← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
375. Fed Signals & CRE Shifts: Data Centers, Multifamily Supply Wave, & Amazon’s Big Box Move
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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 January 23rd, 2026. 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 Bushbaum, head of Applied Research and Analytics. This week, markets are digesting a full slate of economic data as investors look ahead to the Fed's next meeting with fresh updates on inflation, growth and the labor market shaping expectations for interest rates in 2026. At the same time, policy comments coming out of Davos are adding noise around taxes, credit and regulation, keeping uncertainty firmly in the picture in commercial real estate. The headlines this week tell a very specific story. New construction is slowing while data centers continue to stand out as the one area still seeing heavy investment driven by AI and hyperscaler demand. There's also been talks about multifamily stress, while we've also seen real examples of capital stepping in from affordable housing in New York to large investors raising capital specifically to target property dislocation. On today's show, we'll break down what this week's macro data means for rates, dig into why data centers are bucking the broader construction slowdown, and take a closer look at the truth about multifamily where distress is real in some cases, but highly dependent on location, structure and sponsorship. We'll also walk through deal activity that shows how optimism and distress are showing up side by side in the market. So Stephen, as you look at this week's economic data and the real world CRE stories behind it, what's standing out to you most right now?
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C
A couple things are standing out to me right now and they really tie the macro tape to what we're seeing in CRE deal flow. And I gotta say though, just forewarning some of this might sound like a broken record, but I think that's only fair, right? CRE is somewhat of a slow moving beast. So first, the market is still trying to answer one question. Are we cooling in a good way or are we just getting noisy prints? Inflation progress has been uneven and the labor market is clearly slowing at the margins, but it's not breaking. And that's why rate cut expectations keep getting repriced because the Fed doesn't need to rush if growth is still hanging in there and inflation isn't convincingly getting back to target. Second, the uncertainty is showing up in Siri exactly how you'd expect Capital's behaving more like a spotlight than, than a floodlight. It's not that money has disappeared, it's that it's concentrating in the places where investors can underwrite durable demand and near term cash flow. It's why data centers and a handful of other benefit from the cycle themes keep attracting capital, while anything with messy fundamentals or big rollover risk is still facing a wide bid Ask Gap. And third, the refinancing pressure is still the main storyline underneath all of this. Even if rates lower the math of a lot of 2026 through 2028 maturities and it doesn't fix itself overnight. So we're seeing activity in pockets, but it's disciplined activity, more structured deals, more conservative leverage, and a lot of attention to sponsor support and business plans. So if I had to summarize it, the macro backdrop is keeping the cost of capital uncertain and CRE is responding with selectivity. The deals that work are the ones where the story is clean and the cash flow is defensible. Now, with that being said, hopefully I'll have some data gold nuggets to drop here later on to show some really fun things that I hope will play out through 2026 and also incentivize some of our podcast audience to join the Market Pulse webinar next week where you'll get the full dose of those beautiful gold nugget knowledge tidbits.
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That sounds exciting, Stephen. Especially with the price of gold right now. You're going to get more than you pay for. I think I'm going to push back slightly. Right on. I think your cautious take here and saying if you're saying, you know, if you had to summarize that you think, I think you said the macro backdrop is keeping the cost of capital uncertain. I actually think that part of the equation has been fairly well fleshed out at this point. Like I think everyone knows, you know, we've kind of gone from the higher for longer narrative to now the new normal narrative. Right? Like this is just higher. Higher is what it is. I agree with you. It doesn't change the math. But I do think that that part of the equation, at least at this point, is kind of baked in now. You could, you know, push back and say, well, yeah, but they're not, you know, depending on if you look at the dot plot or you know, if you look at the how the market's pricing and rate cuts, it feels like somewhere around two rate cuts, total of 50 basis points is on the table for 2026, depending on where you look and what you read. But generally speaking, like I think today people are probably more certain or optimistic around rates being where they are or lower as we go through 2026. I mean the administration has made it abundantly clear with the Fed chair change mid year, the expectation is rates are going to be down. So I think from that part of the equation, like I actually think investors feel like they have that one pegged. Now that doesn't mean that raising equity or fundraising broadly is easy right now. I mean, I think there's still uncertainty in the minds, especially in the retail investors of seeing these syndicator headlines and people, you know, not necessarily feeling comfortable at certain price points of like now's the time to get back in the market. The institutions broadly have been fairly subdued relative to like the, the running average if you look at their investment activity outside of the super high end class A stuff. So I think all of those things actually kind of lead me to being significantly more optimistic. Like I think cost of capital is fairly certain at this point. I think investor appetite is going to shift in 26 as we start seeing more transaction volume come in. And I think the institutions have made it known that the argument they like to use is that they're buying a discount to replacement cost. And I think for most of these assets we're at a point where that is something they can legitimately say. Now if this comes to fruition, who knows. There's a whole lot of political stuff that we can get into. But it feels like if I'm just looking at it from a pure CRE play perspective, I think this week, even with the geopolitical, the Davos, all the stuff that's going on, I think CRE is still in a very good spot where people are like, let's go, it's deal time.
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C
And I'm glad you called that out because I should have been way more clear in my what's uncertain because the rates, I agree completely. The rate forecast absent like Japanese bond bazooka, you know, hits us out of left field. Rates feel much, much more pegged. In fact, I mean just look at what's happened this week. The fact that we're not sitting currently in like a 4.3 handle, I think speaks to just how strongly range bound we are. Now I do have some lingering concerns with what's happened in the Japanese bond market because the, I mean it makes me shudder to think what could happen if some of this Japanese carry trade were to unwind and the term premiums that have been modeled for decades off of just this perpetually cheap Japanese gold cost of debt. I mean, it's been a cornerstone of the global economy. So I do have some concerns based on what we've seen this week. But again, the fact that we didn't break higher or linger there for longer I think speaks to that certainty side of the equation on rates. For me, the uncertainty really is more around employment and business conditions. Maybe we'll have time to get into this just a little bit. But the fact that you keep hearing just that the cooling ends, low firing, but importantly low hiring environment makes me wonder how much of a drag we're going to see on business growth over the next two to four years if we don't get the productivity, full productivity boost of the AI trade or if the AI trade does end up souring in 27, 28, which would be my bear case scenario.
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Do you think though that it's plausible that people just over hired at such a gross rate during the pandemic?
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C
Oh, absolutely.
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That some of this. Right. Is just kind of a recalibration to the norm and it's a little overblown because I think, look, I don't like the construct of a cooling labor market as it pertains to CRE because for the reasons you mentioned, it has some downstream implications generally. But in this instance, if you look at consumer spending and you look at just the resiliency of, of consumers across the spectrum, it doesn't feel like they're tightening their belts because they're afraid of layoffs for folks that are maybe unemployed right now. To your point, like hiring has slowed, but I don't know necessarily that that's a bad thing. Like I think for some of these firms are really just trimming back. And it's not so much about trying to see some increased productivity with AI even. It's more just kind of Right. Sizing for where they're at when a lot of employees probably were hired fully remote, maybe they're now in a hybrid work schedule. Some of this I think is just a natural lag from. It's kind of a byproduct of COVID Right. And we're just now seeing it play itself out. I think if it stays in this kind of controlled, measured approach where, you know, it's kind of balancing itself out with hires and fires. Not terrible, honestly. And then if you add in to your point some of the productivity gains we're expecting from AI, I think you accomplish both goals. You right size your firm, you increase margin through productivity. If that labor market though Gets too soft. Obviously that creates some challenges, but I think just where we're sitting today, probably not as concerned about that as I probably should be being completely candid, but it just feels like if the consumers are still spending at the pace at which they are, inflation continues to print where it has been. I think this feels a little bit more just like a right size correction than anything else.
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C
Yeah, no, I think that's an incredibly accurate summary, Lenny. I don't want to get too distracted here with what's happened in Davos this week, but I can't help but bring it up because I feel like some of the events that have transpired this last week could end up being really, really impactful potentially over the next decade. I mean, we'll see. Who knows, right? We can't even predict rates one year out. So who says we can predict geopolitical shifts a decade out? But the one thing that struck me first, I really liked how markets snapped back the sell off on Monday. That was so intense.
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Right.
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If I was sitting in a trader's seat that day after hearing the comments from the president of Finland basically saying, yeah, I expect this Greenland stuff to be put to bed by the end of the week, I would have been all in buying after hearing that. That's somebody who is in the room with a seat at the table saying, in full confidence, yeah, we're going to get something done here. So the fact that we snap back so quickly, Beautiful, perfect. But what concerns me is what happened in the bond market. The story about a Danish pension fund dumping all of their treasuries and the murmurs that maybe you're going to some of this geopolitical rotation out of US Debt, in part, maybe some of it is retaliatory, but maybe some of this also has to do with fiscal concerns longer term. So when you look at, say, what's going on in Japan with shift higher in yields and the concerns about the fiscal backdrop, potential unwind of the carry trade, but probably more importantly, possible rotation out of US Treasuries and devaluing of the dollar. I don't know that that just kind of, it gives me the heebie jeebies. That's like the, the, the boogeyman of finance, you know, kind of lingering under your bed there.
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Listen, I think we got to record a podcast live from Davos. We got to figure that out. So we'll let Hayley talk to Simon H. And see if we can get that in the budget for, for us going forward because that would be pretty nice. But listen, I definitely think everyone's pulling on whatever lever they have right now because of the rhetoric and everything coming from the administration I said relates to, you know, Greenland, some of the other things that are rousing some folks up at NATO, etc. Etc. If and when they have the ability to kind of create some disruption for the U.S. i think they're going to. I think structurally though, the US Is the safe haven. I mean, like, I'm, I'm, yes. Steadfast in that. Right. So it's like, yeah, okay, do what you got to do, make your statement. But capital is not going to be fleeing our country at any, like, measured pace for a extended period of time, in my opinion. I mean, I think people are still betting on the US economy versus any place else in the world on a long term basis. So, listen, I think Davos is an interesting construct. We get a lot of people together, there's a lot of ideas, share people make a bunch of bold statements. We'll see if any of this stuff happens. I do agree with you. You know, at some level we're just desensitized to kind of what's happening. I mean, like, Monday can be a crazy day in the red and, you know, that might have been a topic for us for a week and things snap back and it's just kind of like, okay, that was just a random blip on the radar and we're on to the next thing. And there'll definitely be some sound bites coming out of Davos we'll probably pick up on over the next week or so as things kind of materialize. But generally speaking, I think it's just more of an exercise of performance and theatrics. The stuff that's going to get done is done outside of the public view and we'll hear about them after deals have been made or whatever. So in this case, listen, we love to get the sound bites. We'd love to do a podcast there. But I think generally speaking, some of these things are just headlines.
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C
Yeah, I mean, I think at the end of the day, with midterm elections coming up, what the White House ultimately is going to try and force through one way or another is for bond yields to break lower again. So, yeah, we're 20 basis points off the lows of maybe two weeks ago. But will we hold there? No, we shouldn't. Because ultimately the domestic concerns at home should, and I'm sure will end up dominating.
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Yeah. And look for the midterms. They need a couple of things going into that. They need a really strong economy. They need these GDP prints and inflation to come out favorable and they need low mortgage rates. And I think you're going to see any and everything they can do to kind of get us there. They're going to pull out all the stops because November looms large for the current administration. If they lose the majority, you can see a stagnated office where they don't get a lot of stuff done for the next couple of years. And so I think the rhetoric and all the stuff, all these crazy ideas, you're going to see a whole bunch of stuff happening between now and November just to try to keep things in their favor.
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A few other headlines that caught my attention this week and it's not something new to us, but but it surrounds the topic of data centers. There was a headline in the Wall Street Journal that said commercial builders are losing their appetite to build anything but data centers. Developers might be pulling back broadly across CRE construction, but we're seeing signs that data centers are an asset class that is still attracting aggressive capital and development activity. So talk to me about this. I know we've been digging into this topic on a lot of recent episodes.
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C
Yeah. So we had this Wall Street Journal article and the high level takeaway is that developers are pulling back broadly across CRE construction with data centers emerging as the only asset class still attracting aggressive capital and development activity. Now, that's not to say that nothing is going on on the margins. There's obviously still multifamily being built. There's still some retail, some office, et cetera, et cetera. But if we were to break this down on a dollar basis, this would obviously look like data centers are winning the day now, in part because they are so incredibly expensive. Commercial real estate construction is poised for little or no growth this year, but data centers are that notable exception. Higher interest rates, steeper material prices and a tight labor force provides significant headwinds to new construction this year. Spending to build offices, hotels, apartment buildings and warehouse is projected to fall in 2026, according to estimates from F FMI Corp. A Raleigh, North Carolina based construction consulting company. But data centers, sought after by large tech companies to run artificial intelligence platforms, are the bright spot. Construction of these properties is less deterred by those higher costs because of still unmet demand from hyperscalers. I mean, it's just insatiable demand. Amazon, Google and Oracle are the other top users of data centers that continue to finance billions of dollars of new AI focused development. And the quote from a partner at FMI here, he's he's saying that the cash is not an issue for these people. I mean that's, that's an understatement when you look at the cost of these centers. In fact, Trump was at Davos this week and specifically called out Meta's Hyperion data center cost and how, I mean this is somebody that has a data center deep history in commercial real estate construction and has dealt with projects in the billions of dollars. And even Trump got wide eyed and was like, are you kidding me? Like this thing is massive. So I mean the scale is just completely unfathomable to most of us mere mortals. In commercial real estate, spending on construction of data centers will rise by 23% in 2026 compared with the year prior. That would lift them to more than 6% of all non residential building construction, up from just 2% in 20. The massive scale and expense of data center projects presents a unique opportunity for construction firms. Compared with other property types, data centers can cost more than 1 billion to build and employ thousands of workers on the construction site. So again, back to the comment we've made a couple times. I feel like over the last two months or so that really data centers have been the sole reason why GDP has been printing positive. And absent that, we'd likely be seeing negative GDP prints here. I mean this speaks to it that the scale of construction of these and what that means for the recirculation of dollars in our economy, it's just absolutely phenomenal from a historical standpoint. If you look at construction booms that have occurred in the real estate sector historically, this is by far I think one of the most interesting from a macroeconomic standpoint.
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Yeah, this one is kind of interesting to me Steven. If you look at this from a broad just real estate cycle perspective, you know, like let's take a step back and look at this broadly. You have multifamily that over the last three years or so has delivered almost an unprecedented number of new units that's being absorbed across the US at various levels with you know, some negative implications in some markets. But generally speaking has been met with, you know, reasonable levels of absorption. But the appetite to build is, is just not high because in the markets where you would want to build there's a to of supply industrial saw significant construction during and post Covid to the tune of, you know, probably 20 years worth of development in about a five year span. So just naturally as part of that evolution of the cycle, you're seeing just a natural pullback in traditional industrial hotels. You know, we're seeing Some construction starts there, but you know, like there's, there's not a huge amount. It's like there's not an asset class that today has this appeal where people are wanting to throw money at it. With the exception of data centers, I think fundamentals across the ecosystem are strong for each of the asset classes I just mentioned, like on multifamily, and we're going to talk about this today on the pod, more detail. Multifamily to me is still a very safe bet. Still a lot of upside. You just got to build the right product in the right location. I would say the same for industrial, traditional industrial retail. There's not an appetite to build retail because coming out of the great financial crisis we are way over retailed and we're finally hit equilibrium now. Even though rents are pushing all time highs and vacancies are all time lows. And you probably could make a case to build more retail. People have learned from the previous experience at the downturn that they want to kind of keep retail where it's at. So I don't know that this is really fundamental driven. It almost feels like some of this is they're falling in love with the lease, the credit, the cash flow. Kind of going back to your intro, super appealing. But it almost feels like a non. I don't know that it's a real estate play. Like I don't know that there's some fundamental real estate driver that's, that's creating this demand outside of just the hope that this AI stuff comes to fruition. And I'm not knocking people. They're doing it because listen, I'm, you guys know, on the show and everyone that listens knows how bullish I am on AI But I think the construct of the way they framed the article, at some level those other sectors have legitimate reasons as to why there's not a huge supply wave coming. Multifamily being the one where they just had that. So I don't know that it's construction folks deferring away from other sectors because they love data centers. I think there's legitimate fundamental reasons as to why they're not building a bunch of those other asset classes.
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C
Yeah, I mean it's getting built in appropriate numbers. I would say if anything it's kind of reassuring that maybe we're in more or less a very healthy natural equilibrium state for space being absorbed, space being delivered, space being planned.
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Yeah, and I left out office. But I mean office is the other one that's obvious. There's no construction in office. Because it's post Covid office. So I'm with you. I feel like the other major food groups are just at an equilibrium right now. You could argue that multifamily is maybe a little soft, but the pendulum is swinging back in their favor as we speak. And we're going to end this year with rent growth I think being considerably positive. So it'll be interesting to see. I'd love to have some developers chime in or some folks that are invested in some of these data centers and let's see what are the metrics that they're looking at that's really pulling them forward to this asset class? Because the amount of capital to your point, I mean that part is factually correct. I mean the amount of capital, the pace and scale is unprecedented. But if we go back, maybe this is similar to what we saw with enclosed malls when everyone started building those, or maybe this is similar to high rise office buildings. When construction technology got to a point where you could build high rise office buildings. Obviously the dollar amounts, with inflation, everything are going to be considerably more. But maybe when this new asset class emerges, it's not unprecedented in the sense that as these other asset classes got more mature, they may have had ramp up periods that were very similar to what we're seeing in the data center space.
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C
Yeah, I mean this is, this is effectively a race for electrons and silicon. The other day like so ge, I mean it was interesting hearing this morning about some just sector trends over the past year and utilities haven't been the most attractive sector to talk about in the equity trade but they have absolutely crushed it, absolutely crushed at the past 12 months and all expectations are, I mean that's going to continue for another 24 months easily. You look at the, the demand pipeline, the product orders they have in place, the commitments, it's, it's amazing.
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I don't know if you saw the headline about prologis even, it's kind of a nice segue here but they saw that they leased more space than ever last year. This was in conjunction with them ramping up their data center growth. And so I mean for those that have been listening to the show, we've talked about prologis quite a bit. I mean they're enormous. They're world's largest industrial landlord. They were definitely in on this data center expansion, you know, throughout 2025. So all indications are that they're all in on this as well. They finished with 43.8 million square foot of leases in the fourth quarter which brought them to a record 228 million square foot of new tenant deals for the entirety of 2025. And so they also expanded its data center power capacity to 5.7 gigawatts. And they now control roughly 14,000 acres of land for data center and energy related development. And so their CEO had some interesting quotes here. Advantage today is defined by location, power and scale. That's according to CEO Daniel Leder. And this was on the fourth quarter earnings call. With a growing power pipeline, deep customer relationships and multidisciplinary expertise, we are well equipped to develop critical infrastructure few can match. So again, as we've talked about over the last couple of weeks, Steven, real estate as currently defined is going to have to be redefined. I mean the infrastructure component, it's, it's just like the private debt, you know, like traditional financing has been disrupted by these private lenders and I would contend not enough attention, even though we talk about it all the time, like nobody has thoroughly defined that new debt landscape fully with the private lenders being a large enough component that I think they've earned at this point. And I would contend the same thing is going to happen here with these data centers. Like real estate is going to spill over. It already has into almost a non delineated infrastructure real estate hybrid component. And if you listen to these earnings calls and the CEOs, you can't have them talk about the real estate component of the data center space without talking about the infrastructure that goes with it. And we've seen some of the really large CRE players over the last three or four years make very strategic infrastructure investments. Some of them have been publicized, others not. But you'll be hearing more and more about this as we continue the evolution into this new, this new ecosystem.
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So Lenny, I have to ask this question. How are we going to differentiate or determine when something stops being siri and starts becoming infrastructure?
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Well, that's the part where I think it's becoming seamless. Like I, I, that's, that's my, my theory or thesis is that it's going to become much more difficult to quantify. It's almost like, you know, some hotels want to attach an intangible brand value based on the flag that the hotel carries when they acquire an asset. The part that's interesting to me, Steven, is, and the reason I say we probably have to redefine this is in a current construct, when you buy a piece of property and you build a building on it, it's almost implicit or implied that there's going to be power and utilities available for that development. So you buy a piece of property in the city, you're going to have access to the water, the sewer and the electric. Those things will be enough to power that development. With these data centers that may or may not be true. And if it's not true, it's going to require some additional component to that. That's where the infrastructure comes in to make that viable. And how are they going to allocate that across the cost structures? Are they going to have a delineated power generation component? Potentially maybe if they start doing some of these small nuclear reactors or other things. But if it's just connected to the grid at a, at some higher construct and they, they put additional power. We see this with heavy industrial now that's still just a real estate play, but I don't know that we're going to get full visibility or transparency around that.
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C
So I guess if I had to break it down to maybe like two of the most common attributes that differentiate one from the other, is it one perhaps that the lack of generally lack of adaptive reuse and then two more possibility of government regulation or intervention with the asset. In particular more contract based derivation of value. Like something goes basically beyond the lease to like a multi party contract structure generally involving government. Does that make sense?
- [29:01]
A
Yeah, I mean like you see this at some level with large retailers when they enter a market. And so we actually have a term for this in the, in the CRE landscape of exaction. If a Walmart wants to build a new facility, the city could force Walmart to build the access road that would get the customers to their storefront without that being a burden borne by the city. I mean they could exact the retailer to build it. You have many municipalities across the US that have impact fees that effectively offset or are supposed to offset the infrastructure cost to build the plumbing, the sewer lines, et cetera out to those developments. So you know, you could have some sort of contractual arrangement potentially where you're spelling these things out. What would be really interesting is on some of these data centers and we spent way too much time on this today. I apologize to Haley and our listeners that this is too much, but we're just kind of nerding out here. I could almost see an instance where you amortize some of that infrastructure cost and you bill it back to the tenants almost as a ti, but instead of it being for building finish out, since the data center doesn't have that, it's almost just the amortized TI for the infrastructure cost as a reimbursement or as an increased portion of the rent paid by the tenants.
- [30:28]
C
Absolutely the way to go because ultimately what we need more of in the sector is scale, build out of infrastructure and in particular power to support these centers. And so the more we can spread that out across operators if they're in close quarters, the better. So I mean this gets back to like our nerding out discussion, gosh, this is a couple months ago, about the security concerns around data centers. So all of this I think gets lumped into the likelihood or possibility that you start seeing kind of more improvement districts when you have multiple of these data centers clustered in a reasonably close proximity.
- [31:08]
A
Yeah, you're going to have to have some sort of government intervention because the just the power grid as it's constituted today doesn't provide enough power without disproportionately negatively impacting consumers. And you're seeing the pushback already. And they don't create jobs. Like that's the other challenge. If you're an elected official, you can't claim a win when you bring a data center to your jurisdiction and it increases your constituents electric bill and it doesn't create high paying jobs. So I think that's where the mismatch is right now. These things. You know, we've seen many municipalities give away tax abatements and credits and all kinds of stuff when you bring high paying jobs to their market, they're going to have to figure that out.
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B
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C
Yeah, I mean it's, it's kind of hard not to empathize and feel some of that multifamily concern because we had this multi decade record of supply hit the market. I mean, it's just still hard for me to fully appreciate and in retrospect, like how much supply we added as a nation over the last four years. I mean, gosh, I think in everybody's backyard, wherever you live, you saw this play out. And so anytime you have that much of a supply wave, there's going to be some knock on effects. There's going to be some folks that entered late with too much leverage, with too optimistic of expectations of rent growth that are going to lose their shirt. And we saw a lot of that. I mean we actually did write a good number of articles trying to unpack some of that stress that was playing out in particular in the syndication space because I, I think that's really where a lot of the most visible pain played out. Like the Wall Street Journal, Bloomberg, you know, many of the main media outlets covered some of those specific sponsors and the specific asset stories that played out in the public arena. And it was, I, I got to tell you, I mean it was, it was a bruising, you know, reading it for our sector and it still continuing to play out. So let me just give a couple stats and hopefully this will entice some of you to join our Market Pulse webinar next week where we'll do a deeper dive and you'll get really all of the granular detail that we've been putting together looking at Fannie Mae and Freddie Mac's book of business, how it's performing, where the stress is showing. And also we'll pivot into this in just a bit what we're looking at for 2026 in terms of maturity pipeline, its performance and what that could mean for delinquency rates. So let me start off with Fannie and Freddie's book. 2021 and 2022 really was the peak of the supply and origination wave. And that's where we saw probably some of the most aggressive underwriting for rent growth expectations. So if we look at one of the simplest metrics to digest here, debt yield, and we are to look at the percentage of loans with a debt Yield Less than 7%.
- [35:41]
A
Right.
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C
And I know that's covering a wide swath of Loans. But just bear with me. I think debt Yield less than 7% for a loan that was originated say four, five years ago. That's really concerning if it's still performing at that level today. So for Freddie, Lonnie, I'm going to put you on the spot here. What percentage of Freddie's combined 2021 and 2022 multifamily loans do you think has a debt yield of less than 7%?
- [36:11]
A
I think it's going to be low single digits.
- [36:13]
C
Oh, it's not good, man. It's not good. For 21 and 22 combined, it's one third have a debt yield less than 7%. It's 33 billion. And so I think that's speaking to why you have the gloomy sentiment. But if we zoom out and look more broadly, I mean, that's only a small slice of the business. Before I get into that, let's just turn to Fannie Mae very quickly. For that same vintage cohort for 21 and 22, you have 30.7 billion with debt yield less than 7%. That's about a quarter of those combined two years of loans. But you know, that two year cohort is only about a quarter of Freddie's entire book. So if you set aside 21 and 22 vintages, it's only call it about 10 to 15% on average across Fannie Mae and Freddie Mac with a debt yield less than 7%. But again, that still is a pretty high, high stress level. Now in fairness though, anything that has been originated recently, you know, I think we've seen lots of loans originated with, you know, relatively low debt yields. So this isn't a number that gets me overly concerned because you have about a quarter of the loans in their combined book of business that have been originated in the last three years that I would expect to have a relatively low debt yield. Thoughts, Lonnie?
- [37:38]
A
Are they still current on the payments even with the low debt yield?
- [37:41]
C
I suspect, yeah, a large chunk of those are still able to cover debt service. And that's an important caveat.
- [37:46]
A
Yeah, yeah. In my, in my gu earlier, you know, like if I look at the Freddie delinquency, last time I checked it was about 50 basis points.
- [37:54]
C
Yeah, exactly. The delinquency percentage is for the, the entire portfolio for Fannie Freddie. I mean, it's less than 1%.
- [38:00]
A
Yeah. So I would assume if it's 33% of those vintages have debt yields less than 7, obviously not great if they're still covering the mortgage. And we think fundamentals are going to swing back in favor of some of these locations. I'm probably not sounding the alarm bells just yet, even though there's definitely some warning sirens going off, you know, around just what this looks like. So I, you know, it's, it's really incredible. I think it just goes to show, you know, we've said on the show multiple times that people like to talk their book. Well, the one thing that I think that's been consistent, Steven, across all, you know, lenders post gfc, is just that underwriting standards are super tight. The one thing I would push back on that is just if you look at 2021 vintage deals, pretty much across all lender types, those deals are not performing. And it's because either the price was way too high, the underlying financials were not indicative of, you know, stabilized performance, or this inflationary expense creep has really just eroded at a level unprecedented to, to some of these underwriting analysis. So it's, it's interesting because you wouldn't assume. I'm shocked at 33%. I mean, that's crazy high. But it just goes to show underwriting, yes, much better than pre gfc, but still market fundamentals have a way to kind of overrule what a spreadsheet says.
- [39:30]
C
Yeah, I'm excited to see how this plays out over the next three to five years. Like, there'll be some obviously breakage within the system, but I'm optimistic, I'm hopeful. Importantly, though, my emotions are going to be data driven. So we're going to dive into all of these metrics and more next week because there's obviously a lot more you want to know to paint the full picture as to what's going on in these books of business. All right, so we focused on multifamily, but I got to zoom out here. Let's zoom out and look at the broader CMBS space. So for the last couple of years, I've done a deep dive on the maturity schedules for the year ahead, looking at what's slated to come due over the coming year, by property type, by quarter, and importantly, what the debt yields are looking like. So we at least have a general idea what percentage or what portion of these loans could end up going bad or failing to refinance. And we'll roll into our delinquency rate because, let's face it, the delinquency rate gets a lot of headlines, as it should, and it's good at least have a general idea of where it could go over the coming year. So for 2026, we have. Drumroll, please. A total of over $190 billion in loans coming due across all securitized loan space. So that's Siri, Clos, Fannie, Freddie conduit large loans, SASB. I mean, that's everything of that. The private label CMBS accounts for 146 billion that's scheduled to mature this year. So sounds like a massive number considering that we just had originations over 125 billion this past year and we're facing 146 this year. But remember, a lot of these are SASB loans with maturity options. So what I did was I looked at the subset of loans that are what I call hard maturities, loans that don't have extension options that are facing their final due dates in 2026. That's actually 80 billion this year. 2026 is a fairly sizable year of hard maturities. But get this, Lonnie. The good news is when you go back and do this backward looking analysis of, okay, what were the debt yields like say year end 2024, ahead of that maturity schedule? We are almost a full percentage point higher on weighted average debt yield for the entire universe of loans coming due. So for loans that were coming due in 2025, we had a weighted average debt yield of 9.6% in 2026, it's 10.5%. So it's significantly better. I mean, it is massively better across the board. So I'm excited to present some of these numbers next week in the Market Pulse because there's a lot of good news in them, a lot of very, very healthy performing loans that are going to come due and I think play into our optimism for issuance that we could see in 2026. But there's still some pockets of weakness that we'll get to unpack as well.
- [42:30]
A
And this is what we call the real estate market. I mean, that's just the way it goes. You're gonna have some winners, some losers, some markets that exceed, some that disappoint operators that are good, operators that are bad. Dr. Debt yield is going to be Happening listens to this episode with your analysis on the debt yields. And I think for those that are, you know, listening. We talked about Stephen coming back full time here. He's definitely been in the lab with the pen and the pad, you know. Oh yes, finish the verse. But good to have him back. I can't wait for the Market Pulse. If you haven't signed up for that, you can email us, we'll send you a registration link so you can get signed up or you can find the registration link on some of our LinkedIn posts that we put out regarding the Market Pulse webinar, something we do every month, covers topical insights from that month that's taken place and gives us some deep dive on some of these, you know, other topics that are a little bit more evergreen. So looking forward to that this next week. And you know, I appreciate the preview, Stephen, of what's to come because this is going to be a pretty juicy one, I expect.
- [43:29]
C
So there's a lot for everyone and I'm excited about what we're planning out for future webinars because there's some topics that we've been kicking around for the next quarter that yeah, it's going to be a fun lineup here.
- [43:42]
B
So let's close here with one last story that caught our attention this week. This is in the retail market and we saw headlines in a ton of different outlets, one of which was the Wall Street Journal, and that said that Amazon is joining the big box league with its largest ever store. So this is Amazon making a bigger bet on physical retail?
- [44:03]
C
Yeah, I am. I'm very, very, very excited and curious to see how this plays out, because I got to say, I haven't exactly been the biggest cheerleader of Amazon's brick and mortar retail presence, but this is wildly different than most of what I've seen in the past. So Amazon is making a much bigger bet on physical retail, with plans for what would be the largest store yet, a massive big, big box location in the Chicago suburbs. The proposed site in Orland park would be roughly 230,000 square feet, making it larger than the average Walmart and almost big enough to fit two typical Target stores under one roof. So what's notable is how Amazon plans to use the space. About half of the store would look like a traditional retailer selling groceries, household staples and prepared food. The other half would function more like a fulfillment center, handling both in store purchases and online orders, blending e commerce and brick and mortar in one location. This comes after years of mixed results for Amazon in physical retail. The company has experimented with bookstores, pop ups and its Amazon Go convenience stores, many of which were eventually shut down. This new approach suggests Amazon is shifting away from smaller formats and leading into scale. Even with the growth of online shopping, more than 80% of retail sales still happen in store, which helps explain why Amazon is still trying to crack the physical retail model. Big box competitors like Walmart and Costco have dominated that space for decades, and this move looks like Amazon's Attempt to finally compete with them on their own turf.
- [45:42]
A
Yeah, I think a couple of things Stephen, just to point out for maybe those that are a little less familiar with Amazon broadly in the brick and mortar space, you hit on a couple of their existing outlets. But you know, they operate about 528 Whole Foods Markets across the U.S. so they, they do have a large physical presence, just not for their typical Amazon customer or at least for Amazon Goods. The Whole Foods Market, you know, as everyone knows, is a very successful grocery chain. The Amazon Fresh, that kind of flopped, although they still have about 60 stores across the US where they're providing, you know, fresh fruits and vegetables and stuff with quick delivery. Amazon Go was a pretty much complete failure. They've closed those down, although they sold the technology and some other people are using their Amazon Go technology. But I'm with you. I mean this is a direct threat potentially for the Walmart and Target. And I think, you know, you and I spoke about this maybe a month ago, Stephen, where I said Walmart is positioned to kind of take some of Amazon's market share because of their diverse footprint and last mile locations. But they would have to create some sort of fulfillment or logistics component to those storefronts. The Amazon starting with a much lesser footprint here basically, you know, store of one once this gets launched. But they're effectively trying to build that out. And you know, the reality is to your point about most sales still being inside bricks and mortar. Like you know, for all the things that Amazon does with online, I think to be a viable retailer at scale, you have to have some sort of physical footprint. And obviously for them, if they can marry the two, it should increase margin for them. I can only imagine the returns right now you have to do returns to Amazon through Kohl's or Staples or something else. If they could bring that in house and then potentially resell those goods at a physical storefront. Like I think there's some synergies here for them. It'll be interesting to see how this plays. Also interesting that they picked a Chicago suburb to kind of kick this off.
- [47:38]
C
Yeah, the, the metro is very curious. I'm really interested in what demographic they're, what socio demographic they're going after here. I mean that purchase of Whole Foods is brilliant. I'm curious, you know, how much of that socio demographic overlap we're going to see with this store. Is it going to look kind of like a Costco is going to look more like a Walmart is going to look like kind of something in between? I mean I got to say, after geeking out on researching a lot of the history of Costco, I am in love with that business model. Sol Price and the companies that he created Fed Martin Price Club, Price Smart and ultimately how that played into Costco's business strategy and their development. I love it. I mean that backstory of Costco makes them maybe one of my favorite companies in the world. Maybe my favorite company in the world. So I'm curious if Amazon's going to bring any of that feel or if they're going to lean more into the kind of Walmart type Target.
- [48:39]
A
Yeah, I think it's probably going to be the Costco model. They have a membership fee already with Amazon Prime. I would imagine you'd have to be a Prime member to shop at the physical store. Costco. I love everything about Costco except the $500 bill every time I go in there, which it's unavoidable. Like if you're in there, it's at least 250. I don't care if you just buy some eggs. More to come on this, it was just recently announced, but it's, you know, like we say, history doesn't always repeat itself, but it often rhymes. But you know, it's just amazing how these big box or these, these large scale retailers effectively end up in a big box.
- [49:10]
C
Yes, despite one of the C suite executives at Amazon saying one day 80% of all commerce will be online and here they're launching a massive store.
- [49:19]
B
And as always, we sent a lot of trading alerts to our clients this week. If you want to learn about what you missed in those stories, loans moving to special servicing, value losses and other news, send a note to podcastrepp.com and we'll make sure that you can learn about how to become a client and get access to some of our exclusive insights. A few other programming notes We've been plugging the Market Pulse webinar all podcasts. So send a note to podcastrep.com and we will get you on the list. You still have time to sign up and hear more of the insights from Lonnie and Steven for in person conferences. Our TREP team will be attending the 2026 NMHC Annual Meeting from January 27th to the 29th in Las Vegas. If you are in multifamily or if you will be at this conference in general, send a note to us. We'd love to meet with you and walk you through everything that we're doing. When it comes to AI tools, data delivery methods, we're finding new ways to get our data into your business and just all of the insights and stats that we have around multifamily and every asset class for commercial real estate. So we'd love to meet with you at the conference. If you're in Vegas in general and you want to meet up, send us a note and we will connect you with our team who will be on the ground. We have a lot of other conferences that we'll be attending. We'll walk our listeners through those on an upcoming episode. If you're attending any industry conferences and want to check if any of us will be there, reach out to us. We'd love to meet up with you or see if you'll be in our city or if we'll be in the same city as you. It's always great to meet our podcast listeners and then of course I have to give a plug here for our TREP Connect in New York City conference. You still have time for this one. It's not taking place until May 6th and 7th, 2026, but we are already selling tickets, we're rolling out speakers, panel sessions and just more information about the conference. We'll have lots of chances for you to network, meet with leaders and really talk deals and data and insights with our trip team and with a lot of our clients and listeners. We'd love to have you join us there. So reach out to us to save the date and get an early bird ticket with a discounted rate. Turning to shout outs so for those of you who don't know, every year, actually twice a year, we announce a class of future commercial real estate leaders. So we just launched the announcement for our December 2025 class of undergraduate and graduate students who are making an impact in commercial real estate upon graduating. And I'd like to pause here and give a quick shout out to the winners. The winners of this class. So shout out to Wayne Day of Texas A and M. Ming Hong Choi of Harvard University, Stuart Lunn of Texas A and M. Asha Mehta of University of Miami, Manuela Fonseca of University of Central Florida, Ashley Hartke of San Diego State, and David Omar of University of Louisville. So congrats to all of our future leaders. We love working with young professionals and students who are looking to join our commercial real estate industry and we can't wait to follow you along during the rest of your career. If you're a student or someone working with universities that wants to learn more about how to work with TREP in general, send us a note. We'd love to chat with you. We work with professors, universities, real estate clubs and are always looking to expand the knowledge and share our data with others. A few other shout outs here. Michael A Shared our December Delinquency Report Michael B. Was interested in signing up for the CRE Outlook Market Pulse webinar. John J. Thanked us for delivering such a consistently high quality podcast every week and was interested in our Year End magazine and our Marketplace webinar. If you haven't checked out our Year End magazine with Commercial Real Estate Direct yet, send us a note. We can send you a copy. Amy G. Was interested in the Market Post webinar and Tommy S was looking into opportunities to sponsor our Trep Connect event. We'd love to partner with others in the industry who want to help get their name out there or are looking to have a booth or sponsor our networking reception or any part of our Trep Connect conference. So send us a note if that sounds of interest to you.
- [53:40]
A
So I had a couple shout outs this week. Haley, Chris D connected with me on LinkedIn, sent a really nice message saying he loves the podcast. He recommends it to all the associates they hire at his firm. So Chris, we appreciate the continued support and I love that you're sharing the pod with others at your firm and so that's always great to have that interaction. And then also today as I mentioned on LinkedIn, I'm in DC at the real Estate Roundtable and I got to hang out with Catherine S. Who's a huge fan of the podcast and said that she's actually starting a podcast on her side. So you and I are going to jump on a call with her, Hayley over the next week or two and a share some of our insider knowledge on what it takes to run a podcast. But great to meet in person and always appreciate the continued support. And this is the highlight of our week and it's just reinforced when we talk to people or connect with people online. They say they enjoy what we put out every week. So shout out to both them. Oh and one other shout out. This is a shout out to my oldest son. I don't talk about my kids too much on here. My oldest son just turned 16 in November. He's in basketball this year. He's a sophomore, he's playing varsity and so just in the last couple of days he had a basketball tournament this weekend. He got all tournament team. His team won first place and they had a shooting competition called the Hot Shot Competition and he won the Hot Shot competition. So every team that played in the tournament selected two players to perform in the hot shot and he only missed one shot until he got to the half court. He made two half court shots during the competition. So super awesome. He got a gift card. He got recognized. It was great last night and this part kind of stinks because I'm in D.C. and so I missed the game. But his team was tied 42 to 42 with four seconds left and they inbounded the ball and he ran up the court and his teammate passed it to him and he made a shot just inside half court as the buzzer sounded. Three pointer. They won the game. So for the last four or five days, it's been a pretty awesome adventure for him on the, on the basketball side. So pretty cool stuff. So shout out to to Trip. Woohoo.
- [55:41]
B
I was going to say can we share his name? Because I think it's pretty cool that Lonnie from Tripp has a son named Trip.
- [55:49]
A
Keep it up, bro.
- [55:51]
B
Very cool. And I'll close with one thought about the weather. We don't talk about that a lot on here, but I know New York is bracing for 10 to 20 inches of snow, I think, Stephen, you were saying you're bracing for 2 inches of ice that might shut everything down by you. So we hope all our listeners are safe. We hope there's not as big of a storm as we're expecting on the Northeast, but we are waiting to see. So next week we'll update you on what actually happened.
- [56:16]
A
Yeah, we're in ice in Dallas too, so it's, it's, they already, the schools have already sent out alerts letting us know that they're monitoring the situation. So the kids are hoping for at least one day off on Monday. We'll see how that plays.
- [56:29]
B
And with that, we'll close. Thanks to our producer, Mariana Cebrana. Join us next week as we look at what's happened during the week and how it may be impacting you. If you have a question or just a comment, send an email to podcastrep.com and subscribe to the Tripwire podcast with your favorite provider. Thank you for listening and stay well.
- [56:47]
A
All right.