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)

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.

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.

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.

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.

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.”

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?

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)

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.

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.

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.”

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.

For questions, feedback, or to share stories for future episodes, listeners are encouraged to email podcast@trepp.com.