← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
369. Before Circling Back: Jobs Data, Fed Policy, CRE Strategy Featuring Ground Leases, Data Centers, Investor Trends & More
00:51:03
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- [00:00]
Lonnie Hendry
Foreign.
- [00:06]
Hayley Keene
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 December 19, 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 Buschbaum, Research director. This week, markets are digesting the Fed's third straight 25 basis point cut and shifting their attention to the data that follows. Powell has already warned that earlier labor market figures may be revised lower, so this week's employment report, along with fresh Fed commentary, is getting extra attention. At the same time, investors are watching how the easing cycle filters into commercial real estate financing. With rate uncertainty narrowing, the focus is turning to spreads, underwriting and whether a more stable policy backdrop will help unlock lending and deal activity heading into early 2026. On today's show, we will also take a closer look at some of the major themes shaping CRE right now, including the debate around some alternative asset classes and why some investors are taking a more cautious approach. We'll also walk through a 101 segment on rent concessions and economic vacancy, which matter more now as new supply and softer demand push effective rents away from headline growth. And for this week's deals, we have a handful of trading alerts across sectors to round out the discussion. So Stephen, with markets weighing the impact of recent rate cuts and the early data coming in this week, how are you thinking about the setup right now?
- [01:50]
Steven Buschbaum
Well, at risk of using an overused term from this year, I think the setup right now is cautious optimism, but with a big asterisk around the data. Now, in fairness, if we all can remember, cautious optimism is really how we kicked off 2025. So I feel like it's fitting to squeeze that term in just once more for this last full trading week in 2025. But I think as we all can agree, it's time to put that one to bed and move on to something else in 2026. Maybe restrained confidence, tentative confidence, or constructive but cautious? I don't know. We'll get some feedback from our listeners, I'm sure. So anyway, back to the data and the outlook. After three straight quarter point cuts by the Fed, the market's trying to figure out what is next, like what these next few moves will look like and whether the economy is cooling in an orderly way, whether something more abrupt could happen or perhaps the dreaded stagflation outcome. Powell's point about potential labor market revisions matters because if we get weaker reads and upcoming data, it reinforces the idea that cuts could continue. But it also raises the question of why the data is weakening. Now, if I had to classify this week's labor data print, I'd say it was neutral, but we'll get to more on that in just a bit. So from a CRE perspective, the big change is that rate volatility has really narrowed. Now. This helps even if absolute rates still are not cheap, right? We've said so many times in the podcast that markets have calibrated and I feel like right now we're at a very healthy level. So if the policy path is more stable, the conversation will continue to move away from what's the 10 year doing tomorrow and back to credit fundamentals, spreads, underwriting and cash flow durability. And you're already seeing that in how lenders are behaving. They're still selective, still conservative, but they're more willing to engage when the story pencils and the sponsor is strong. Exhibit A We talked about this today on the Market Pulse webinar about how much CMBS issuance was backed by office in 2025. Though to be fair, a huge chunk of that office is Grade A prime office. Lonnie, I'm not sure if we can come up with an equivalent for YGU for Office, but I think that's how some of it would be classified. Now this other piece is pricing rate cuts alone don't unlock transactions. You need bid ask gaps to close. But we have seen that you also need clarity on effective income. And that's why things like concessions and economic vacancy are so important right now, because headline rent growth can look fine even though the rent, real rent, the effective rent, is sliding. So Lonnie's going to help us out with that in today's episode. So for this week, I'm watching the data for direction, but I'm watching Siri for fundamentals and confirmation whether stability is translating into more deal flow as we head into 2026. Now let's get back to the macro. So Lonnie, I mentioned the labor data was neutral, but that's just my take. Can you break down that report for us and give us your take?
- [04:47]
Lonnie Hendry
So Stephen, before I jump into the report here, I wanted to go back to your cautious optimism. I think we had a pact last week or maybe two weeks ago that we're going to stop using that term. So I think I've already had to have three or four shots since you said it might be a little tipsy on this show here in a few minutes. It maybe is appropriate, but I do like your suggestion that we find some new way to frame that. So I definitely ask our listeners if you have some ideas to replace cautious optimism. That's the last time I'll say it with something else and more appropriate. I would be very welcoming. We probably send you a Tripwire podcast T shirt if you come up with like a winning suggestion. As for the jobs report, you know, payrolls rose by 64,000 after falling by 105,000 in October. Non farm payrolls growth totaled A seasonally adjusted 64,000 for the month, which was better than the estimate from Dow Jones of 45,000 and as I mentioned, followed the sharp decline of over 100,000 in October. You know what's interesting here, Steven, unemployment rate rose to 4.6, which is more than expected and it's at its highest level since September of 2021. You know, so that's, that's something to be watching, I guess, as we go forward. The establishment numbers showed most of the gains in November came from a familiar source. Health care, no surprise to everyone, added 46,000 of the 64,000 jobs, which accounted for more than 70% of the total net increase. You know, I think people are looking at January already and saying there's going to be low odds for an interest rate cut in January. I think these numbers provide some stabilization, as you mentioned, you might call it neutral. Obviously after the October decline, seeing any positive growth here is good. The fact that it was better than what Dow Jones has estimated I think is another positive sign. But I think as we talked about in our Market Pulse webinar today, just on the macro, the labor market's definitely softened and the timing is kind of interesting in the sense that with consumer spending and the holiday shopping and all of this stuff, like you have a lot of, you know, short term employment, you have some other things, it kind of gets masked and hidden and then this is all coming on the heels of the government shutdown. So I think Powell's kind of said, listen, we have some stuff that's going to be rolling in and maybe adjusted. So I wouldn't get too excited, optimistic or negative on any of these reports that come out over the next 30 or 60 days until things effectively get back to a normal reporting cycle. And we feel like the visibility and transparency has been brought back to the market.
- [07:20]
Steven Buschbaum
Yeah. And just to get super in the weeds with how exact or inexact the headline data is, it's actually very inexact. The Unrounded unemployment change, I think was an increase of 0.13%. But the way it flows through makes it look like it's a 20 basis point increase. So the reality is that it really isn't maybe as bad as that headline would indicate. It's also not the right direction that we want to see it going in, but it's inevitable. Right. We're coming off of really a historically tight labor market. So all in all, the data's kind of gone the exact direction I think everyone has expected it to. And the really bigger question mark for this week is what's going to happen with that CPI print? Because I believe that will be one of the last main inflation reports the federal see ahead of their first 2026 meeting.
- [08:12]
Lonnie Hendry
Yeah, and I'm still not convinced that with Powell's pending exit in 26 that we're going to see a lot of activity between now and then. And I think the narrative has shifted pretty predominantly towards who's going to be the next Fed chair. As soon as that's formally announced, you're going to see an entire narrative created around what people's expectations are. I mean, the dot plot, all the stuff that we've seen up to this point, I think all shifts. I mean, the dot plot we talked about last week was estimating one rate cut, I think, in 26, and the markets have effectively priced in two or three rate cuts and all that will shift as soon as they know who the Fed chair is. I saw some reporting today where the markets want Waller as the Fed chair, but Trump has kind of said he's moved on to the other two guys as potential front runners for that. So it'll be interesting to see who wins that tug of war and what direction he, he takes with, with the appointment. And so, you know, I think as we round out 2025, it's been a dynamic year. I like the way you frame some of the, the opening in the sense of, you know, being selective, you know, conservative kind of hitting, you know, a recalibration given where rates are. I think I would maybe take a little bit more optimistic view though in 2026. Like I think this flight to quality narrative that we've seen in 2025 and we highlighted this this week on the Market Pulse webinar with SASB being about 75% of total CMBS issuance. I think you're going to start seeing some of these secondary property types, secondary locations, lenders, finally capitulate and write some of these deals off and you're going to see people taking a much more opportunistic approach into 2026. So maybe we're not there yet, maybe I'm a little bit too soon, but it just feels like this continuation of kind of like playing it safe and sticking to the high end, quality, credit worthy type of institutional deals. I think you're going to see that maybe continue. But I also think you're going to see a resurgence in these like non institutional deals where transaction volumes really start to spike in 2026.
- [10:21]
Steven Buschbaum
Yeah. To tie CRE to the broader equities market. You've heard a lot of strategists, economists talk about a broadening out and the lift we're seeing. And I would say we're poised to see something very similar like you lose to Lonnie, a broadening out of the lift and some of these secondary property types, secondary locations, hopefully picking up in transaction volume because we there's only so many billion dollar mega deals we can digest before we should start seeing that broadening out occur.
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Lonnie Hendry
And this is the second year in a row where we've gone into the end of the year with rate cuts from the Fed. So do you think we see an extension of what we saw in 2025, in January, February, in terms of issuance and volume? Or do you think, you know, we're going into this now with a more cautious approach since the Fed has now been a little bit more active at the end of 25. Like what do you think this sets us up for? Given, you know, they basically paused for most of 25 and then this last quarter they've decided to go ahead and start making some moves. Is that indicative of they waited too long for 25 or is it more indicative of them kind of, you know, getting things ready for 2026?
- [11:34]
Steven Buschbaum
My personal view is that I don't really have any reason to believe that 2026 will be any different from how we started out 2025. If I'm an issuer, I definitely would prefer to front load the boat on what I'm originating, what I'm getting out the door. Especially given that rates, spreads, liquidity, everything has been conducive for issuance. So I mean the fact that you saw was it five conduit deals, price and hopefully clear at healthy subscription levels at the end of 25. To me, as long as nothing goes sideways with those transactions, that tees up a strong start for 26.
- [12:13]
Lonnie Hendry
Yeah, I agree with you. I did want to circle back on some retail sales. Just given that we're in heading into the sales season. So October retail sales actually slowed. So if you look at the Census Bureau data that it was released on Tuesday, it actually indicates a more cooling economy. October sales were flat just after a 0.1% gain on September, missing expectations for modest growth. So if you want some context, retail sales have averaged 5/10 of a percent monthly earlier in 2024. Slowdown points to softer consumer spending. You know, I think we're going to have to get to a point where we outlaw that relative to cautious optimism because we've been saying softer consumer spending. But then every time you get a negative report, the next three months actually show that they're still spending like crazy. But analysts are catching up with the day and data after the government shutdowns. You know, we'll see what this means. It'll be interesting. I don't know if you've been out doing some holiday shopping or not. It feels like all of the stores are still very busy. It feels like the parking lots are very full. It feels like the Black Friday, you know, craze has now been extended into like a month long phenomenon. I don't know what that means for sales. I would have to assume that E commerce sales are probably up. But you know, we'll see what, what the story is at the end of the year when the reporting actually gets completed.
- [13:35]
Steven Buschbaum
Yeah. Based on how shelves were stocked at my local Target, I would say it's been a very active season. There's certainly some weakness evident on the shelves with some of like the higher premium end consumables like the more expensive chocolates or candies maybe being more fully stocked than some of the discount stuff. But all in all, it looks like your very typical picked over chaotic aisle.
- [14:05]
Hayley Keene
So let's dig into data centers in a new way. We just released a podcast episode with Mike Comparato of Benefit Street Partners and he gave us his take on whether data centers are an asset class that they're interested in. And if you want to hear his thoughts, go listen to that episode. But maybe you guys can dig into why some people would be hesitant to invest in data centers. We saw an article this week in CNBC that a billionaire real estate developer was actually waving the red flag over data centers alongside data centers. We've had people in the industry raise their concerns around life sciences as well. So give us some of your takes on these alternative asset classes.
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Steven Buschbaum
Yes. For our listeners out there, if you haven't seen this CNBC article, the title of it is Billionaire Real Estate Developer Waves Red Flag over Data Centers or data centers, whichever way you said. I love that article. It's fantastic. It's one of those stories about somebody who grew a business out of a very modest seed capital. So Fernando de Leon launched a small lot development firm in 2004, and I think he started out with like, something like $100,000 and grew it into a $10 billion commercial real estate powerhouse. And essentially, the way it walks through his history and the way he was seeing the market ahead of the 2008 GSE, and then in 20, 20, 21, coming out of COVID you see, like, you know, just how valuable it is to have some seasoning under your belt and some objective perspective for what healthy supply and demand looks like. Because we all know that we were very imbalanced in 2006 going into the 2008 crash and imbalanced again in 2021. And that's what the CNBC article talks a lot about. So, on specifically the data center front, some of the things that were highlighted in this article are very much in line with what we've said on the podcast, that first and foremost, you haven't seen a lot of really any exits in data center space, at least for these mega assets. So until we actually can see exits, how in the world can we talk about exit pricing with any degree of confidence? And then second, perhaps equally importantly, here is if you look at the asset itself, it's not just the four walls and a roof that make this real estate unique. It's what's inside of it. So really, this is maybe less about real estate and more about an infrastructure play. And I think that's really, really important. You know, what goes into these data centers is going to very quickly depreciate. One thing that was brought up in this article is that some of this hardware will rapidly depreciate. If the whole idea about artificial intelligence is that we get more efficient, well, at some level, aren't we essentially making some of these data centers obsolete with the advances we'll be making? I think that's a really important perspective to keep in mind as we're underwriting these assets and allocating capital. Lonnie, I'm curious if you have any additional points you want to add in here or an alternative perspective to take on data centers?
- [17:14]
Lonnie Hendry
Yeah, I mean, I think we've been, you know, talking about this for some time that I still bullish on the data center concept and AI. Obviously, I do think that from a real estate perspective, we're. We're entering into maybe an imbalance where there's been so much capital, so much development. And to your point, there's not really. We've never. We've never seen anything go full cycle here where you've acquired, built, deployed, sold at scale, and the numbers just keep getting bigger and bigger. That's the problem. And the loans against these properties, the promise of more efficiency, all these things. There's some circular reference to the efficiency gains that you just talked about. Definitely has me a little more concerned about this today than maybe I was a few months ago. And you're starting to see potentially some canary in the coal mine type of stuff. I think today Oracle, they have a $10 billion Michigan data center that's in limbo. They were in talks with Blue Owl for funding and that stalled. And I think the ecosystem here is fragile in the sense that everyone has had fomo. So we know when that happens. People tend to look the other way at some tough questions. They don't want to be the ones not making a loan or doing a deal. Underwriting gets stretched. But as soon as one or two of these stalls and people start taking a deep breath and actually looking at some of this stuff, I think you could see a real pullback. I mean, it's almost like a rubber band that's getting stretched and it might come back our direction. And so I think we'd be naive if we didn't think that there was some valid positioning of maybe this is too far. But you balance that with Elon Musk and these others talking about putting data centers in space and all of this stuff. I don't know where the pendulum should be, but I think at this point you're definitely going to have some losers. I think that's been identified at this point. Like you're going to have some overdevelopment, you're going to have some people that paid too much. You're going to have technology that makes current technology obsolete. Like those are the known knowns. It's just the question of how many and what is the scale and what are the downstream implications if 5, 10, 50 of these go the wrong direction?
- [19:27]
Steven Buschbaum
Yeah. There's one other analogy that deleon used in this article that I loved, that he called. Some of these leases are like Swiss cheese in terms of the exit clauses or termination. Basically what you have are some very technical leases that perhaps don't give you the stability and certainty of the 15 or 20 year term that some of these have been written to. I think that's an incredibly valid point to keep in mind, is that, you know, it's hard to really put a firm confident number to some of these assets if you don't fully understand some of the clauses that are put on.
- [20:03]
Lonnie Hendry
Here on what is there. Like we've seen the values that have been decimated in office because there's no alternative secondary use. Now multiply that lack of alternative use by a thousand and now you have a data center. I mean, like, if you think office or residential conversion is difficult, try converting a data center to something that's usable outside of being a data center. It's, it's not, it's not possible. And the cost that goes into these, no one's going to want to spend equally as much to tear them down, rip all the infrastructure. Like, it's just, you know, you look at this OpenAI stuff and some of the government bailout that they've been, you know, kind of positioning without formally asking for whatever. I could see an instance where people make a case that this becomes an infrastructure play for the US and you have some sort of government backstop here. Obviously private capital is like driving this initial wave and getting it to critical mass and like getting everything up and running. But I think you could see some sort of a backstop here because I'm not sure to your point. The leases, the tenants, the structure, the capital stack, all of these things are sustainable at the numbers and at the scale that they've been pumped out. We're a long ways from that. I mean, Bernie Sanders today was saying he wants a moratorium on data center development. And I've seen several cities over the last couple of weeks where they've successfully pushed back against data center construction. I mean, I know over the last couple of months we've talked about people starting to push back, but now we have a couple of cases where they have definitively, like they've not allowed the development to proceed. The tide has turned, you know, like the excitement and joy has been sucked out of the room. And I think people are really looking at these from a slightly different perspective. And so we'll see, we'll see how this plays out. I mean it, it could, it could go a bunch of different directions at this point.
- [22:04]
Steven Buschbaum
Yeah, the, the power needs are, are, I think we've said this many, many times. That's one of the major stress points that really concerns me. The power draw in data centers has increased something like threefold in the US over a five year time span. And some of these leases, the clauses are basically guaranteeing a certain amount of energy throughput, continuous energy throughput. And I just don't see how that's possible in certain energy constrained areas. I don't see how that lease is durable to some really downside scenario stress.
- [22:37]
Lonnie Hendry
You know, we've seen this play out in other categories. Not exactly the same, but similar. When you added the big box tenants to the retail malls and you started getting co tenancy clauses in the leases where if you had one or two or three of these big boxes go dark or whatever, then these other tenants had the ability to opt out or move out or reduce the rent or whatever the case may be. There's a very similar parallel to what you just described. If you're promised a certain power load that can't be delivered, you effectively have a pretty nice out if and when that happens, just like we've seen. And once some of these big box stores close down, you saw some of the negative pressure that it put on some of these operators to either backfill them or face the repercussions of those, those, you know, co tenancy clauses. So I don't think this is new to real estate. Like it's a new sector maybe, but the concept, the construct has been played out. I think the challenge for us is, and we'll be debating this, I would assume, as an industry for the next several years, and you hit on it, Steven, is this even a real estate play? Is this an infrastructure play or is this something else? I don't think the markets have fully figured out where this asset class truly fits.
- [23:52]
Hayley Keene
All right, so our next topic here today is something that also was sparked in our conversation with Mike on our guest podcast. So thank you, Mike, for all the content. But he made a point that really stuck with us. And he and Lonnie were riffing on this for a little while. You guys were talking about how there's a whole generation of people in commercial real estate that have never experienced a real downturn. They've never had to think about rent concessions, free rent, loss to lease, because for a long time those didn't exist in any meaningful way. So why don't we pick on some of those topics today and give our listeners a one on one or an educational segment and explain exactly what a rent concession is and why people need to be aware of it.
- [24:41]
Lonnie Hendry
Yeah, so for those listening to this podcast, you definitely need to check out the guest podcast with Mike. He was a wealth of information and his platform has grown to be a pretty big powerhouse in the industry. It was really great to sit down with him and kind of go back and forth on, you know, the market and where things are. And this topic of concessions is timely just given where we are in the cycle. So as he mentioned, you know, a lot of people that got in the business in 2011 or 2012 never seen a downturn. We've, we've talked about that on the show. And it is when you start thinking about, well, what does that actually mean to a practitioner, never seen a downturn. Well, there are certain parts of the cycle where you, you don't understand because you've never experienced it. And concessions happens to be one of those things where unless you're, you know, living in a disruption like we are today, you might not have had to deal with that. So for our one on one today, concessions, you know, I frame them as the hidden signal, all right. They're effectively by definition, they're incentives offered to tenants. You know, we might call them free rent, waived fees, reduced deposits, anything to attract or retain occupancy. So it's a pretty simple concept. If you wonder why they matter, you know, they really mask rent growth. And so this is something, as you get at the business, you learn very quickly you have what's called market rent. So you might have a property owner that advertises rent at $2,000 a month, that's the rent. But after the concessions, the tenant only pays eighteen hundred and fifty dollars. That's the effective rent or the net effective rent. And that obviously distorts market rent trends. If you ask someone what's the market rent, they may say 2000. You ask someone else, well, what's the market rent? They would say, well, it's whatever the tenant pays. Well, what does the tenant pay? Well, they pay 1850. Well, that's your market rent. Well, yeah, but that's, that's the net effective rent. Well, that's effectively what you're getting every month. And so you start seeing this delta and it's not super clear. There's not a lot of transparency around concessions, just broadly in the marketplace. And so some people offer concessions as a one time lump sum, some people allow them to spread it out over the lease term. It can get distorted very quickly. You know, just from a broad perspective, the more concessions in a market generally means that there's an oversupply or there's softening demand, or there's competitive pressure that forces prices down. And so for lenders and investors, concessions reduce cash flow and can impact DSCR and valuation. So again, this goes back to if you're doing your underwriting analysis or you're trying to run a DCF or you're trying to run a direct cap value on something. You need to make sure you're using actual rents. Because if you have market rents that are 20% higher than net effective, you're not going to get a good NOI to do your analysis on. Obviously in the CMBS market, it holds true there. Heavy concessions erode NOI and increases default risk. So what this leads us into is just this discussion then around, well, what is the vacancy if we can't determine what the rent is? You have this construct and there's a delta or difference between physical occupancy and economic occupancy. And concessions makes this a very germane topic. So let's just say as an example, I have a 10,000 square foot warehouse subdivided into two 5,000 square foot spaces. It's very obvious if one space is physically occupied and the other space has no tenant, you could walk by and say, well, that building is only 50% occupied. Or you could say that building is 50% vacant. You would be correct. Where it gets tricky is let's say I lease both spaces. The first side is occupied, the next side I lease out. But I have to give them two months free rent on a lease to get them to move in. Well, I'm physically 100% occupied now, but those two months of free rent impact my economic occupancy and they create this construct of economic vacancy. And economic vacancy is what you need to get down to because that's truly going to identify what is someone actually paying in rent. So all of this just comes back to if you're a broker, if you're an appraiser, if you're someone that's trying to underwrite an asset, concessions when they're in the market are indicative of someone getting a discount to what you purported market rate is. And you have to account for that in your underwriting analysis. Now we can go through a bunch of different trends. Steven, I want to get your thoughts on this, but you're seeing this predominantly right now in the multifamily space where you have an influx of value add, reposition, multi that's being put in the market. They had underwritten significant rent increases. And what they're seeing is with all the new supply that's hit the market, a real slowdown in their absorption. And so in order to entice people to lease, they're offering them free rent or a concession. And it helps with the physical occupancy, but it doesn't necessarily help with their economic occupancy.
- [29:30]
Steven Buschbaum
So I guess my Question at this point is, first off, how much longer are we going to continue seeing these concessions offered in the market? Because effectively, when you see those concessions burn off, it tells you you're more or less at equilibrium or at least closer to neutral. And my hope is that we'll maybe see that in 2026 across most markets. But I suspect some of this weakness will probably continue on into 2027, because, I mean, let's face it, we've had a massive amount of supply, right? A record breaking amount of supply. So. But I think we're well into that absorption timeline now. One other thing, Lonnie, that just crossed my mind. You mentioned this on a previous podcast, but I figured I'd bring it up again because it's a good one. About the question of if I offer you two leases, one, a lower lease rate offered across the full 12 months, or a higher rent, but you get one month in free, Ren, what should you take as the tenant?
- [30:31]
Lonnie Hendry
I always want to take the spread out over the full year because that gives me a better starting point for renegotiation upon renewal.
- [30:38]
Steven Buschbaum
Yes, the stickier mark to market on your lease renewal. And I guess if we really want to get technical, perhaps the question from the tenant's perspective should really get into, okay, what's your expected duration? How long do you really expect to be in this apartment? Because the longer your term, perhaps that that does play into renewal probabilities and likelihood of getting Mark to market and all of that good stuff. But I'm with you. That's. That's typically what I would go with as well.
- [31:05]
Lonnie Hendry
You know, it is funny though, because sometimes concessions can be used in your favor as an operator. And what I mean by that is you've had several multifamily operators in particular over the years that have gone to what they call effective rent pricing, where they basically cut the concessions out. They tell market participants, we're going to basically go to the car max model, where it's like the price you see is the price you pay. And what they realize is people want to negotiate and people actually pay more if they feel like they've negotiated than they will if they get a better deal, but they don't feel like they were able to negotiate. And so you see some of these operators with higher market rents than what they probably think they can realistically achieve offering concessions that still get them a net effective rent higher than if they just went to their net effective rent target. That's where the psychology and the human component come into real estate. It's not for some of us in the business that we're in. We think real estate is just spreadsheets and numbers and math. But when you start operating these assets, you realize the human component is a big part of this and people's psychological approach is interesting. They want to feel like they've negotiated even if it means that they didn't get as good of a deal.
- [32:21]
Steven Buschbaum
So Lonnie, we've gotten into a lot, but the reality is there's even more frisk to get into because there was this recent FTC ruling that just hit here in December of 2025 talking about disclosures and what that means for rental rates. So I believe we have some exciting things planned here in the coming future, right?
- [32:41]
Lonnie Hendry
Yeah. Keep your ear to the ground here over the next couple of episodes as we delve into, you know, just some of the value Trap can bring to apartment owners and operators. We've been a beacon of transparency in the CRE data space for a very long time and that extends into the multifamily space. So market analysis, rental rate analysis, vacancy analysis, competitive landscape. We have a lot of really great granular data that provides insights in a neutral fashion that should be well received in the market on a go forward basis.
- [33:13]
Hayley Keene
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 moving over to our deals and Data segment this week, we have a lot of trading alerts that we've sent out to our clients throughout the week. I want us to give some high level details on some of these here. Let's start in retail. We saw an Oklahoma City SASB mall loan that was sent to Special servicing.
- [34:12]
Steven Buschbaum
Yes, this was the $310 million Penn Square Mall Loan which transferred to Special Servicing for eminent balloon maturity default. The loan is set to mature in January of 2026 and has never been delinquent throughout its loan life. Special Servicer Commentary reports that the borrower solicited quotes from multiple CMBS lenders but has not been able to secure financing. So stay tuned on this one. The loan collateral is an enclosed 2 level super regional mall comprised of just over 1 million total square feet located approximately 6 miles north of downtown Oklahoma City. The property was built in 1960 and renovated in 2013. The property is anchored by Macy's, Dillard's and JCPenney. Commercial Real Estate Direct reported this past March that Moody's had downgraded four classes of the this CMBS SASB deal that holds a portion of the debt for the first three quarters of 2025, the loan posted a DSCR based on net cash flow of 2.06 times with occupancy at 89%. So I mean, this asset is performing extremely well, and we've seen this a few times where you have an asset that's performing very well but still cannot make it over the refinance line. Now, there's one other aspect of this loan that I wanted to highlight because it does tie back to an episode we did recently on ground leases. Because Lonnie, this one has a very interesting structure for its ground lease. So this ground lease was struck back in September of 1958 with an expiration date of September 2060 with no extension options. The ground rent due during the loan term is equal to the greater of $500,000 increased every five years commencing in January of based on CPI or the sum of a 0.375% of gross annual sales made during each lease year by all retail tenants plus B 4.625% of the gross annual rents of all tenants not included in clause A and who occupy their respective premises on a monthly fee, flat rate or annual rental basis. Have you seen one of those ground rent structures before?
- [36:37]
Lonnie Hendry
So I just want to say for our listeners out there, this is when I wish that our podcast was video because you would see Steven's face light up like he just got a puppy handed to him when he's reading through the ground lease details here. No, that's a very interesting me rolling my eyes.
- [36:51]
Hayley Keene
No, just kidding. Just chuckling.
- [36:55]
Lonnie Hendry
You know, it's when you're a data nerd and you get into this stuff that's super nerdy about the data. I mean, we just did a topic ground lease and now Steven's found this awesome ground lease that's super unique. He's all over it. It just highlights the nuanced nature of commercial real estate. And everything is a negotiation and terms can be set by the two parties. And it's amazing what people will agree to and it's amazing what certain people are able to get out of others. And so this is a great example of something that, you know, doesn't fit the typical structure but seems to work well, maybe in this case not work since they haven't been able to refinance them all itself.
- [37:36]
Steven Buschbaum
But well, just one other quiz tidbit for you here, Lonnie, because this, this one also opened my eyes quite a bit. So I'm looking at the sources and uses table for this loan at origination. So the loan amount was $310 million. How much would you guess was returned to equity on this refinance transaction?
- [37:55]
Lonnie Hendry
What year did this refinance take place in?
- [37:57]
Steven Buschbaum
So this is a 2016 SASB deal.
- [38:00]
Lonnie Hendry
Yeah, so I, it's a large number. You said 310 million total. So I'm going to estimate somewhere around 60, 80 million.
- [38:08]
Steven Buschbaum
Over 215 million.
- [38:13]
Lonnie Hendry
I mean listen, we, we, we wrote a paper about this comparing malls and offices on these large SASB deals, interest only notes where yeah, some of these, some of these sponsors have just milked them dry relative to, you know, they get compressing cap rates, increased values, don't put any capital into the properties, cash out the equity on refi, move on and live another day. That's a tale as old as time.
- [38:40]
Steven Buschbaum
Yeah, this is one of the larger cash out refis I've seen. Our second trading alert here that we had this week was on a large Y and mall whose value was slashed well below the loan balance. According to our December data, the $225 million Pearlridge center loan has been reappraised and that collateral value is now well below the outstanding balance. The asset was appraised at 427.5 million at securitization in 2015 and this most recent appraisal dated in August of 2025 slashed that value to 1 76.5 million. So from 427.5 down to 176.5 now. We last mentioned this loan in a June edition of Trupwire when it transferred to special servicing due to eminent balloon maturity default. The loan currently shows a status of non performing matured balloon as of December. Special Servicer Commentary reports that it finalized a consented receivership motion with the borrower and submitted it to the courts in November. The loan is backed by a 900,000 square foot super regional mall in Hawaii on the big island of Oahu in the Urban Honolulu MSA. The mall was built in 1972 and renovated in 1996. Top tenants of the space include Macy's and Kiki kingdom which occupy 19% and 7% of square footage respectively. Both of their leases expire in 2027. Over the first three quarters of 2025, the loan posted a DSCR based on net cash flow of 2.15 times with occupancy at 8.80percent.
- [40:17]
Lonnie Hendry
So speaking of Hawaii, Steven, I don't know if you saw this story. Blackstone and Divco west inked a $2.3 billion deal for Hawaii's Alexander & Baldwin. So they're going to take private one of the largest and oldest landowners with a portfolio of 4 million square feet across various sectors. Pretty interesting.
- [40:35]
Steven Buschbaum
Story. All right. Rarely do we have multiple Hawaii stories in one.
- [40:39]
Lonnie Hendry
Week. So we've had Oklahoma and Hawaii shout.
- [40:42]
Hayley Keene
Out. I don't know if we've ever had a listener reach out to us from Hawaii. So if that's you or you know of one, send us a shout out podcastripp.com and let's close here with an office story. This trading alert is according to our latest December data and we said that a huge Manhattan office value has been slashed below the loan.
- [41:05]
Lonnie Hendry
Balance. Yeah. So it's been a great run for the New York office market. I think in the last multiple weeks on the podcast, we've just had a bunch of green shoots for New York office, but there are still some challenges. So according to Our December data, $425 million 32 Avenue of the Americas recently reappraised and you guessed it, the value has been slashed so below the existing loan balance. The asset was appraised at 770 million back in 2015 when it was securitized. This most recent appraisal issued September of 2025, but just being reported this month, shows a value of 340 million. We had previously mentioned this loan in September following its transfer to Special Servicing for eminent balloon maturity default as of December. The loan was current following one month with the status of non performing matured balloon. Special service or Commentary reports that it's working with the Master on a loan modification closed in November that extended the loan's maturity date from 1125 to 1127 in exchange for the borrower committing new cash equity, agreeing to cash management and increasing reporting. The loan consists of a 1.2 million square foot office in Tribeca neighborhood of New York city built in 32, renovated in 99. Top tenants here are Telex, CenturyLink with 13 and 6% of the square footage respectively. The former's lease expires in 2033 while the latter's runs until.
- [42:29]
Steven Buschbaum
2040. So Lonnie, just some fun little facts about this Manhattan office property at 32 Avenue of the Americas. So just reading through some of the prospectus information and this property is located at the convergence of multiple local, national and international fiber optic cables along one of Manhattan's major fiber optic corridors. So effectively what this enables is the property to serve as one of those meet me room hubs for colocation. So an incredibly important infrastructure location here for this building. You know, we've had a few of these properties come up on the podcast and I am always very bullish on the long term prospects of places like this. As you know, once you get that sort of momentum or critical scale for a property like this, it effectively makes it indispensable and critically important for infrastructure over the long run. So hopefully we'll see this one work out to the positive over the long run, but definitely not what we like to see when the property value gets slashed below the loan balance And.
- [43:38]
Hayley Keene
I have a few programming notes for our listeners today. If you don't follow us on LinkedIn or get our emails, you might have missed it, but we sent out our official Save the Date for our Trep Connect in New York City conference. For those of you who don't know, we host an annual event where we bring industry leaders together. We pair insights, connection and innovation with leaders across the CRE and lending landscape. So we are really excited to be hosting the event again this year. Bigger and Better in New York City right in Rockefeller center and it will be taking place on May 6 and 7, 2026. You will be able to take part in expert LED panels and market discussions. We already have several speakers lined up. We're so excited to announce those in the next few weeks. And if you're interested in speaking, you can also reach out to us about that. We will be tying data back to everything we do at this conference so it won't be your typical conference. You will get to hear fresh data, fresh perspectives will bring people in the room who are actually doing the deals that you want to learn about and hear from or do business with. And there will be a lot of chances to network. You'll have two half day events and then a really nice networking reception where leaders from banks, lenders, brokerages, investment shops, they'll all be able to come together in a room. Connect Network. You'll get to meet the TREP teams. It's a really important event for us and for our listeners and clients and people in the industry, so we'll have a lot more details, agenda announcements and additional registration information to follow. But mark your calendars May 6th and 7th. If you have young children or you're active on the Internet. You'll know why those numbers are funny, but we'd love to have you there. If you're listening to this podcast, we can get you a special Early Bird discount rate. So we'd love to have you sign up now. Save the date, lock it in and we would really love to meet you all in person in May. And then another announcement. We will have our Year End magazine released in the next few weeks. Here we have a link where you can be on an early access list. So if you want to see the Year End magazine this year we're talking about measured momentum, office recovery with a question mark, refinancing cycles, and where CRE opportunity lies. Next, send an email to podcastrep.com and we will make sure you are on the list. If you're going to be at the CREFSEY Miami Conference January 11th through 14th, you can get a printed copy there. We would also love to meet with you. We are meeting with a lot of our clients and podcast listeners at the conference already. We still have some room on our trip calendars. We'd love to see you there. We'll be around the whole conference. We can meet you at the bar, at the coffee shop. We have a meeting room. We'll also be sponsoring the golf simulator at the event, so there's a lot of places where we can just connect, chat, talk about what you're doing, learn about how the podcast has helped you, or see if you want to get more involved in what we're doing with the podcast. So reach out to us. We'd love to meet and if you have other events you're attending in January and February, send us a note and we will let you know if we're going to be there as well. Turning to Shout Outs, Tracy B. Reached out and let us know. She's a listener of the podcast and we're going to connect with her to learn more about how to work together. Logan W. Loves the weekly show. Mike R. Sent us his Spotify Wrapped and said Tripwire was his Top podcast of 2025. So thank you to everyone who keeps sharing those. It's been great to see. Sarah L. Said the show has become part of her Monday morning routine and helps her stay grounded in what's actually happening in cre. We have people who listen on all days of the week, so it's really cool to see that some of you are like, I need to listen the second it comes out Thursday night. Some wait till Friday, some wait till the next week. So we appreciate hearing that it's Very fun to see. Chris M. Said the podcast cuts through the noise and explains the why behind the data. Jenkins shared another 2026 slogan idea with us which she said stay in the mix in 26, which we've gotten a lot of. Alex P. Said the podcast has been a great resource and he's newer to the industry. Danielle S. Sent us her Spotify wrapped and Rob T. Sent us a year end note saying he's been listening all year and really appreciates the context. So speaking of year end, I wanted to close with this and get your guys take and maybe we'll have a little fun with this. For those of you in the industry or just in corporate America in general, you know that the default December email call and talking script is usually just let's circle back on that in the New year or I'll follow up in the New year. I feel like we haven't really been seeing that at trep. It's been very busy. There's a lot of conversations and projects that are still in the works. But we wanted to know if that's everyone's experience right now and maybe you guys can riff a little bit here. What are some of the other phrases that we're hearing on people saying oh let me defer this to the New year, let's ping me in the New.
- [49:12]
Lonnie Hendry
Year? Yeah, I think the one that probably deflates me the most, pun intended is putting a pin in this for.
- [49:20]
Hayley Keene
Now. Well, or what about the people who close their email already saying hope you have a Happy New Year and you're like, wait, so does that mean you're not going to answer me until after the New.
- [49:31]
Lonnie Hendry
Year? On the the follow up to this is how long do you go into the New year? Referring back to I hope you.
- [49:38]
Hayley Keene
Had a happy New Year first two weeks.
- [49:41]
Lonnie Hendry
Only. Only you got to be hard and fast on that two week limit. Like if I'm getting a hope it was a great holiday, Happy New Year. Like in March, no go.
- [49:50]
Steven Buschbaum
Man. Yeah, 10 business.
- [49:52]
Hayley Keene
Days. I will say I thought about that today when I was reading the Dateline for this intro. I'm like, oh, I'm gonna have to say 2026 soon. That's gonna throw me.
- [50:01]
Lonnie Hendry
Off. Yeah, it's the harsh reality of us getting older is becoming more apparent every time the calendar turns over, isn't it.
- [50:10]
Steven Buschbaum
Steven? Sure is. But you know, we, we keep moving.
- [50:14]
Hayley Keene
On. Well, hopefully everyone's answering your emails. If you're trying to get deals across the finish line, I hope they come to fruition for you in this year. I know we're talking like it's the end of the year, but we'll still have two more podcasts after this. Don't worry, we will still record on Christmas week and on New Year's week, so stick around and stay tuned. We're not going anywhere with that. We'll close. Thanks to our producer, Mariana Sobrana. Join us next week as we look at what's happened during the week and how it may be impacting you. If you have a question or just a comment, send an email to podcastrep. Com and subscribe to the Trepwire Podcast with your favorite provider. Thank you for listening and stay well. All.