← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
383. Gulf Shock & Market Resilience: Ides of March Returns, YTD CRE CLO Issuance & SASB AAA Downgrades
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Welcome to the Sharp Wire Podcast, the show where commercial real estate meets data and insights. This is our Week in review for the week ending March 6, 2026. I'm Hayley Keene with TREP, a data modeling and analytics firm for the CMBS Commercial Real Estate and CLO Markets. I'm with Lonnie Hendry, Chief Product Officer, and Steven Bushbaum, head of Applied research and Analytics. This week was a big one for macro data, with markets focused on a series of labor market releases that could shape expectations for the Fed's next move later this month. At the same time, investors and market participants have also been watching rising geopolitical tensions in the Middle east, along with some renewed volatility in the treasury market. In this episode, we'll also cover Trip's latest CMBS delinquency data and the loans driving those changes. We'll take a deep dive into the CRE cielo market and look at recent SASB ratings migrations, including what's happening with AAA bonds. So Stephen, before we dive into some of the main segments this week, can you walk us through what's happening on the macro side and why the labor data matters for the broader real estate and credit markets?
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Yes, it was a very, very noisy week so far on the macro front and we're only about halfway through. So leading up to this Friday's non farm payrolls report that is yet to drop. I mean, that's a huge piece of the puzzle that's missing. But we've gotten some data points so far this week. We've gotten ADP that came in at 63,000 for February, a clear beat against the 50,000 forecast. And that's the strongest private sector hiring we've seen since last July. On the surface that sounds encouraging, but we've talked about this in prior episodes. When you dig beneath the surface, first you look at the revisions, those Revised down from 22,000 to 11,000 for January. That's not great. And then when you dig even deeper, the sector hiring, there's really only two sectors driving hiring, education and health services and construction. So those did all of the heavy lifting. The rest of the economy, the rest of the job sectors flat to negative. So that puts all eyes on Friday's non farm payrolls reports. And Wall street isn't particularly optimist. We have a lot of forecasters out there that are calling for a print well below 50,000, which is the median consensus. So if that report comes in soft, it's going to tell a very different story than ADP for the Fed, it's the same old wait and see posture march is off the table for a rate move and for cre that means, I want to say some sort of rate uncertainty. But Lonnie, you've called this out in the past. We've consolidated our range so we're while there's some sort of uncertainty about the cuts, we've gotten comfort around the current level we're at. So you're going to continue to see some pain and floating rate space as borrowers continue to hold on waiting for that refi window to open up or get a little bit more of an ideal execution point. And today we're going to talk about some of the pressure that's shown up over the past couple of years in the form of SASB downgrades. And some other stuff we'll talk about today that I think is super interesting is some of the rate moves we've seen in the treasury market that actually caught me very much by surprise because outside of the last five years, if you had an event like this, like the attack on Iran, you typically see a much stronger flight to safety. But the last two, three years, the market has shaped up in a very, very different way following these major events. Instead of a flight to safety snap reaction, really our reaction function looks more like an inflationary analysis.
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I think that's a good point, Stephen. And this week followed that same trajectory. Right. And so I think, you know, you hit, you hit the nail on the head with what is top of mind for everyone this week. I think the jobs non farm payrolls is going to be a pretty good barometer of just where we are. I mean, I'm sure you saw the layoff announcements from the, the former owner of Twitter and his new startup. You know, and he didn't explicitly call out AI as the primary reason he called it over hiring. But there are some people speculating that some of this AI bubble, excitement, hype, whatever you want to call it, is starting to face a grim reality as it pertains to people and jobs and who's required, et cetera, et cetera. So I think we're at an inflection point at some level where we've been talking a lot about a softer labor market. We might start actually seeing that in 2026 with people being laid off. Especially if these AI costs continue to stay where they are, you're going to see either people cutting back on their expectations of deliverables and or staffing being reduced as well. And so, you know, this week, unlike the last couple of weeks you know, with the, the geopolitical stuff that's happening, it's been a really, really busy week. But again, I'm just, I'm shocked. Not surprised, but just still shocked at the, at the fact that we can have things like this taking place and the market's generally functioning as expected, or at least within some sort of range bound metric, where these things are kind of just assumed. Okay. At this point relative to market activity, no one is like really holding their breath or holding off on, on doing anything. It's just kind of assumed that this will play itself out. Maybe it's just because the dissemination of information is so much more comprehensive in real time, where people feel like they have a better grasp of what the intent, the duration, all of this stuff actually is. Whereas 20 years ago, a lot of that information was really kept close to the vest. And so as a, as a trader, as an investor, whatever, you were really making, you know, informed judgment calls, but, but all on supposition. Whereas today it feels like people generally know what the intent is and so forth. And so it'll be interesting to see. I mean, you know, the ADP stuff, I think if you take that at face value, seems pretty positive. But as you mentioned, when you start to go beyond the headline, which has been a pretty good theme for us heading into 2026, is just not just for CRE, but across. It looks like you have to dig beneath the headline. And when you do that, as you did in the intro, Stephen doesn't paint quite as rosy a picture.
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Yeah, no, it's. It's amazing, like you said, that the way markets have shrugged this off, it almost feels like not to paint this war too lightly, but nothing to see here, folks. We're just rearranging some political furniture. Like it's, it's crazy. You know, it's not, it's not that straightforward. The Strait of Hormuz is really a huge risk to the global economy, more so to Europe. I don't know that we'll feel some of the same trading pain, international trading pain, that Europe will, but I mean, that is a major, major risk to trade.
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Well, I don't know if you saw the Post. I think it was truth social last night where the President was effectively saying that the United States would backstop and ensure those ships and provide protection. You know, it is an interesting construct where I think I read something where like 40% of the world's energy passes through that strait. And, you know, if that shuts down or is greatly delayed or significantly delayed, that definitely has Major ramifications. I do think that would be something that would shake the markets. But it feels like the government, the US government has provided a backstop to at least keep trade moving there. And I think that's positive for, you know, to your point, even though we maybe wouldn't feel the first order effects of that directly, it does keep that global market, you know, moving at a level that I think is needed for us not to see some downstream challenges. So I think maybe one nuanced difference too is just that these conflicts are strictly, I'm not going to say they're, they're the people. Risk is, is zero because we've already lost U.S. soldiers. But on a relative basis, these things are much more tactical. With the advent of drones and other things where you're not having to put large scale foot soldier forces in front of people with guns, I think definitely reduces at least some of the perceived risk from a market perspective. These are much more tactical, much more new age technology kind of driven incursion conflicts than what we would have seen, you know, 25 years ago.
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Now, this whole event brought me back to something that we've talked about for the last couple of years on the podcast on the Market Pulse webinar and blogs, and it's the phenomenon of the Ides of March superstition. It's absolutely wild. So those of you that haven't heard of this before, the Ides of March superstition goes all the way back to the days of Julius Caesar. So I mean, that's really where the Ides of March came from. Originally it was when Julius Caesar was assassinated by the senators Marcus Brutus and Gaius Longinus or something like that. Anyway, it's been a long time since I've had my Latin history here. So ever since then there's that, ooh, scary. Beware the Ides of March saying. And for markets and investors, believe it or not, the Ides of March has proven to be almost a tradable event, I feel. So let me just walk through the brief history of the Ides of March since 2020. So in 2020, we had the pandemic hit right around the Ides of March. So markets peaked on February 19, 2020, and then bottomed out on March 23. A 34% drawdown around the IDEs of March. Absolutely crazy. In 2021, on March 23, the Ever Given wedged itself in the Suez Canal and blocked the waterway that handles roughly 12% of global trade. Traffic resumed on March 29th. Remember that blockage had massive inflationary Implications, Yes, a lot of this was still due to pandemic stimulus, but that did not help at all. Then in 2022 we had the Russia Ukraine war that got kicked off on February 24th going into March in 2023. Lonnie, what was our big event in 2023?
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Had to be something to do with the banks right after the Fed tightened.
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That's right. On March 10th we had Silicon Valley bank failed. After that social media accelerated deposit run. Signature bank followed on March 12th. So that's pretty much right on your ides of March mid market, sorry, mid month market drop. Then in 2024 we had the April air pocket, so to speak. So this was a little bit after the ides of March S&P 500 dropped 4, 4.1%. Nasdaq was down 4.4. It's long in treasury yields rising and gold printing new highs. So this was an old fashioned risk off rotation following the, well, I mean, you know the story. This is 2024, 2025 tariff whiplash.
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Right.
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On April 2nd, the White House rolled out reciprocal tariffs. And that had, well, pretty negative market implications for the drawdown in equities and what happened with bonds and now this year the Gulf conflict premium. I mean it's absolutely wild. And I should say that, I should point out that some of this ides of March superstition, while we have the ides of March as March 15, I think originally it had to do with the full moon. And if you remember, we just had the full moon like yesterday or something. So the timing of all this feels rather interesting. Whether or not you believe in the superstition, you know, that's okay, but it's kind of hard to deny the track record we have running here. Lonnie.
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So in, in Texas a couple of days ago, you actually had the blood moon. It was like 5:30am Central and you could see the whatever eclipse that was causing it. But the moon was, was completely red. It was pretty interesting. It was cloudy here both days, so didn't get a great view of that. But you know, it's interesting if you look at some of the correlations, right. That you just drew, I would say that this isn't mythical, it's structural. Right. If you tie cre happenings to the ides of March, there were known risks, delayed action, calendar pressure, internal betrayals and confidence collapsing into math. And you know, you can go through and walk through some of these things, but it's really interesting. It's, you know, Caesar wasn't surprised by the risks he dismissed them. And if you look at the CRE parallel, it's very similar. Maturing debt with no refi path, floating rate exposure that you hoped would go away over leased rent rolls, masking week in place cash flow. You know, when capital markets actually started forcing operators to recognize some of these challenges, and they do that through appraisal resets, covenant breaches, extension denials, et cetera, et cetera, you start seeing some of those things play out. And I think the calendar has a lot to do with this too, just because Q1 it really acts as the reality check against the end of year optimism. So, you know, we saw this coming out of 2025 where everyone was super optimistic. Origination was off the charts. There was actually origination of deals in December, which we rarely see. You're, you're jumping into the new year and you're, you're riding high. And once you actually kind of get that year end operating statement reconciled and you update dscrs and you look at new appraisal values, or you look at that extension that you thought you had in the bag because of the optimism and it actually requires a bunch of cash contribution, you know, that equity check that you talked about last week, you know, when you're talking about 100 million-plus in some of these instances, that's a very real challenge. That's where the math really replaces the narrative. And so, you know, we could go on and on about this. I think it's a, it's an interesting dynamic in the sense that these things are so clearly identifiable in March that it's, it's not coincidence and it's really, it's, it's challenging in the sense that March, at least for those of us in the south, is kind of like the beginning of the new season. You know, like the trees start blooming, the grass turns green. I mean, I had to mow the grass this last weekend and it's 80 degrees. So it's like this refreshing, exciting time of like actually getting out of the winter doldrum and into this new, exciting, you know, opportunity of spring and revitalization. Unfortunately, there's, there's all of these direct correlations that you just made that maybe paint a little bit less optimistic time period. If CRE investors and lenders and operators can just get through March unscathed, then maybe the rest of the year will prove to be as optimistic as they hoped.
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It's funny, I text back and forth with my really good buddies who's a finance professor, and we pretend like, okay, if we were managing a hedge fund. What would we be doing right now? So I texted them after this weekend and said, okay, what do you think we're going to see this coming week in markets and what are your reinvestment points? He said, funny you ask. I just moved into 75% all cash this past Tuesday. So that was Tuesday, February 24th. I was like, man, you say you can't time the market, but I got to say, he played that one well. Well done, sir.
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Well, look, it's just like all of these guys that got into CRE investing in 2017, 18, 19, that rode that interest rate wave all the way to the top. You know, rates go to zero, effectively, cap rates go down, values go up. A lot of, really, I wouldn't call it directly luck, but there's a lot of lucky CRE investors that, you know, whether it was on purpose or not, time the market perfectly. But if they're still in and a lot of those deals that they paid peak pricing, they're seeing the other side of that roller coaster when they've. They've had to ride the hill down.
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Yeah. So one other story I wanted to mention related to this conflict, Lonnie, because this ties back to our discussion. Gosh, I mean, a couple months ago on the podcast about data center security, we saw an article in BizNow about an Iranian drone strike that damaged an Amazon data center. So there were three Amazon cloud data centers in the UAE and Bahrain that were damaged in Iranian drone strikes, the first ever disruption of its kind, as big tech firms are growing their digital infrastructure presence in the Middle East. AWS said a pair of its data centers in the UAE suffered direct hits from Iranian drones on Sunday, while one of its facilities in Bahrain suffered sustained damage from a nearby strike. The data centers were hit amid a barrage of drones and missiles fired by Iran at the UAE and Bahrain and other Gulf states in response to the US And Israeli strikes that killed the Supreme Leader, Ayatollah. The drone strikes caused physical damage, disrupted power delivery to the data centers, and in some cases necessitated fire suppression measures that led to water damage. According to the company, Amazon's cloud services in the Middle east have been severely impacted. As a result. Full functionality still has not been restored as of Tuesday afternoon, with Amazon telling customers to expect a prolonged recovery period. So I gotta imagine this really highlights and brings front and center some of the security measures that we need to be focused on in the US Given just how much money we've plowed into data centers and how significant that the security of that digital Infrastructure is to
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the U.S. yeah, look, I think we called this one about three months ago and we did a deep dive on the concentration of data centers in that Virginia market and just the security risk that it posed. In this example, you know, it was only a couple of data centers, but you know, imagine how much infrastructure that that those data centers power. I mean both from a national security perspective in our case, but also just for consumers, businesses, retailers, et cetera, et cetera. I mean, it's really interesting how fears maybe have shifted some from just like pure power grid plays where people, you know, shut down the water system or they turn off power broadly to now a much more targeted opportunistic strike against some of these data centers could really disrupt things at almost an equal scale. So I think you'll see additional measures being put in place going forward on some of these. It's kind of crazy to think that you would need some sort of air defense system around these. But I think, you know, and this is ties back to just the discussion we've been having around are these pure real estate plays or are these more infrastructure plays? And I think in this example this highlights why this could be viewed as more of an infrastructure component. Because them being up and running provides utility beyond just the bricks and the sticks for all of the people downstream. So hopefully Amazon will get this up and running. You know, they don't define what prolonged looks like. I would assume that that means more of a literal interpretation. I don't think this will be something that's fixed. Obviously they have rollover and other things. They'll figure out a way to get things up and running. But for these individual centers, I would expect there to be a pretty prolonged rebuild process put into place. And I think you'll see people looking at data centers a little bit differently as we estimated a few months ago.
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So let's do a quick data check on some of the major data points that we've seen shift as a result of the US Israeli attack on Iran. So yields have now moved back above 4%. We had such a nice move down in the 10 year treasury going and that pretty much all has been reversed. Now the 10 year treasury yield has climbed back above 4%. We're now sitting right close to like 4.1%, right in that 4.05 to 4.1%. Which to be fair that still puts us in our range bound call for much of this year of four to four and a quarter. But I gotta say for personal reasons, I was hoping to see us break below 4% and hold there for selfish reasons. Anytime you're looking at taking a mortgage, it's nice to have treasury yields break your way. So just to recap the moves, as of February 27th, the 10 year was right around 3.97%. That's when we saw the 30 year fixed rate mortgage for residential drop below 6% for the first time in quite a long while. Then March 2nd we were back at 4.05, March 4th 4.08 and today we've been playing around 4.09 to 4.1% as of mid first week of March. Now on the oil front, those moves have been absolutely wild. Oil prices have now jumped toward $80 to $85 a barrel. I mean we had been well below $70 a barrel. So this is a move and will have important inflationary implications. Now in fairness, I think for the US we should hopefully see this damage contained because much of our oil supply is protected. But in terms of global oil stock and oil demand, there's going to be some long lasting fallout as a result of this conflict.
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Yeah. So I know the treasury moves from 3.97 to call it 4.08 is not a significant move, but that psychological hurdle of being under 4 finally I think there was a couple of day window where every capital markets lender in the, in the US was sending out refi notices, especially on the residential side saying lock in now, rates are great. You know, and now the psychological hurdle of being above 4% comes back into the equation. You know there's definitely going to be some trickle down effects there. But you know, at least this didn't, this didn't blow out to four and a half at this point. And I think that's, that's a positive sign on the oil stuff. It's, it's a little bit of a double edged sword at some level. I mean there's a lot of guys in Texas at $85 a barrel that are feeling pretty good about where they're at. You know, given the fact that oil had come down so much and gas prices had been so cheap for energy dependent markets or energy production markets, this could be good. But to your point, I think this will be short lived, especially if they get the straight open back up and trade starts to push back forward. I think you'll see this contained. I don't think this is a long term challenge. So we'll see, we'll see what happens. Obviously this will be a talk track if you turn on any of the stations over the next week or so. I think oil will be one of the primary talk tracks because anytime there's a conflict, there's always implied ramifications on the oil space.
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So one other headline story that we wanted to touch on this week before we turn to diving into some fun data, was a absolutely wild one about Blackstone's flagship private credit fund hit by record redemptions. So, Lonnie, I don't know if you saw this, but I gotta say, as negative of an event as this was, the amount of money Blackstone raised from their internal employees to offset that redemption request kind of makes me wish I was in one of those roles. How much did they raise now?
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I think what I saw was management put in about 150 million and then the company put in another 350 million, plus or minus, to try to offset some of the redemption. You know, this isn't brand new news in the sense that we saw some of this happening a couple of years ago where they end up having to gate some of the redemptions. But I do think it bodes well just for public sentiment that the, the management team was willing to, you know, pony up some real money to, to try to give some relief here. Agree with you as well. I'd love to be in a position where they come to you and say, hey, we need you to kind of act as a stopgap. Can you contribute, you know, tens of millions? And you're like, yeah, I'll go ahead and do that for the, for the team. That would be a pretty good spot to be had.
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And it's wild too. I don't remember the exact number of people they had to raise it from, but it was not as large as you would think. You're like, oh, man, that must have been like 100 plus employees. I think it was like in the 20s, wasn't it? I don't remember the exact number, but it was a lot smaller.
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Yeah, it was a pretty concentrated group. But look, I mean, these guys are in the majors. I mean, these are top tier folks. Blackstone has delivered for a very long time. And so, yeah, the folks that have led to led those groups that have delivered good returns have been compensated for that. So you'll see, you'll see this getting some traction, I think, on the major news outlets over the next couple of days.
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So this isn't new news like you said, Lonnie, we've had a couple of these private credit fund stories flow through the last couple of weeks about redemption requests and just jitteriness. And I think what's important to Highlight here is, I mean, these are not meant to be like traded high liquidity funds. So these redemption requests are disruptive. But importantly for the investors in these funds, you're sacrificing liquidity to get yield. So, I mean, it's going to take some time for the full story to come out. But I'll be curious to hear a full postmortem over the next three, six months about what was driving all of these redemption requests. Some of this might have been just kind of structural, mechanical, not all that serious. Some of it may have been jitters. But it's going to take us a little while to get to the bottom of kind of the common thread or common threads across all of these credit fund stories.
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Yeah. And so I did find the exact numbers here for our audience while you were giving us that update, Stephen. So it says more than 25 senior Blackstone executives contributed approximately 150 million of their own money invested directly into Blackstone Private Credit Fund. So bcred it's done to help meet elevated redemption requests. So just to give some perspective, 150 million management contribution was part of the larger $400 million liquidity action. So I was off a little bit. It was 150 personal capital, 250 million firm capital, total of 400 million injected into the Blackstone Private credit fund. And you know, just to give some perspective here, there were 7.9% redemption request in the quarter and that's above the standard 5% quarterly repurchase limit that they have in the agreement. So roughly about 3.8 billion in requested redemptions. And so, you know, as we've seen with some of these funds in the past, you know, Blackstone chose not to fully meet 100% of their request and they're using some of this management and, you know, as we mentioned, firm capital as a buffer. So I take this as a, you know, obviously it's not positive in the sense that it's putting stress both for the people asking for the redemption and for the fund. But you know, it's got to bode well at some level that the, the management team and fund, you know, the firm are willing to contribute this type of short term capital to kind of act as a buffer to try to offset some of this increase in redemption request.
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Yeah, I think this story is a good example that the market is still very focused on loan performance and credit quality. Although we're in an optimistic, turned ready to deploy world, I think we still need to check in on how everything's doing. So this is a good Transition. We wanted to talk about what's going on in the CMBS market. We released our latest CMBS delinquency report for February this week and it's a bit of an interesting story here, so I wanted you guys to break it down. We reported that the trep CMBS delinquency rate reversed course in February, decreasing 33 basis points to 7.14%. And this decline comes thanks to a net decrease in the overall delinquent loan balance which was primarily driven by the execution of modifications and extensions of five large matured office loans and four large mall loans. So for our listeners who remember last month we talked about how the rate increased and it was driven by office which actually hit its all time high rate. So maybe you guys can break down what we're going to see in delinquency data for the next several months. Are we going to see these fluctuations? And it'd be great if we could share some of the details behind some of these modifications and extensions and the loans that cured in February.
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Yes. So in February the headline rate decreased 33 basis points to 7.14%. And that decline, as you mentioned Haley, came thanks to a net decrease in overall delinquent loan balance which was driven by the execution of modifications and extensions of five large matured office loans and four large mall loans. And these office extensions range from one month to almost three years. I'll just say from personal research, what I've been seeing is a lot of three year extensions for a number of these loans because well, if you just step back and think about what's oftentimes one of the major issues facing a near term balloon maturity, it's going to be your lease roll. And if that lease roll is yet to hit one to two years out, which is really concerning for a future lender and they're going to be typically hands off in this environment unless you have signed unless you already have signed commitments to release that space. The extension makes a lot of sense. But you're going to need some time. So three years gets you over that leasing hurdle. Time to stabilize and ultimately maximize your proceeds on the back end of this rather than having to sacrifice some proceeds today trying to refi under stress conditions. So three mall loans received extension modifications while the other fourth one oscillated between performing and non performing matured status. Over the last two years as the borrower and special servicer negotiate, three of the five major property types declined while two increased. Office posted the largest decline falling 114 basis points to 11.2%, pulling back from January's all time high of 12.34%. The office rate has declined in three of the last four months. Retail decreased 74 basis points to 6.3%, the lowest retail reading since August of 2024 when we were at 6.21%. Multifamily edged down by 9 basis points to 6.58. Retail sits 27 basis points below its October 2025 high of 7.12%. The lodging delinquency rate increased 38 basis points to 5.94 following January's 5.56% print, which had been the lowest reading since March of 24. And that sector remains below the April 2025 peak of 7 spot 85%. And then finally, industrial increased 5 basis points to 0 spot 67% from January's 62 basis points delinquency rate. And that follows a rise from December of 24 when we were at a low point of zero spot to 9%.
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C
Yeah. So Stephen, I don't know if you did that on purpose when we calculated this, but you just said industrial six, seven. I just wanted to get that on record. But, you know, I think the delinquency, you know, it's interesting just the evolution of delinquency and how people view it in the marketplace when, when everything is totally uncertain and people are waiting with bated breath at the end of each month to see what's happening. With delinquency, you kind of know you're in part of the cycle where optimism is low. People are banking on ever increasing or the perception of ever increasing delinquency. And so it has a certain amount of cache associated like where we are in the market. I think right now it's interesting the, you know, people waiting to see what delinquency maybe has waned a little bit because of the optimism. But I still think this is a good barometer for people to see where we are in the cycle. Like it. To me, it fits the narrative that we've been pushing out, that there's a tale of two markets for all of the optimistic takes and the origination stats and some of these new trades that are resetting basis in office and some of these other sectors, you know, starting to show a little bit of an uptick and some signs of life. There's still a lot of distress that's working its way through the marketplace. And you've done a really great job of highlighting that in some of our research. I wouldn't be surprised if you see this delinquency rate both overall and for these individual property sectors continue to bounce back and forth over the next six months or year. But at this point level, some of these, you know, retail and office in particular one or two properties can swing the rate, as we've seen over the last couple of months, fairly dramatically. So, you know, I would just encourage everyone to understand that this is still a viable, you know, impactful metric for the market to keep track of. Even though there's definitely some more exciting stuff on the optimistic side with issuance and origination volume, this does give us a feel for where we're at. Hopefully by the end of this year we'll see overall delinquency maybe in that 5% range. That would, I think would be a really great win for the sector if we could say Siri delinquency on, on the whole is back to 5%. And I think there's a path to get there. You know, if you see multifamily tighten up a little bit, some of these office deals get resolved, I think you could get that overall delinquency back in that 5% range.
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B
So if you didn't see the report, send an email to podcastrep.com and we'll get you a copy. What happens when a CMBS loan falls apart? In today's market, the CMBS special servicing rate is almost 11% and many securitized loans are struggling. It may be a good time to check in with our friends at the Henley Group. They are experts in CMBS and CRE CLO loan modifications and restructures. They have been trusted advisors to borrowers facing challenges with their CMBS loans for over 15 years and they have obtained an extraordinary success rate for their clients. If you are having issues with a securitized loan, they are definitely the team to reach out to. We know the team behind the Henley Group well and they are great people. We are confident they will give you valuable advice. Visit thehenleygroup.com for more info or send us an email and we will connect you with the team. And I think now that we've talked through loan performance for existing loans, maybe we can talk about the other side of the coin. We mentioned CRE clos in the intro. I think we should do a deep dive on issuance and new originations in the CRE Cielo space.
- [33:39]
A
Yes, we've had an incredibly Strong start to 2026 in Series CLO space through March month end deals that have closed so far and deals that are scheduled to close by the end of March Total issuance right now is standing at 11.2 billion in 2026. That's up 34% over the same time last year. So through March of 2025, we had about 8.3 billion closed, 11.2 billion this year. Lonnie, back to your number that you had projected for series silo issuance. I think you were saying, like we could hit 40 billion this year. If you annualize first quarter origination that we've seen so far, that would put us at 44.8 billion. So sure, there's a lot of uncertainty the next three quarters of the year, but if we continue on this trajectory, it seems like that $40 billion target is well in sight.
- [34:33]
C
Yeah, now look, I mean, the last time we saw anything close to that was 2021, which we peaked out at about 45 billion. And that was fueled really because of the interest rates and where they were at the time. This issuance is in a much different economic cycle. And I think to me, sure, some of this is. We highlighted a little bit last year that a lot of this was bridge to bridge. And you can maybe make the. That's not a overwhelmingly positive sign. But on the flip side, a lot of this is new kind of value add reposition. The stuff that you like to see in this transitional type of lending environment where people are making bets on operators ability to come in and increase rents, drive noi growth and see a takeout loan. And so I think from my perspective, while we haven't seen maybe the overall issuance across SASB and Conduit grow at the level we expected through the first quarter, this has been a really pleasant surprise on the CRE cielo and I think it bodes well for where we end up at the end of the year. I don't know that we'll replicate this. I don't know that we'll end up being 40 plus billion. But this gives us an indication that that, you know, call it 30 to 40 billion is certainly in range for this year.
- [35:41]
A
Now we look at what collateral is actually going in to these series CLOs. In 2025, about 7, 70% of issuance was focused on just the multifamily sector. So that's kind of in line with history. A majority of what you see going into CRE clos are, well, like value add, story loan, multifamily. It fits very, very well in this sort of structure because you can do future funding earnouts.
- [36:09]
C
Right.
- [36:10]
A
It's a very, very flexible loan product. And then some of the other property types, you Saw picking up the rest of that Balance Industrial and 25 had just under 9%. Lodging had almost 7% of the allocation so far this year in 2026, it's pretty close to what we saw last year. We have multifamily at 69.6%, industrial at 11.2%, office at 2.8, retail at 2.1 and lodging at 4 and then a good chunk of, well, other. So like health care would be an example of what you would put in that other category.
- [36:47]
C
Yeah, look, I think, you know, multifamily's dominated this space for obvious reasons. The rent roll is favorable to rent growth. You're getting a certain percentage of of your tenants turning over every month and if you're you know, doing a reposition or value add play here, that that's accretive for you on the short duration, you know, time, time frame. Not surprised by office for the same reasons. It makes office challenging, very long lease schedules and especially given the the broader macro office climate, challenging. But look, CRE Cielo is I think will be a very positive story that will get even more attention as the year continues. Especially if some of these deals realize some of the underwritten business plans that, that they have in place. And I, you know, if you look at some of these new origination deals relative to what we saw during 2021, I think the rent growth prospects and some of the unit absorption and some of the other components of the stabilized business plan are much more realistic and achievable than what we were seeing in 2021. I mean, you can go back through some of the prospective stocks in 21 and you would see double digit rent growth expectations for some of these at scale which just never materialized. You're seeing much more, you know, solid but single digit type of rent growth for some of these properties, which I think is, is much more achievable given the constraints of today's market. So you know, if you're interested in seeing some of this, I mean obviously we have the full library of all of the CRE cielo issuance in our products. This has definitely been a hot button topic over the last couple of years. If this is something that's of interest to you, reach out to us podcastrepp.com or we'd love to jump on a call with you and kind of highlight some of the granular deep dive details that we have on these deals as they come to market.
- [38:31]
B
All right, so sticking with our theme of the tale of two markets, we're definitely seeing optimism issuance and everything you just walked through. But we're also seeing some signs in the SASB market of losses and ratings migrations. Maybe. Let's start with a headline we saw in Bloomberg about real estate bond investors suffering $139 million in losses on a San Francisco office tower.
- [38:58]
A
Yes, money managers who piled into a $240 million commercial mortgage bond tied to a San Francisco office building were hit with significant losses in recent weeks after the underlying loan was sold at a steep discount. Buyers of this bond had collateral that was a mortgage on 600 California Street, a 20 story office building in the city's financial district. And the bond investors got less than half of their original investment back after the loan's sale left just 101 million to distribute to investors, according to the remit docs. The damage reached what were once considered the safest slices of the deal. So six junior classes were wiped out. And even the second most senior bonds, which were originally rated AA by S and P and AAA by Morningstar, lost more than 40% of their principal. So more than 12 million in interest also went unpaid. And this episode underscores how aging US Office towers, hollowed out by remote work have become a hazard for bondholders. 600 California street was just 26% leased when the loan changed hands in December, according to Newmark, which arranged the sale to a private equity firm, Lone Star Funds. And this is one of those SASB deals that we talked about on Market Pulse. So we did on our last Market Pulse webinar, we did a segment on SASB rating migrations. So just as a quick reminder, SASB or SASB stands for single asset single borrower. So these are CMBS transactions that are backed by either a single asset, like in this case 600 California street was a single asset deal or a single borrower. So like, an industrial portfolio of 20 properties could be packaged into a SASB CMBS deal. So what I did was I went back and looked at all of the downgrade activity that had taken place and impacted SASB bonds since the end of September 2025. So specifically, I was looking at bonds that were originally rated AAA and were downgraded between September 30th and, well, let's call it the early part of February. And I wanted to see what exactly was behind these downgrade activities. So what I found was we had $7.6 billion of originally rated AAA bonds that were downgraded during this timeframe. And if we look at the underlying collateral, retail was the most impacted sector. So you had about $3.2 billion of SASB deals backed by retail collateral that were downgraded. To put that in perspective, that represents about 16% of the entire AAA exposure in the retail universe for SASB deals, 16% was downgraded on dollar basis. Now the good news is this wasn't, at least at the median, this wasn't that bad of a credit event. We were talking about in many cases, specifically nine of these 20 downgrades where a triple A bond that was downgraded to single A plus. And so that was a median four notch downgrade event. So you're still in, well, pretty safe investment grade territory. The second most impacted sector was lodging at $1.7 billion in downgrades, or about 8% of the lodging SASB univers. Now that was a much more negative end of the credit spectrum. The median downgrade there was three notches ending up at single B. Next you had office 1.4 billion in downgrades, 1.5 notches down to BBB, followed by multifamily at 1 billion. That was from a one notch downgrade, AAA to AA plus at the median and finally mixed use, three notches down to single A plus. So I went a step further. I wanted to see, okay, I got the broad numbers, but what are the underlying themes here, right? What are the contours of these downgrades? And what I saw with those retail SASB downgrades was you had some concentration in California and New York exposure that, well, a good chunk of this had to deal with the Saks Fifth Avenue downgrade. So that was kind of a forced credit event. Right? The fact that Saks declared bankruptcy just automatically means any of your single tenants or major tenant exposures by extension had to be rerated. That's just kind of a mechanical fact. On the California front, you had some super regional mall exposure, vintage fair Lakewood center, del ammo. That's a sector that's still facing secular headwinds and thinner valuation cushions. So next on the common themes you see valuation resets and refinance risks, tightened senior cushions. So recent S and P reviews cite lower expected case values and heightened refi uncertainty. So that was specifically like Lakewood Center's 2026 balloon with releasing trending to shorter terms and lower base rents, all of which pressure senior credit enhancements even when current occupancy is stable. Next you had cash flow concentration, heightened downside sensitivity. So Saks Fifth Avenue relying on a single tenant operator, plus you have a ground rent stream tied to Saks Fifth Avenue as well. In one of these other exposures. And while the mall deals depend on anchors and inline sales trajectories, leaving all four structures more exposed to tenants or merchandising risk shocks late in the term, that was just kind of a negative mixture there. And then finally, legacy 2015-2017 structures with limited deleveraging was another common theme. So basically what you were seeing was a lot of IO structures with limited principal paydowns. So that basically means that you have less amortization to offset your cap rate expansion and appraisal reductions as this cycle has matured. Let me hit on some of the other just quick high level themes. In lodging, you have urban full service drag and valuation resets. So you had an urban group heavy set of hotels in San Francisco and Portland that saw deep appraisal cuts and choppy operating recovery, along with some labor disruptions in San Francisco and weak convention and group travel. We've talked about that a good amount, I think on the podcast and Market Pulse about concerns about the convention shift from San Francisco to Vegas. Another thing that you're seeing concerns about are advances, acers and senior shortfalls. So acers are appraisal subordination, entitlement reductions. In other words, your value gets cut and so the servicer advances less money toward bonds. Right. If you're expected to recover less money, then the servicer shouldn't be advancing interest because not all of that money is going to be recovered. On the office sector, you're seeing a lot of refi risk and near term maturity was dominating that discussion. So tighter underwriting colliding with large 2024-2027 balloons. So for example, 150 E 42nd St defaulted at its 2024 maturity before securing a three year extension. 45 Lexington faces that 2027 takeout with weaker metrics. And sector wide SASB office distress has been led by maturity defaults. You have cash flow erosion from big tenant rollover and rising vacancy. You have valuation resets and finally special service or control and receiverships have been prolonged and those costs kind of eat away at your recovery proceeds. So there's a lot going on here in these deals. But hopefully I've been able to boil down some of the common themes or common threads for you behind these downgrade events.
- [46:42]
C
And I think I just, you know, you basically just did an advertisement, Stephen, for people to join our Market Pulse webinar. Because if you had joined this month's webinar, you would have seen not just, not just heard Stephen's overview of this, but you had actually seen the corresponding slides that highlighted some of these details. In fact, we finished up this section on the webinar with some very specific property level case studies and I think that was super well received by the attendees. They liked seeing that kind of granular, real life applicability of, you know, the talk track to seeing what those properties actually look like and what some of the outcomes were. And so, you know, if you haven't joined us for those Market Pulse webinars, we host one every month. Our marketing team does a great job of sending out the registration links. If you haven't taken the time to register in the past, we'd encourage you to give us a chance. I think you'll enjoy. It's almost like a podcast, but a little bit deeper dive with charts, graphs and other visualizations to enhance the discussion.
- [47:35]
A
So we're going to close with one last story here. This was a trading alert we put out this past week about the top tenant at a Minneapolis mixed use property that bought out its lease and partially paid down the loan balance. So this was a really unexpected event. So according to February remit data, the borrower and the top office tenant at the Property securing the 130,000 doll $30 million city center loan have agreed to a lease buyout and proceeds from that buyout partially paid down the loan balance by about 48 and a half percent to $67 million. Now this loan transferred to Special Servicing in December of 24 for eminent maturity default after the borrower failed to secure a payoff or provide a refinancing commitment ahead of its January 25th maturity date. The loan entered a cash sweep and the borrower continued making its assumed monthly debt service payments throughout the period. This is a mixed use property and the former top office tenant was Target, which occupied over 60% of the space at Securitization on a lease that ran through 2031. So there's an unusual aspect to this particular loan and this deal. This was a 2022 securitization SASB deal and when this deal came to market, Target did not occupy the space and had no intention of it. It was disclosed in the prospectus that Target's space was dark and Target was on the hook to continue paying rent through 2031 with no termination option. And so long and short of it is Target's lease cash flow was going to provide plenty of buffer and plenty of Runway. The borrower just needed to release the space and kind of work to backfill. Right? And this loan was going to help provide them that that Runway but what ended up happening was that the borrower and target agreed to a lease buyout valued at 109.7 million. And so what ended up happening as part of this buyout, a big chunk of the proceeds were used to pay down the loan. And you had $31.7 million of that pay down remains in reserve to cover a potential tax liability if the asset does not sell in 2026. The Reserve also covers expected legal costs, third party fees, broker commissions associated with the eventual sale. And the paid on to bondholders this month was $63 million against the securitized balance of $130 million. The remaining portion was allocated to the $70 million non securitized portion of the loan. And this is a massive property. It's 2.2 million square feet of office, retail and storage in downtown Minneapolis, built in 1981 and renovated in 2020. Now what's interesting about this holdback, Lonnie, is, I mean, that's a sizable holdback, 31.7 million. And it was kicking this topic back and forth with arrest because we're like, well, is this dealing with property taxes? Well, I went back and looked. Property taxes in 2020 were running about 9 million before securitization. They dropped to 5 million roughly the past two years, 5.6 million in 24 and 4.76 for the trailing 12 in June of 2025. So our thought was, well, that holdback could be to cover the fixed expenses plus operating overhead until the borrower can sell. But then I started thinking, there's that comment about if the borrower does not sell in 2026. So I did some back of the envelope math. If you treat the holdback as a one for one against the income that the borrower is going to have to book this year, that works out to 28.9%, which is suspiciously close to the combined federal plus state income tax, depending on the entity's tax bracket. So I am no tax expert here, but based on that research that I did, federal corporate tax rate is about 21%. Minnesota's corporate franchise tax is 9.8%. So that holdback puts you really, really close to that total number. And if the sale closes in 2026, the borrower might be able to reduce that tax liability from the termination income using capital loss, wind down structuring and other deductions. They don't sell, then they're going to have a pretty substantial income tax liability for this year. So I'm wondering if that's what the holdback is because, well, the servicer comments were too vague.
- [51:51]
C
It's probably that direction, not property tax. Because if it was property tax, they would be more explicit in the comments. When it just says tax liability. I think it's something other than. And when you looked up the property valuation like it doesn't get you there. You know, it's, it's interesting. I think the owner is actually an entity tied to Samsung on this deal. So it'll be something to watch as they take this to market and try to get it sold. You know, you hit on it a little bit. I mean office delinquency in that Minneapolis market is hovering above 30% right now. So this, this will be a bellwether transaction for that market if they're able to get a deal done. You know, Target made news on this on the office side, but they've also made some pretty significant headline news around their retail footprint as well. They've, they've either closed or announced closures for about nine to 18 stores across the U.S. california, New York, D.C. illinois and a few select Midwest markets driven predominantly by theft and security costs. And they're seeing in their urban locations weaker traffic recovery. And so some of these older first generation urban formats are really challenged. So this is an interesting story on the office front. I would expect that we continue to see some interesting headlines from Target on the retail side as well. Something we'll keep an eye on as we continue to go through 2026. You know, in a lot of these locations targets an anchor tenant which if and when they vacate or go dark, it does generate some of those co tenancy issues, retenanting risk for the landlords and obviously valuation pressures upon refi. So great insight on this office story. More to come on Target, I think broadly.
- [53:26]
B
All right, so a few programming notes before we close today's show. If you're catching this episode right after we we released it, you still have time to join us for our Trep CRE targeted training taking place on Tuesday, March 10th at 2:00pm Eastern. This is an exclusive training for clients of our Trep CRE platform, really built to help you personalize your workflow and make your day easier. We want our clients to feel like they can join this session to sharpen their existing skills or explore some of the features and tools that you may not have tried yet. Within our system, we'll show you how to create saved searches that keep your focus on the markets and assets you care about. You can set custom alerts and monitor activity in real time, build custom views and load the data points that matter to you most into our system, track market trends with our new stratification engine and preview some of our upcoming announcements, including more info about our Trep AI tools, some new research analyst tools, and a new comps view. So if you're a Trip CRE client, send an email to podcastrepp.com or your account manager and we'll get you signed up. And if any of this sounds interesting and you're not a client, send us an email. We will get on the phone with you, walk you through some of it, and make sure you can access our data in whatever way is most convenient for you. Of course I have to do a plug for our Trep Connect event because somehow it's turning a corner. We're in March now and this event is taking place May 6th and 7th in Rockefeller Center. The agenda is continuing to come together and we're so excited about the lineup. We have confirmed speakers from Manulife, Madison Realty Capital, Cushman and Wakefield, Marcus and Millichap, Byline Bank, Stifel, Trimont, PwC, Voya, Accor Capital, and several other firms that will be joining us to share their expertise, their insights and really give you that boots on the ground perspective of what they're seeing every day in their commercial, real estate or capital markets job. So if you enjoy our guest podcast episodes, if you're an avid listener of this show, consider joining us in New York City in May. It's two days of jam packed panels, keynote presentations and really a great chance to network with about 200 leaders and executives in the business doing big things. So send an email to podcastrep.com we'd love to have you there. We can still offer you a discount code if you mention that you heard about this from the episode and we're really excited to meet so many of you in person at the event. Turning to Shout Outs, David S. Thanked us for a great podcast and was interested in our Life Comps report. We mentioned this from time to time, but we do have a consortia of life insurance commercial mortgage return information, so if you're interested in what's happening in the life insurance market, send us a note. We are happy to walk you through the data that we have available there. Shujin was also interested in our Life comps report and told us they are a huge fan of the podcast. Rory A. Said they will continue to faithfully listen to the podcast. They love the insights and data that we share every week. Nick S. Said he absolutely loves our podcast and has never missed an episode since we were recommended as a platform in one of his real estate classes and was interested in learning more about getting access to our reports, our data, and any information we have about impacts to the financial space. So we will hook you up with some of that information and we really appreciate you being a continued listener. William B. Shared our special servicing data on LinkedIn, rank D on Twitter or X said our guest episode with Larry Connor was awesome. We got a lot of great feedback on that episode. If you're in the multifamily space or just looking to hear what a billion dollar multifamily investment firm is doing, check out our guest podcast episode with Larry Connor and Nate S. On Twitter gave us a shout out saying that he bets we'll have an episode on the topic of Corporate owned apartments in a major US City are sending emails to existing tenants offering to hold rent flat for the next 12 months if they renew their lease within 24 hours. So interesting story there and we'll try to work this into an upcoming episode and talk about what this means.
- [57:48]
C
I did have a couple oh actually just one this week, Haley. It's not really an individual shout out that I traditionally would do from LinkedIn or whatever, but I don't know if you saw this Stephen, Our friend John and Rachel Brownlee had the Texas Tech Real Estate center named after them this week. So you know it's a pretty significant development in the real estate education in Texas. So we officially renamed the Texas Tech center for Real Estate in the Rawls College of Business to John and Rachel Brownlee center for Real Estate. And this comes after a significant gift from the Brownlee's. You know, John is one of those names that really carries weight across commercial real estate. He's a Texas Tech alum, longtime industry leader, someone who spent more than three decades in commercial real estate finance, is most notably known as a senior Managing Director at JLL and recently co founded the Brownlee Wagoner holdings business and so kind of ventured out on his own. But you know, the Real Estate center, as you know Steven, we were both there was founded in 2016. Quickly become a hub for commercial real estate education at Texas Tech. Connect students with coursework, internships, research and industry professionals. This gift is going to fund scholarships, internships, student travel to conferences, faculty support and research. Everything that's needed to run a growing real estate program and then really continuing the mission from being not just an academic program but into an experiential practical. There's about 300 students registered in courses throughout the center this is definitely going to make a meaningful impact across those students. So, you know, I think for us, as both, you know, Texas Tech faculty alums there, this is a really great day. I know our friend Jared Harrell, you know, moved out to Lubbock, took this on as a kind of a career shift from an attorney to running a real estate center. And just to see this kind of come full circle, it couldn't be led by two, two better people. I mean, John and Jared are both incredible guys, have a passion for real estate, have a passion for commercial real estate, and have done an extreme amount of really great things for students across the Texas region. So, you know, maybe we can get them to send some students up to the TripConnect event here in May now that they've got gift. But shout out to John and Rachel for their gift because I think this is a really. It's a great thing for. For the university and for the students that are enrolled at Texas Tech.
- [60:08]
A
Yeah, this is absolutely fantastic news. I mean, Paul Goble was the one who really tried to get the Texas Tech real estate center rolling and then handed it off to Jared as he was retiring. And so that was kind of like his, you know, his baby, his legacy that he wanted to leave. So to see this get fully off the ground now is absolutely fantastic.
- [60:28]
B
And with that, we'll close. Thanks to our producer, Carly Santo. 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.
- [60:47]
C
All right.