just a couple off the cuff examples. But we've probably had no shortage of, you know, call it 50 or so of these, you know, hundreds of millions to maybe even billion dollar type of transactions. Not to mention the refinancings of Tishman Spire Spiral Building was another one that was significant in the billions on the heels of them refining Rock center at the end of 2024. So a lot of really positive, big headline grabbing type of class A transactions in the marketplace. So really great to see those. And based on the SASB issuance, you've done a lot of deep dive on SASB over the last couple of months. Appears to be no slowdown in appetite for that.

[Steven Buschbaum]

Yes, I mean that's definitely something to be thankful for. Is that despite some of the headlines of distress in the SASB sector, interest shortfalls eating up into, in some cases the AAA bonds. I mean despite those hiccups, the demand and the over subscription levels for SASB has been incredibly encouraging. Now I mean I'll be fair here and admit that some of this is just due in part to necessity. Right? We have to put money to work. We need to buy yielding assets at a rate that's going to allow some of us to retire at some point in time. But yeah, the allocation has remained strong for CMBS and for SASB pricing and the spreads have pulled back in. So the fact that we could take continue seeing that resilience is absolutely something to be thankful for. Now I want to share a piece that we had from our friend Arrest over at CRE Direct. He shared one thing that he's grateful for and that is that liquidity is back big time which is allowing for the long needed asset repricing to take place. As he notes, CMBS issuance could surpass 130 billion this year. And Some are predicting that we'll see pre GFC levels of volume next year. So as he notes, the engine that is CRE is running in all cylinders. For those who are counting, that's eight. Eight cylinders, not a punny four. Even if it's turbocharged, we're talking the full eight cylinders. And Lonnie, I think you can appreciate the difference between a turbo four and a full. What is it? Naturally aspirated eight. Is that the right term?

[Lonnie Hendry]

That's the right term. But I will tell you, man, things are changing. Those turbos are pretty impressive. It used to be more cubic inches meant power and the reality now is they just put bigger turbos on these smaller engines. But I get the, I get the, I get the picture here. Yeah, the V8 is what everyone wants. It still sounds way better always.

[Steven Buschbaum]

Oh, yeah, there's no replacing that. I mean, BMW has done some crafty things to make their engines sound meaner. Even though it's like a six cylinder. In fact, on the M series and the Gosh, like the M40 eyes, they actually designed the engine to purposely misfire one cylinder. When you have it in sport mode, that's just cute. Hands off to the ultimate driving machine.

[Lonnie Hendry]

Haley's about to turn us back onto the road course again. Well, I mean, look, Challenger and Charger and Dodge, the Mopars, they stopped making the naturally aspirated or combustion engine versions last year. That was the last year they went electric. And I don't think they've sold any of them really. I mean, whereas you don't get that muscle car sound. It's weird how psychologically, like when you're going a fast car, you want to hear it being loud. It's tough to go really fast and super quiet. Even though I will say these electric vehicles are incredibly impressive with their acceleration capabilities. It's really remarkable.

[Steven Buschbaum]

You know, just speaking of issuance, I want to toss out a status update as we roll closer into December here. The total year to date issuance. So these are deals that have issued and closed, have been funded and deals that are announced scheduled to close in mid December. Right now we're right at 117 billion. So it's going to be close, Lonnie, it's going to be super close. We need a handful more deals to breach that 120 billion mark. But right now the calendar is looking packed for December. So just to round out our things to be thankful for segment here, two other things that I wanted to mention that I'm thankful for have been multifamily Absorption and stabilizing interest rates. So for multifamily absorption we have had a record breaking amount of stock at added to the market and the fact that, you know, we've seen rents occupancy levels hold in and we haven't seen a dramatic spike in distress levels in the sector, not just within cmbs, but if we look across the broader lending sector. Right, you haven't seen multifamily delinquencies tick up in bank space dramatically like they could if that supply really was not being absorbed. So the fact that we're continuing to see multifamily resiliency and that absorption holding in there is encouraging. Granted some of that is coming at the expense of the single family market, but still something to be thankful for. And then stabilizing interest rates. The fact that the 10 year has come down to about 4% and some of the volatility that we've had has subsided in at least the last week. But by and large we have had a decrease in rate volatility over the last, gosh, call it six, eight weeks and we're at a level now. I think that broadly it seems to me, Lonnie, that the market has more or less accepted these rate levels. So even if we don't get say two, three more cuts from the Fed, I feel like we're weathering the current level of rates fairly well. And back to the broadening out of the rally, if we do get those two, three more rate cuts, that really sets the stage for I think an encouraging economy to grind it out to even higher levels.

[Lonnie Hendry]

So I definitely think Stephen, like we've, we've kind of hit a range of stabilization on the rate side where people feel like they can transact and make things work. And you know, definitely thankful for that. And you know, I think the, the resiliency of the consumer can't be understated here either. I mean we've, we've seen a lot of people predicting how consumer spending and if you looked at the cinema indices and other things like that, this consumers would be tapped out at this point. Student loans, we had that whole conundrum and shenanigan of this kind of repayments coming back in and what's going to happen to FICO scores and what's going to happen this and that. And the reality is the market's just kind of kept going and you know, it's, it's a positive thing so long as they're not piling on insurmountable loads of debt. And that's the part that we just don't know about yet. We'll see how that plays itself out. Because I do know, and we talked about this last week, just the cost of everything is up so much. I mean, you go get fast food at a fast food place for a family of four or five and you're spending 50, 60, 80 bucks depending on what level of fast food drive you to a sit down restaurant, it's over 100 bucks. It's expensive to live right now. And so it would be interesting just to see how long people can continue to pay the higher price when wages have not gone up nearly as much and the job market is now softening. I mean those, those broadly are just not great indicators. But as we sit today, I'll tell you, things seem to be ticking right along like they should be. And so the Fed cuts rates in December. Just boost that psychology a little bit more people will be out there spending more money.

[Steven Buschbaum]

Oh, heaven knows Waller is banging the table for that rate cut and it seems like he's had some others join him at the table banging their silverware. So it'll be interesting to see what happens with that Fed chair race here in 26, because at least from what I've heard, what I've seen, what I've read, it seems like it's boiling down to either Waller or Hassett.

[Lonnie Hendry]

So let's just play this out a little bit. If Waller gets in there and they run the rates back down, right, Like I was talking about this earlier on the other show, we can't inflate asset valuations anymore. People can't afford things as is. And you have houses that are 400, $600,000 houses selling for a million two still you have $2 million houses selling for four and a half million dollars. How, how like if you raise rates back to zero and everyone takes off again, like it just does not, it just doesn't work. Like I don't see what is the value of doing that because it's just going to create even a bigger divide which is already creating like this crazy political crater between two parties that like, I just don't, I don't understand what the impetus would be to, to stimulate the market on the housing side or in the commercial real estate when you know, prices have remained stable on single family and issuance that you just talked about in the commercial side has been really, really strong. Like why do we need some additional external stimulant to kind of push these things up?

[Steven Buschbaum]

So I don't get the sense that Waller is going to be as, as dramatic in cutting or at least advocating for cutting as say, like Myron would be like, Myron has been very outspoken. So we should lower rates by 150 basis points. So I see Myron is more of that, you know, lower bounds, inflating asset price, tail risk. Nomination. Hassett, I would say I put him kind of between Myron and Waller. I could be wrong, but that's at least my perception. And then Waller I view as maybe the best choice for credibility and moderation in rate cuts. I think they understand that if we lower them too much to your point, we're going to be inflating asset values and inserting skewness in the market in a really nasty way. And there's something to be said for keeping rates at say, like the upper threes level. Right. I want to get paid a decent yield on my savings. We should be incentivizing saving in the economy. And I think that that won't be lost on, on Waller and some of his allies there over the Fed. And really what I am most concerned about in this, this whole mashup of folks vying for Fed chair position is that we should really be concerned about credibility and what that means for longer term rates. Right. If we pick the, I don't call it the wrong person, but what the market might not appreciate as the right person for the job, we could see the long end of the treasury curve push up in a very painful way, which is going to be incredibly painful across all asset classes. So hopefully that reality isn't lost on Besant. But when you have Trump basically threatening to fire Besant if he doesn't lower rates immediately, I just wonder how much that's going to play into who he's recommending for Fed chair.

[Lonnie Hendry]

Yeah, I mean, that's where I'm going with this. It feels like there's a chance that we may be getting away from a data driven approach. Although you could argue with the way Powell has navigated this, I would contend on the whole it's been fairly successful. I mean, probably better than fairly successful. I would say it's been successful. That does give me a little bit of concern heading into 2026, because I do think that could be. Look, I own a home. If home prices go to the moon, not terrible for me, but. But it creates this really challenging environment for the marketplace. And I honestly, like, I would rather things just be more driven by fundamentals and not, you know, politics. And so we'll see how, how that plays itself out. I think that's, that could be a wild card for 2026 for sure.

[Steven Buschbaum]

Yeah, yeah, I would put that in the top three.

[Hayley Keen]

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. So that's a little bit of what we're thankful for in commercial real estate this year. If you have something you're thankful for, or if you have a story or something interesting that you did this year that you are thankful worked out, or it has something interesting that you want to share with us, send it to podcastrup.com we'd love to highlight it in our Shout out section, but now I want to transition us to our more of an educational or 101 segment. We sort of introduced the idea of ground leases on last week's episode, so I want us to dig a little bit deeper and pivot into the topic. What is a ground lease? Why should we be talking about it? And then talk us through a case study example of something we've seen around this topic.

[Steven Buschbaum]

A ground lease is a long term lease of the land. Only one party owns the dirt. Another party, the ground tenant, leases the dirt and builds the improvements on top. So instead of buying the land, the tenant signs a long term lease that can run say 50 to 99 years. They pay ground rent and usually take on taxes, insurance and operating costs as well. And then at the end of the lease term, unless there's an extension or purchase, the the land and building can revert back to the landowner. So the tenant holds a leasehold interest, the right to use the land and collect income during the term while the land owner holds the fee interest and collects ground rent. Now I'm sure some of you who are new to ground leases are wondering like why in the world would we do this? Like what's the benefit? Why do ground leases exist? Well, for landowners, it's about control and income. Families, institutions or public entities can keep irreplaceable locations, collect predictable rent and still benefit from long term appreciation. For developers and investors, not having to buy the land shrinks the upfront equity cost and can boost returns if the ground rent is cheaper than a land loan. Ground leases also unlock sites owners would never sell, but are willing to lease. Now, the trade off is complexity. You're not just underwriting rent rolls and expenses, you're underwriting the ground lease document escalations, reset formulas, extension options and default language, because those details drive the economics. And let's face it, it can get incredibly complex. There is no one size fits all vanilla boilerplate here. These tend to be very bespoke documents, though there have been pushes out in the marketplace to try and standardize the approach, standardize the language. But I will tell you from firsthand experience, it is a wide spectrum out there of how these leases are structured and how the documents are written. Now let's move on to what are the risks? When a ground lease has many decades left, it can look like, well, basically traditional ownership. The problems show up as that fuse shortens and you move into the last 10 or 15 years of the term. If the future ground rent resets to fair market value, you don't know what your rent bill is going to look like after the reset. So that could mean a big jump which can absorb most of the building's noi and absolutely crush the value of the leasehold position. Appraisers and lenders respond by focusing on cash flow through the remaining term and often give little to virtually no value beyond that lease expiration, unless there is an extension option that's clear and economical or you have proof of viable negotiations for a an extension. So because the ground rent usually sits ahead of the mortgage, a default on the ground rent can put the lender's collateral at risk. Now let's look at a case study. This is an example of what we've been talking about with the risks of when a ground lease is set to expire and what that can mean for the collateral that sits on top of that. Now this case study involves 1407 Broadway. This is an office building that backs a SASB deal called BB CMS 2019 B way. So this collateral is a 1.1 million square foot office tower in Manhattan's Times Square south garment district. That's approximately one block west of Bryant Park. And as I mentioned, this backs a single asset, single borrower CMBS deal that was issued in 2019. So at securitization, the building was valued at about $510 million, which supported a $350 million floating rate loan which works out to roughly a 70% LTV. Though this asset has run into problems recently and it's had to be revalued, recent appraisals on this property show the collateral values dropped to around 120 to 136 million, which is almost a 75% drop from the original value. Now, part of this value decline is the midtown office story. Softer demand and higher cap rates. That's a big part of of that. But the bigger piece, honestly is the ground lease. This building sits in a ground lease that runs through December 2030. It was structured as a 76 year term with just one 18 year extension option which would push the expiration out to 2048. So investors are looking at a major office asset with only a handful of years left on the base term and a single shot to extend. Now the post 2030 land rents that the rent bump is very modest and so the hit to NOI is not going to be huge. The problem comes when you hit the 2048 expiration. For appraisers and rating agencies. That uncertainty is brutal. You're valuing a leasehold interest whose economic life may effectively end at the ground lease expiration. Rating agencies now flag the short term leasehold interest as a key credit concern and the $350 million loan has already become delinquent and moved to special servicing. The lesson from 1407 Broadway is that ground leases are a double edged sword. When terms are long and predictable, they can be a useful way to unlock sites and boost your capital stack. When the term gets short and the reset math is uncertain, they can erase hundreds of millions of dollars in value even for well located assets. So as you look at deals or follow CMBS stories like the one involving BBCMS 2019 B way, don't just stop at the occupancy and cap rates. Ask three questions. Who owns the dirt? How long does the ground lease run? And what happens at the reset? Get those answers right and you'll know whether that shiny building is something to be thankful for or something that ends up as leftovers for the special servicer.

[Lonnie Hendry]

That was a great one on one, Stephen. And I think for folks that maybe don't have extensive background in ground leases, that gives them a really good talk track of what they are and then how they actually play themselves out in the marketplace. I mean this is a good example of a bad example where you have some of those questions left unanswered. But in practice, I mean, especially in the large major cities, New York, Chicago, etc. You see a large number of ground leases and for the most part they work themselves out fairly well. Where they do create additional opportunity that wouldn't be afforded to developers if they had to pay full market value for land up front. And not, not just take out the ground lease. And so we'll see how, you know, this deal works itself out. And it's, it's funny, I actually, on the residential side, I sold a condo to a couple down in Austin a few years ago where they bought a condo that was built on a ground lease, I believe it was with the university. And it had something like 16 years left on the ground lease. And the reality was the highest and best use for that parcel was now something much more dense than what was currently on the site. Effectively, they were buying into something that has a finite Life for about 16 years. And as soon as that ground lease expired, they were going to tear the building down and they're going to build something else. There's now for them, you know, is two adults, no kids. They were, you know, mid to a little bit later years in life. And so they didn't care. They were willing just to spend the money and have the experiences for the next 16 years. But for a lot of folks, maybe they weren't in that position. They were going to be in a tough spot because they're. Whatever equity value they thought they had in that property was effectively going to be zero in a short period of time. So tons of examples of this. Real time. Yeah. And if you have any other questions or you have some examples of how ground leases have been positive or negative and you wanted to share those with us, we'll be happy to give a shout out or link back to for folks on the in the audience that have taken an interest in this segment.

[Steven Buschbaum]

Now, there's one stat I didn't throw out here that our listeners might want to know. For that Broadway deal, the current in place ground rent for that deal is 414,000. That's set to increase to just 450,000 at that December 2030 increase when that extension gets exercised. And if you kind of do the back of the envelope math for what the ground rent could reset to in 2048 to justify that value of kind of low 100 millions, it's an exponential increase. I mean, you're potentially looking at a ground rent of millions of dollars. So, yeah, increasing from a paltry 450,000 to, gosh, 5, 10 million. On the low side, I think some of the math I've seen potentially pegs it, you know, at the high end of 20 million. But don't quote me on that. There's, there's still a lot more work to do to figure out what quote fair market value would be on the land. And what would be a sustainable ground rent for this asset? But that's. Yeah, that'll be an interesting one to watch.

[Hayley Keen]

All right, so turning to some programming notes, we are gearing up to release a lot of our end of month and beginning of month content delinquencies, special servicing. So send us an [e-mail] if you want to make sure you're on the list to get the latest figures and data. We also released an analysis last week using our Trepidata. This is our weekly spreads data. I know you did a, you did some coverage for this last on last week's episode, Stephen, but we'll be coming out with more of these analyses. We looked at office last week and then we'll have upcoming editions about industrial and retail. So take a look at our TREP I information and if you're interested in learning more about the spreads data, send us a note. We've had so many of you come to us wanting to see the data in action or take part in some capacity, so we'd love to talk with you about that. And then lastly, I'm doing a very early plug here for the planning of our upcoming Trep Connect conference event, so I'm not going to share all the details yet, but last year we hosted a two day conference in New York City in May. We had multiple tracks commercial real estate lending, we brought in experts from across the industry, we had trip experts, and we had so many of our podcast listeners that came to that conference. We are gearing up to announce the dates and send around a save the date for the 2026 version of this conference. It's going to be bigger and better. There's chances to network, to see our data in action, to meet teams, to meet some of our past podcast guests and experts that we're friends with here at trep. So if you want kind of early access or to get a sneak peek at some of what we're planning, send us an email on podcast to podcastrep.com and we'd love to have you at this conference event. We make it very accessible for people to join us and if you lock it in now, then you have something to look forward to in May. So we'd love to have you all there. And as we keep planning and building out the agenda, we will continue to announce the information on this podcast. Turning to shout outs, last week we were pondering about what we can say as the slogan for 2026. Some of the past year's slogans were stay alive till 2025 so a few of you reached out to us. Jason O sent us that you should get back in the mix in 2026 and Philip M. Had a similar comment. He said he loves the podcast. He thanked us for our great insights and data over a healthy and fun conversation each week. And he said he thinks there is still room for everyone to become more active and commit to getting back in or more fully in the mix in 2026. So that was his slogan for 2026. He also said he thinks next year is poised to keep up the momentum that we gained in 2025. Small banks and regional banks certainly stepped up with additional CRE production and the larger lenders came back, some dipping their toes into the space. Equity providers in the LP space were pretty hesitant this year. PREF was certainly available and I think the alternative lenders and debt funds definitely stepped up. So thank you Philip for your thoughtful commentary. He cheers us to a hectic finish to 2025. A happy Thanksgiving, a Merry Christmas, a Happy New Year, Happy Holidays. So we really appreciate your comment, Philip, and we thank you for giving us a slogan. I think, Lonnie, you had someone else on LinkedIn send you a slogan too, right?

[Lonnie Hendry]

Yeah, my friend Phil that I that met through the podcast went and had lunch with, he sent me a slogan taking their licks in 26. And so I think that kind of speaks to some of the narrative. We talked about some of these distress deals maybe finally transact in 2026, which is great, but it means that the folks that are underwater on these probably have to take the losses, whether it be the lender and or the LPs.

[Steven Buschbaum]

So should we maybe do like a refi fix in 26 or lock in the fix for 26?

[Lonnie Hendry]

Well, it depends on who the new Fed chair is.

[Hayley Keen]

There you go. If you have another slogan idea, send it our way. Steven, I know you got a LinkedIn message from another Stephen, Stephen W. Who said they love the podcast and keep putting out great content. We heard from Ari K. Who is a recent graduate looking to enter the real estate industry. Ari was looking for resources about the South Florida market and any information on development trends, occupancy acquisitions, they said. I figured I would reach out to my number one source of real estate knowledge. So thank you so much Ari. We'll share some information that we have and we wish you luck as you enter the real estate industry. We have a lot of different programs and ways to get involved and meet people in commercial real estate. Chris C. Commented some information on a video about the office market and gave us a shout out for our data. Layla K. Called out multifamily investors and shared some information on OPEX using our data. And then some of our team members sent some thankful for shout outs. Andy B said he's thankful for the smart and dedicated team we have at Trep analyzing SIRI and banking data. And E and M shouted out all of our consortia partners at Trep and said we are thankful for them. And this is a great reminder. We have such great teams at Trep. Many people don't know, but we have product, tech, data, science and beyond teams at Trep that are constantly building, growing, releasing features and tools that really improve our clients workflows and bring new clients to our business every day that are in need of data and solutions and advisory work. So we're really excited about all the work that our teams are doing. I have to give a special shout out to our marketing team who is always in the background making sure that all of this new and exciting initiatives that all these teams at Trep are doing gets out to the market and gets in front of our audience. So thank you to all our teams who work to build and do so much for the Trep company. And thank you to my podcast co hosts. I think I say this from time to time on this podcast, but I think I could wake Lonnie and Steven up in the middle of the night at 3am and they could run this show without any prep or any notes. They're just always ready and excited and eager and passionate to do this show. So thank you guys so much.

[Steven Buschbaum]

Thank you. I don't think we could ask for a better host. I mean, shoot, you've done everything in the podcast, you've hosted, you've produced it. I mean, you've done everything. So I mean, we couldn't do it without you, Hayley. We truly couldn't.

[Lonnie Hendry]

Yeah, 100%. I mean, Hailey and I started on the same day at Trep, so we've got to experience a lot of this stuff together. Six plus years at this point. She's built out an incredible team here at Trep that output punches their weight class and makes it to where, you know, Stephen, you and I get to do this show and look like we know what we're talking about. So we definitely appreciate you guys and, you know, yeah, just trap generally, I mean, Trip has been an incredible place for all of us to be and created significant opportunities for all of us and the interaction with our listeners, whether it be at conferences, via email, LinkedIn, message, whatever, is just really remarkable. And it's, it's amazing. Even though we've been doing this now for almost six years, the reach is still just something that I don't think we truly grasp until we actually talked to folks that heard us on a podcast episode, you know, two years ago and started listening every week. It's just really, really cool to be part of this so we don't take it for granted. It's the highlight of our week every week. That's what I like to say. And it's going to continue to be that as long as they'll allow us to do it. And, you know, I'm thankful just for the dynamic nature of the real estate market. I mean, we are lucky to work in an industry that literally provides us with headlines and stories and talk track week to week where we can actually have a recurring show where we have salient, topical, timely, you know, discussion points every single week just because it's the nature of the business. And so we hope that you enjoy what we bring to you if you want to be on the show, if you have some, some pointers, if you want to come to our events, like, you should interact with us. We're just normal folks that love what we do. And so as we head into Thanksgiving, we appreciate everyone, you know, giving up an hour of their week every week and listening to our show or if you listen to us on 1.5 times, maybe 25 minutes. But we hope you continue to support us. We hope everyone enjoys their family this week. We all take a little bit of time to reflect on the things that we're thankful for because even with all the nonsense going on, there's never been a better time in history to live than what, what we're getting to experience personally right now. So very appreciative of everything that we have and hope to continue to bring some, some entertainment, some data and some facts to, to you guys as we continue to host this show.

[Hayley Keen]

Yes. Happy Thanksgiving to all. And with that, we'll close. Thanks to our producer, Carly Cento. Join us next week as we look at what' 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 TRWire podcast with your favorite provider. Thank you for listening and stay well.

[Steven Buschbaum]

All right.