← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
385. Market Shocks: Oil Prices Reframe the Macro, Six Years Post-COVID, Self-Storage Consolidation, & Office Green Shoots
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Foreign.
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Welcome to the Tripwire Podcast, the show where commercial real estate needs data and insights. This is our Week in Review for the week ending March 20, 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 Henry of Applied Research and Analytics. This week the Fed held rates steady as expected, but the bigger story was the shift in the macro backdrop. Inflation is starting to re accelerate, with wholesale prices coming in hotter than expected, while a global energy shock tied to the Iran conflict has pushed oil above $100 and added new pressure to the outlook. At the same time, the consumer has remained relatively resilient, but growth had already started to soften heading into the shock. All of that is reinforcing a higher for longer environment that continues to shape capital availability and refinancing conditions across cre. In this episode, we're also taking a step back to March 2020, about six years since COVID triggered one of the most dramatic disruptions across commercial real estate. And we'll use TRAP data to revisit how different property sectors reacted to which trends proved durable and how that moment still shapes the market today. We'll dig into what the data actually looked like at the time, which narratives have held up, and how performance has evolved across property types since today. We'll also take a closer look at the self storage sector following the $10.5 billion Public Storage and National Storage Affiliates deal. And as always, we'll break down several notable trading alerts, particularly in Office, where maturity risks, refinancing challenges and valuation resets continue to drive activity across the CMBS market. So Stephen, a lot to talk about this week. Let's start with the macro backdrop and maybe you can walk us through how you're interpreting the Fed's latest decision and the shift in rate expectations.
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Sure, Hayley, so a lot happened just on Wednesday, and honestly, a lot has happened in just the first 72 hours of the week. That reframes the macro picture for commercial real estate states in a pretty meaningful way. At least that's what I believe. So let's get into it. The Fed held rates steady at 3 1/2 to 3 1/4 today. No surprise there. The dot plot still shows one cut penciled in for 2026, and the vote was 11 to 1 with Myron is the sole dissenting cut, which he's now done at every meeting since he joined the board. But the hold itself was not the story today, as you said. And really, really the story is what Chair Powell can't forecast and what the Fed isn't designed to forecast. And that's the trajectory of this energy shock. Earlier today, Israeli strikes hit Iran's South Pars gas field, and that's the largest gas field in the world, taking out four treatment facilities, putting them offline. So in response to that, Brent crude spiked above $109 a barrel. That's up roughly 40% since the war began February 28th. So now Iran is threatening retaliatory strikes on energy infrastructure in Saudi Arabia, the UAE and Qatar. The Strait of Hormuz is effectively closed and ship traffic has really nearly stopped. Now, one of my favorite people that I followed this week has been Jeff Curry at the Carlisle Group. So as he put it, the Fed can print dollars, but they can't print barrels. And here's the part that doesn't get enough attention, I think, and that this isn't just an oil story, it's an agricultural input story as well. Urea prices jumped over 30% in a single week after the war started. Nearly a million metric tons of fertilizer are stranded in the Gulf right now. It's planting season. That is not a good thing. It's the start of planting season. So major producers have declared force majeure that flows directly into food prices and is an inflation impulse that sits completely outside of the Fed's toolkit. Now, Powell acknowledges much today. He said near term inflation expectations have risen, that higher energy prices will push up overall inflation if the Fed hasn't made as much progress on inflation as they'd hoped. But when he was pressed on the stagflation question, he pushed back and said he'd reserve that term for a far more serious set of circumstances. And look, that's a fair definitional point. We're not in the 1970s. But when you've got an economy that's added virtually no jobs over the last six months, unemployment has ticked up the 4.4, which is still a very historically low level or reasonable level, and you have an inflation backdrop that's just gotten meaningfully worse, the question isn't whether this meets the toolkit definition of stagflation. The question is whether the rate relief that some Siri borrowers have been counting on is now completely off the table. And I think that's the bare minimum of where you have to start stress testing your assumptions. Right now. It probably makes sense to start stress testing credit spreads and leverage as well, because. Because the Risk spectrum feels much more skewed to the downside at this exact moment than it did just even a day ago, let alone a week ago. So, Lonnie, how do you feel about where we sit? Am I just being, like, really reactionary, really bearish? Like, do I need to be reined in here?
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I don't think you need to be reined in. And quite honestly, I think it's a fair overview of where we're at. And I think our show tends to be optimistic in the, in the general sense. Like, we like to see transactions, we want to see deal flow. We support an industry that's reliant on activity to generate fees for those that participate in the market. And so we're always looking for green shoots that kind of point towards that as being the backdrop. But where we're at right now, I mean, you can't, you can't hide from these things. I mean, these are not small, anecdotal, on the periphery type of economic, you know, instances. These are things that are driving large scale, significant movements across the spectrum. And I think, you know, as you mentioned, it's not just oil, but oil clearly is, is the top of the headline list here. And I think, you know, if oil remains over $100 a barrel and well above $100 a barrel, the ramifications downstream for everyday consumers, as we talked about over the last couple of weeks, is significant. And it puts a lot of pressure on the system that we think is already somewhat fragile. I mean, we've been talking about hire for longer. We've been talking about soft landing. We've been amazed at, you know, how the economy's continued to keep producing. Consumers have continued to spend even with some of these things like student loan, you know, payments coming back and auto loan payments being so high and people being leveraged so much. Personally, it hasn't really, you know, negatively impacted things, but these are the types of things that can have an overwhelming force towards, towards swinging that negative. And I think, you know, look, it's still early. These things are very volatile, both positive and negative. If we get to some sort of a ceasefire, we get to some sort of a resolution over the next week or two, I think you'll see these things come back within a range bound, Mark. But every day that oil doesn't flow through the strait, it increases the likelihood of this having broader ramifications. And, you know, I think the meeting with Powell today, I mean, it just highlights for us. And I know on today's show we're going to talk a lot about what we've seen over the last six years. But, you know, I remember when the Fed decisions, you know, they're putting countdown clocks on CNBC and other news networks because no one could wait to see what Powell was going to say about rates. And today it's kind of in the background. I mean, it's a story, it's something that we're following, but it's not, it doesn't take the headline. And you know, I, I honestly, at some level, I'm a little bit relieved for Powell in the sense that everything is going crazy right now and he's about to walk off stage, just throw up a peace sign and be like, you know, see ya. Because he's had to endure quite a lot as the Fed chair and the Myron. Stuff like that's just crazy, man. I mean, come on, at this point it's, it's not even, I mean, maybe it's funny, but it's just kind of annoying at this point. Um, so, you know, I guess we'll see how that continues to play itself out. But look, I definitely think we've entered into an era now where all of these things that we thought were the storm clouds, but they never had really produced much rain. Likelihood of rain is increasing at this point.
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Yes, I loved one of Powell's quotes from the press conference, and I'm going to get it a bit wrong here, but to summarize it, he said something like, you know, basically everybody that he talked to, all the Fed members that he talked to, said if there was one meeting to skip the sep, this would be it. And so, you know, the joke is like, okay, is this the meeting where forward guidance died? And I think it should because nobody has any idea. I mean, and honestly, in a way, I mean, this is kind of funny. Another thing that came up a lot in the press conference is what'll happen with the transition. And from what it sounded like. First, Powell is going to stay in place if they, they can't have the confirmation hearing. Right. Like, kind of has to. He'll be in place just by the way the rules work. And then second, he has no intention of stepping down. Third, he hasn't made a decision if he's going to stay on. So in a way, this is probably really good for warsh, right? Like, if you're warsh sitting here looking at this backdrop, you're like, I don't know if I want to take over right now. Like, it's okay, you can keep steering this ship.
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Well, you know, the old ADAGE Steven it's like you don't want to be the quarterback that replaces Tom Brady. You want to be the quarterback that replaces the quarterback that replaced Tom Brady. You want to be the second guy. And you know, to your point that no one wants to take this on, especially with the political pressure that's going to come with it. I mean, that's, that's the remarkable thing here is from my position, like just kind of as a, as an observer of the marketplace here, it's really interesting just to see how much power is yielded. And we talked a little bit about this with the Fed when they tightened rates, like how that restrictive policy position really impacted transaction velocity, lending, underwriting, all these things. But those things are, can be minuscule relative to these broader geopolitical challenges that we face. Like, it's almost like when you get on a cruise ship. You know, when you're at, when you're at the port and you walk up to the boat, you're like, this is the biggest ship I've ever seen. This is amazing. And then you get like 50 miles off the coastline, you're just in the middle of the ocean and you're like, this is a dinky little ship compared to the, the massive ocean. And at some level that's kind of where we're at here is like all these stories intertwined, some yielding power, some not, but it's all relative. And this stuff that, you know, we're both Texans at some level. I'm probably a little more Texan than you at this point, Stephen, but we're both Texans, you know, it always comes back to the oil man. I guess that's what it comes back to.
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It does. And what kind of bothers me about some of the narratives saying this isn't the 1970s, you know, know the US is energy independent now. We weren't then. Yada yada. Like, okay, yes, that is totally true. Fair, right. If you look at the importance of oil for GDP, like we went from about 25% to like 3%, just kind of bastardizing these numbers. But you can't diversify away or hedge that last 3%. It's necessity. We can't do anything about it. And if this oil supply just gets shut off, then what, you know, we're beholden to that 3%. It's critically important for everything else in the economy, let alone all of the other, you know, knock on effects for stuff that flows through the straits and what it means for global supply chains and production, yada yada. So we're looking now much more like this is going to be an 18 to 24 month effect and it's just a question of the severity.
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Yeah. And I look, I mean some of the downstream implications are going to be cost to airfare and travel. We're already seeing it at the pump with drivers already and all of our goods and manufacturing that rely on oil to produce. I mean, basically everything that we use every day has some component that's traceable back to oil. So I think, look, it's kind of interesting timing in the sense that we had kind of slated this episode to talk about COVID and some of the things that, you know, as Tripp kicked off its podcast and all this stuff. And I think it's interesting in the sense that everything was so uncertain during that time and we're kind of in the same similar position, I guess, of uncertainty here. I agree with you on the Powell comment. It's forward guidance today would just be laughable because it's so uncertain.
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Yeah. If anybody's looking for some extracurricular reading to read about the oil landscape right now, Jeff Curry at the Carlyle Group put out a piece called A Crude Awakening. It talks about the new jewel order and some other very interesting stuff in that, that research piece. So I would highly recommend reading that one. It's a, it's a very interesting read.
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So it is good timing for us to move on to a segment where we're really reflecting. As you mentioned, Lonnie, we wanted to take a step back and really six years back to be exact, which is actually when we started this show. So if you've been a listener since March 2020, so send us an email, we'd love to hear from you. But we started this show because Covid hit and there were a lot of questions about what was going to happen to the world in general, but also to commercial real estate. And at the time we were hosting probably five to six webinars a week, producing so much research, really trying to help make sense of what was going to happen to the commercial real estate market, to commercial mortgage backed securities and across all property types. And, and that's when we said let's consolidate all of this information and really start a show that helps to make sense of what's going on in the market. So it's interesting that six years later we still have so much to talk about every single week. But let's use this time to think back to what was happening in maybe March and April 2020 and talk about what happened in the data back then, which Properties were hit hardest and why and maybe reflect on what the market looks like today relative to that moment. So to set the stage, I wanted to share a headline that Trump put out at the time and that was picked up across the commercial real estate and economic finance publications and that was that April 2020 CMBS data revealed a 10x plus increase in the non payment of hotel loans and an almost five times increase from for retail loans. So with that in mind, maybe Stephen, you could reflect on what the sentiment was like at that time and what our data showed.
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Well, the sentiment, like if I could like recreate the mentality of opening the data file that's telling me this, my pulse rate would go from 60 to 120 to like 140. Like I would have sweat beating down my forehead thinking like, is what I'm reading right now correct? I mean, I'm sure it's correct. It has to be correct, right? We have the gold standard in data, but this is nuts. We've never seen anything like this before, right? To see a 10x increase in non payment. And you know, intuitively that has to be right because everything is shut down. It's just absolutely wild. Like before we get into the data, like Lonnie, like what was your mindset like when just everything stopped?
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I remember thinking, and I'm, you know, I'm not like some deep in the weeds math guy, you know, even though I love data, I like finance. But when they were on stage on these press conferences saying like two weeks to slow the spread, right? But if you got Covid, you're supposed to quarantine for two weeks, like the numbers just didn't quite add up. It was like, oh, we're going to shut everything down for two weeks yet new people are getting infected and they have to quarantine for two weeks or whatever. Like, I don't know how that's going to work. So I kind of went into the shutdown with I think a more realistic understanding that we're probably going to be locked down for a while. I underestimated what that while was. But you know, I, I remember just thinking like, if this is really as bad as they say, this is going to be a lot worse than what we anticipate. And you know, it was an interesting time period just because not only do people shift from like being on the road and working and going to an office to being at home, but like our days were filled with just non stop news. And unfortunately when that happens, like the news wants to make things as, as bad as they can to try to increase viewership. So it was like every time you turn the TV on, all of the tickers at the bottom were just like crazy statistics around whatever. So for me, being able to focus on the CRE part of it, I think was a nice reprieve because even though to your point, delinquency jumped off the charts, even though modifications and all these things started happening and it was, it was, you know, unnerving, you know, maybe to a level that we hadn't seen since the GFC, it was still better than watching the 24.7news cycle of just incessant doom and gloom. And so. And you know, I think for us, like kicking off the pod and you know, as Haley mentioned, we started doing webinars and we started putting out, you know, real time content at a level that we just hadn't done in the past. Like there were some really cool things that came from that. And I think as a company for trap, for those that don't know, we had actually gone through an exercise since 911 where basically one to two weeks a year everyone was forced to work from home so that we could make sure that everything worked at scale. And so it was a very easy transition for us to go to a remote environment. And I think our teams all stepped up and it was so it was a weird, weird time, but it was actually kind of a pretty fun and cool time just to see people, you know, at home in a maybe non professional environment like an office, but still producing incredible results.
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C
So let's break down some of the numbers because we've clearly like normalized from all of that pandemic craziness. So the pre Covid baseline for delinquency and CMBS was just above 2%. So in February 2020 we had a cycle low delinquency rate of 2.04%. Now between March and June of 2020, that overall rate surged from 2.07 to, to 10.32%, effectively quintupling in three months as pandemic shutdowns hammered cash flows across the landscape. Now, lodging led the pain. I mean that was an undeniable sector wide demand destruction event. Lodging Delinquencies exploded from 1.53% in March to 24.3% by June, nearly a 23 percentage point jump as travel and hospitality just ground to a halt almost overnight. Now retail was the other major casualty, but that was a bit more nuanced. So retail went from 3.89% in March to 18.07% in June. And if you think about what goes into that asset class, you know this is a dollar weighted metric here. So those, those massive assets like super regional and regional malls that account for big dollars. Right. When malls shut down, that's going to drive a big portion of that pain. Now industrial and multifamily held up remarkably well. Industrial stayed in the low 1% range. Multifamily went from 1.63 to 3.29%. Really modest. Office was the sleeper. Office only went from 1.86 to 2.66% during that time. So our office distress was still years away. Now by January 2021 the overall rate had pulled back to 7.58%. And in December of 22 it had fallen back to 3.04%, nearly the pre Covid territory. But lodging and retail still remained well elevated as that stress continued to work through the system. Now fast forward to early 2026. The overall rate sits at 7.14% with office now that dominant driver at 11.2% which is a reminder that we're still working through that Covid reshuffling. And I don't think we're going to be done because some of these rotations and pivots, they're going to come back around again. Remember, Covid pushed us from just in time to just in case supply chain. We're probably going to see something similar with this energy crisis if it turns into a full blown crisis. Now that's yet to be seen, but again, just want to toss that food for thought out there.
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Yeah, I mean I think as you kind of walk through some of the numbers, Steven, it's, this is really remarkable. And you know what was interesting is, and we talk about this pretty much on any presentation that we give publicly that all time high delinquency for all property sectors is 10.34%. But that didn't happen until four years effectively after the start of the GFC. And with COVID we got to 10.32% delinquency effectively in 60 days. I mean like the line is effectively vertical. Really, really crazy. And I think for us, like it's similar to what we saw with the inflation press where inflation was just ticking up and up and up and up and every time you saw the number you weren't sure if it was going to be how much higher the next time. And I think for us when the regional mall shut down, when hotels shut down, looking back, the fact that it didn't get worse, quite honestly is really remarkable. In the moment we thought, oh my goodness, I can't believe these numbers are so high. But in reality, they very easily could have been 2x what they were.
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C
Absolutely. So some of the response infrastructure that we had built up from the 2008 crisis really helped out. I mean, gosh, this is really digging deep into the weeds here. But if you go back and look at the sort of affidavit you had to sign to request a loan modification for a residential loan back in 2008, it was this onerous proctology exam of a form. A very interesting metaphor here, or maybe it's an analogy. But anyway, it's a, it was a really onerous form. Like, I went back and pulled up this paperwork because I wanted to understand, like, you know, what was going to happen in Covid, like what, what flexibility we're going to have. And when you fast forward to Covid, there was no onerous affidavit. All you had to do was tell your mortgage servicer that you were facing financial difficulties due to Covid and boom, automatic eligibility for a modification. So like, fortunately we had some of that modification infrastructure built out and prepped for both the residential and commercial side. It was just wild to me how easy we made it to get a modification during COVID But we needed to, we couldn't dance around and play games and semantics and yada yada, like, this had to happen fast.
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Well, you know, it is, it is funny, Stephen, and people I'm sure will write about this because obviously the two major commercial real estate disruptions that we've seen during the most recent history have been the great financial crisis and Covid. And in the gfc, the government's bailed out the banks, but they, they didn't provide liquidity to the market really. They just kept the banks afloat and then the auto manufacturers. But if you didn't have cash, it was really tough. And you know, millions of people got foreclosed on on the residential side and it was disastrous for people. To your point in this disruption, like they made everything so easy, then they immediately made loans available and they, they did all of this other stuff to kind of keep things. They started sending out stimulus checks in the mail and all of this stuff. So it kept the market moving. But then that created this, this, you know, inflationary period that's pretty much unprecedented. The dynamics are not the same and people try to make them the same and they're not the same. And it just the contrast between effectively, you know, I don't want to minimize the government intervention during the GFC because it was substantial, because if they had it, I mean, I remember Henry Paulson saying, you know, this was the first time we heard the term systemic risk. And nobody really fully understood what that meant until, you know, these banks start getting bailed out and like, if they hadn't stepped in, the entire financial system probably comes crumbling down. But they didn't really extend it to the, to the end user, consumer spender, homeowner, renter. Whereas in this instance it was like immediate to your point, you just logged onto your bank, clicked a few buttons, didn't have to make payments for 90 days, like literally that simple. And then on the tenant side you had all these moratoriums and eviction moratoriums and all these things that were implemented like overnight, almost beneficial for folks that were not able to go to work and earn an income. But if you were a mortgage loan, you held a loan or you had a loan, those mortgage payments were still going to be due at some point. And that's, that's some of the downstream challenges that we're still working through. And in some states, I think there are still some markets in California where they have some legacy Covid moratorium still in place.
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It's absolutely wild. I cannot relate to that mindset at all. And that just speaks to the spectrum and the diversity of our legal system. Right. And why we call real estate a hyper local asset. It matters a lot where you're investing. Now speaking of these modifications on the commercial side, we dug up some data because we wanted to see being that lodging was the hardest hit, major asset class. How many modifications did get done during COVID In TREP data, we actually do have a tag to indicate if a modification was Covid related. So I pulled the time series and looked sector wide. You had almost 45% of lodging loans flagged as having a Covid modification by the time you got to December 2020. It's absolutely wild, but completely defensible because, you know, by December 2020 we were just getting into, what was it, the omicron or delta variant, like something like that. So yeah, travel was nowhere even close to being back to normal. It wasn't until Probably December of 22 when business travel was looking, you know, somewhat resembling say, like, you know, a trajectory to hit pre Covid levels.
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I remember seeing the videos and stuff online of people being on an airplane and being the only person or one of 10 people on an airplane. And you know, Hayley and I went to CREF C conference, I think in 20, and there was like 500 people in Miami or something. I mean it was, I think that was right when Omicron hit and people were just not comfortable traveling. And it took a while for you to be in a public place and be able to sneeze without people looking at you, like with a negative look or whatever, or coughing without people like judging you.
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Oh yeah, there was definitely the shame. Now what was really interesting with the lodging modification analysis, I dug deeper because I wanted to see okay by subtype, how did things break out? And interestingly, this was not quite what I expected. And this is based on loans currently outstanding through history. Limited service actually ended up having the highest peak modification rate. Limited service lodging peaked out at right around 54% I think was peak modification rate. Extended stay was a modest like call it about 40%. And I think that's about where full service peaked out as well. Full service and extended stay modification trajectories really trended in the same direction. Limited service stayed elevated. But there's, there is a lot more that we can unpack on that sector and fortunately we're going to do that a little bit. I shouldn't say a little bit. We're going to do it a lot on this upcoming Market Pulse webinar next week.
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Yes. If you haven't signed up for our Market Pulse webinar yet, you still have time to join us. Send an email to podcastrep.com and we'd love to have you. It is taking place on March 26th and maybe we can round out this segment. Give us your quick hits on what happened during COVID to commercial real estate and what has kind of stuck and really reset the market.
- [27:45]
C
Well, one of the things that has stuck and obviously has been front and center in our delinquency headlines is work from home, hybrid work, remote work, and basically the demand reset on office assets. Companies realized that, hey, we could get by with a lot less office space than we used to need and we can have a little bit more decentralized workforce than we used to have, right? That Covid technology shock forced our hands for what was probably going to become inevitable anyway. Now on the retail side, retail has been phenomenal, right? I mean both on the good way and the bad way. Some of the demand destruction that happened for regional malls and even some of the, you know, lesser quality super regional malls, some of that stress has stuck around. But on the flip side, or say like grocery anchored local retail space, we realized just how underbuilt we were, right? We had so little space constructed after the gfc. We were so Undersupplied, that sector has absolutely crushed it. So if you are necessity based retail, that sector has done extremely well. And then finally industrial and Lonnie, I'm sure you have some much better thoughts on industrial because you're attending these conferences and get to talk to folks that are boots on the ground. But industrial has done incredibly well. Some of that near shoring, onshoring, and just in case, warehousing and logistics infrastructure we built out has really crushed it in that space. I mean, again, we were kind of headed in this direction anyway with E Commerce, but Covid really supercharged the demand side of the industrial equation.
- [29:21]
A
Yeah, I think industrial, you know, it's still the story post Covid. And now industrials kind of bled into data centers and it's, you know, we used to say in our presentations you saw about 25 years worth of industrial development in five years. It's really interesting though, because I think, I think the commercial real estate market had some pretty significant shifts that on the surface don't appear that significant. Right. So like, you talked a little bit about retail and the strength of retail, Stephen. Like yeah, that's true. And retail has been much more resilient than people estimated. But it was the retail that was able to pivot and they were able to develop some sort of omni delivery channel mechanism where they had some online, some bricks and mortar, some curbside pickup, whatever. Now maybe they're not leveraging curbside as much as they were during COVID but the retailers that are doing well today were the retailers that were able to pivot real time during the pandemic. And for every one of those, you probably had a store or two that were closing because they were unable to. Now, what hasn't garnered the headlines is those stores that went out were just seamlessly replaced with retailers that were able to pivot. And so, you know, we've talked about Bed Bath and Beyond, we've talked about some of these others that, you know, had been long standing, you know, nationwide type of retail chains that have gone out of business, hobby lobby, et cetera. Those places have just been backfilled. And so, you know, if you wanted to take an interesting look at this, you could, you could write some pretty interesting stories around all of the retail changes that have just been kind of after the afterthoughts relative to the fact that the overall sector has performed so well. You know, I think the other thing that's interesting is the syndicator model for multifamily when interest rates went to zero and stimulus money Started getting pumped into the economy and we started seeing 1970s vintage multifamily trading at 3.75 cap rates on trailing twelve. Like that's a phenomenon that we'll probably never see again. And like none of that was based on actual market. Like, like that was not sustainable. We're still dealing with the ramifications, but they haven't been as like blunt force as you would expect. I mean people have been able to get extensions and modifications or the debt funds have stepped in or private credit stepped in and like really bolstered, supported that sector. Whereas if you were to overlay this against 2008, as I was mentioning earlier, those loans would have just gone bad. Like there was no, it was binary. It was either you pay or you don't. That's it. So I think for multifamily you're going to see a shift back towards institutional quality. Less syndicator model, maybe more fund style, like not deal by deal, capital raising just because people are going to be a little bit gun shy for a while. You know, hotels, I think are the interesting one where they realize they're probably spending too much on staff and they're doing too much cleaning for what people have to have. I mean, like in the moment no one wanted you to come in and clean the room. You'd rather just be there by yourself. Well, now I want someone to come clean my room. But the hotel is pushing back, saying we're only going to come every three days. Does that mean I'm not going to rent a hotel? No, I just probably be a little dissatisfied. But they're saving money on that cost and they've been able to push RevPAR and ADR to all time high. So. And then the office is just a unique one. I mean like to your point, Stephen, everyone else's delinquency modification status, all of that immediately changed. Office didn't really see any change for multiple years. And you know, even when it hit its peak, I mean we've seen delinquency above 12%, all things considered, not nearly as bad as you would've assumed it to be. And so, and I'm bullish on Office and I think we're seeing that play itself out real time. So I think you, if you look at the headline numbers, there's some things that really are head scratchers. And you're like, oh my goodness, I can't believe it was that bad. If you dig a little deeper, you probably will come away saying, I can't believe it wasn't worse. And I think for some of the industries now, you probably got to wonder how strong they can remain. I mean, at some level, does industrial continue to pump out results like it has been? Does multifamily finally start to see some cracks in some of these markets where they haven't, you know? And does retail continue to survive when consumers probably, given all of the macro that we just talked about today, have to start pulling back some? That's the one thing we, I think why we love commercial real estate so much is the stories write themselves every day. It's a dynamic market, it's hyperlocal as you mentioned. And all of these things are just ingredients. They get put in the mix and then, you know, the cake comes out and sometimes you're surprised at the way it looks and tastes.
- [33:52]
B
So I'll take us back to a theme that we've been seeing a lot of in 2025 and 2026, and that's consolidation. I mentioned that in the intro we saw that Public Storage agreed to acquire the National Storage Affiliates brand in a $5.6 billion deal. So walk us through what this consolidation means for the self storage market and then let's give our listeners a quick hit on performance across self storage assets in the CMBS market.
- [34:24]
C
Yeah, this is going to be a major consolidation. At year end 24 Public Storage had over 3,000 units accounting for 221 million net rentable square feet, while NSA reported just over a thousand properties and roughly 70 million square feet across 37 states and Puerto Rico. So together these companies are going to control well, more than 4,000 properties and have a combined enterprise value of about 77 billion I think. I mean it's basically going to be a massive self storage behemoth. But that's one of the main ways you succeed in this industry is scale and efficiency. And what we saw when we dug into the truck data on self storage was really interesting. So this is a quick snapshot of what we have in our database. It's just over 24 billion outstanding balance for the self storage industry. Now on the trailing twelve month basis, the weighted average spread to treasury and that's against the 10 year treasury is 215 basis points in those loans. The trailing 12 month weighted average cap rate based on NOI and appraised value is right about 5.4%. And then here's an interesting one, Lonnie. When you look at the percentage of self storage properties with a vacancy rate greater than 25%, which is really not unheard of. Like if you have a self Storage facility that's running at 80% for all intents and purposes, that's pretty close to full up. So if you look at the percentage of that universe with a vacancy rate greater than 25%, it's only about 7%. It basically means it's full up. That's phenomenal.
- [35:58]
A
Yeah, it's a little bit of a trap. Okay.
- [36:01]
C
Yes.
- [36:01]
A
In the sense that that's physical occupancy and we've talked a lot on the multifamily side about the differences and the nuances between physically occupying a space or getting free rent or concession and being there but not paying. And so you create economic vacancy. And I think in the self storage space you have to be careful because a lot of times, 1, the lease terms in multi are usually 12 months or longer and self storage are effectively month to month leases. And a lot of times you might get, if you do a three or six month lease, you might get half of that term at 50% off or something like that. So to your point, yes, I think stabilized market occupancy for a well run self storage facility, especially one of institutional quality like these, that 80, 85% threshold is kind of where you're at, but you have to look a little bit closer, especially if you're, if you're a smaller mom and pop operated one, you see really large economic vacancy in those and you don't have any of the security of the long term lease. The flip side of that is you can raise rents every month. And during COVID I mean, I remember being interviewed multiple times for different articles where, you know, self storage was touted as the recession resistant asset class and it would, you know, used to be an alternative asset class and now it was becoming mainstream. But, and it was because some of the fundamentals were very similar to multifamily and people were absorbing significant rental rate increases on their storage unit. Obviously during COVID they weren't inclined to go move that stuff out. So it's, it's been an interesting shift for this sector, which was one that maybe was an afterthought for a while. Kind of getting its time in the sun now and seeing some consolidation. Here is an interesting play.
- [37:40]
C
Yeah, when you have a housing affordability crisis, it's not like I can just say add $100 to my mortgage payment and just poof, all of a sudden add storage space to my house. It doesn't work like that. So you know, storage, self storage is a great asset class to provide really kind of needs based flexibility when going and buying the square footage you need just isn't an option for many folks.
- [38:04]
A
One look, we, I've done a lot of research and I've actually done some presentations on multifamily. If you look at the amount of stuff that Americans own on a per capita basis, it is remarkable relative to the rest of the world. And so the self storage industry is just really interesting because if, like, if you go back to your earlier comments about logic or just being reasonable, right. Why would you ever just rent a storage unit that you pay hundreds of dollars a month for to keep stuff that you literally are completely physically detached from and really have no viable way of getting there or using it on any regular basis? And in practice, you pay multiple times more in rent than what the stuff is worth and you could just buy it five times. Haley's laughing here. She must have a storage unit somewhere.
- [38:52]
B
I do not. But we might piss off a lot of people who do or maybe who operate them.
- [38:58]
A
Listen, no, I love the business because I think it runs very similar to multifamily and you don't have people living there, so you don't have plumbing and you don't have some of the issues. But just at face value, like this is a US phenomenon in my experience at this scale, just because we all love our stuff and we would rather pay $125 a month to keep our stuff in a cardboard box in a unit that we visit twice a year than just get rid of it. I can't tell you how many self storage I andes I've reviewed. They're a good business. They're low capex, they're low management and they have, as Steven mentioned, usually if they're well located and have good visibility and good access, strong occupancies. These are a good investable investment class. But just the theory and concept behind it is just really remarkable. It's almost like I saw something on LinkedIn this week and you can relate to this, Stephen. You know we get hail storms in Texas during the spring and so they were showing a picture of someone had two cars in their driveway and they had bought these inflatable hail protectors that they wrap their car in so that when it hails it doesn't damage the vehicle. But they have a two car garage that's attached to their house that the cars literally are sitting in front of where they could just park in the garage. But you know why they can't park in the garage? Because they have too much stuff.
- [40:17]
C
Bingo. It's amazing. Amazing how many neighborhoods you drive through and how many cars you see in the driveway, not in the garage.
- [40:26]
A
It's amazing. Like it's, and this, it's got to be a, you know, Sunbelt phenomenon, right? Because if you're in New York and you're living in an 800 square foot apartment, like you can't have that much stuff. Like you just 800ft only holds so much stuff. But if you're, you know, typical starter home in Texas is probably about 2,200 square feet with a two car garage you can hold hold a whole lot of stuff.
- [40:50]
C
When you got to think with the silver tsunami and the transition of assets, self storage probably positioned pretty well to
- [40:57]
A
capture some of that 100% because of the reasons I just said, like the sentimental value people can't, they don't want to get rid of the stuff. They don't want to get rid of their mom and dad's stuff. They'll just put it in storage and keep it there and just pay every month.
- [41:10]
B
So let's close this week's episode with some quick hits in our property type segment and we'll focus on office this week there was an article in Bloomberg that Bank of America has inked a new lease for the entire office tower at New York City's One Bryant Park.
- [41:26]
C
Yes, bank of America is plotting a major expansion there. The company has agreed to a 20 year lease for the entire office portion and some retail space at the 51 story property. According to an emailed statement. It's a triple net agreement meaning the tenant is responsible for paying property taxes, insurance and maintenance costs. With the new deal, the bank will occupy 2.4 million square feet of the 2.44 million square foot tower. Retail tenants include Verizon and Starbucks. Those will remain at the building and bank of America will sublease some office space to other existing tenants. This is an absolutely gorgeous property. I've had the privilege of seeing bank of America's fixed income trading floor. I love this property. It's fantastic. Now next up we have Wells Fargo has provided $145 million CMBS loan for a Silicon Valley complex. Now coming to us from Commercial Observer. So Prometheus Real Estate Group has secured a $145 million loan to refinance the towers at Corpatino City Center, a two building property recently renovated in Corpetino, California. In Silicon Valley, according to the release, Wells Fargo provided the debt structured as a single asset, single buyer deal, also known as a SASB deal and Northmark's San Francisco debt team and Equity team of Nathan Prouty. They arranged the transaction. Proudy acknowledged a statement that Office Market Capital has been selective, but that the towers at Corpetino City center has benefited from a recent infusion of tenant improvement spending plus long term leases and a location within the famed Silicon Valley tech corridor. He said, quote, this transaction demonstrated that lenders will engage for assets with strong fundamentals and a compelling business plan. So since we will have plenty more details on that SASB deal, if you want to learn more about that financing transaction, please reach out to us@podcastrupp.com Next up we have OpenAI has surged past 1 million square feet of office space in San Francisco with its latest Mission bay lease. So OpenAI has signed a sublease for approximately 280,000 square feet at the former Dropbox headquarters in Mission Bay, San Francisco. This deal brings OpenAI's total office space in San Fran to over 1 million square feet, all concentrated in Mission Bay. Company is also expanding its presence in the Bay Area having signed a 450,000 square foot lease in Mountain View which is already spurring new housing development, particularly office to residential conversions. And finally, last story we have here is Starbucks is opening a Nashville office and will relocate some of their supply chain workers. Starbucks is planning its flag in Nashville, planning a new corporate office in the city. The coffee chain expects to open the office later this year as part of its efforts to expand in parts of the U.S. the company said in an internal message Tuesday. The office will be home to parts of its North American supply chain operation. The company plans to offer positions to dozens of existing Seattle based employees to relocate and open additional roles in the market in the future. The company said that Seattle remains its North American and global headquarters. Starbucks said that employees who decline to relocate will be eligible for severance and can pursue new roles as they become available. Executives said during an investor event in January that it could add as many as 5,000 US coffeehouses over time. The central, Southern and parts of the Northeastern US Are particular areas of focus for the company.
- [44:57]
A
A couple of thoughts on a few of these stories Stephen I think we're going to start seeing more of these exodus stories out of Washington State for various reasons. The political climate there seems to be getting untenable and their income tax thresholds which they just imposed a new I think it's a $1 million and above has an additional tax. You're going to start seeing people effectively moving their businesses to more business friendly states like Texas, Florida, Tennessee, etc. So more to come on that I think as we, we kind of see this play itself out the open air, at least news is an interesting one because this is a great positive story for the Bay Area. But we're already starting to see stories pop up about housing affordability becoming another huge issue. Always been an issue there. But during COVID just to kind of relate it back to this week's episode, you saw a little bit of a reprieve where you didn't see the stories every week or every month about people living in their cars and working in Silicon Valley and et cetera, et cetera. But now with these AI companies signing large scale leases and bringing really high earning jobs to those locations, you're seeing people pay extremely high prices and outbidding still on a relative basis. Very high income earners, but just not as high as some of these AI tech startup earners.
- [46:15]
C
Fun little fact for you, Lonnie. I always teach this in real estate principles, talking about housing affordability and services and property taxes, et cetera. So property taxes are one of the main ways we fund local services. So do you want to guess what the starting salary for entry level firefighter EMTs is in Mountain View, California?
- [46:35]
A
$75,000.
- [46:37]
C
$179,000 to $197,000.
- [46:41]
A
Yeah, you know, look, all things are relative. It's, it's, it's really. I know they had what the lady and, and that was overseeing the water or whatever in the Palisades fire, she was making over 700,000 a year as a government employee or whatever. I mean, just really remark California and in those markets just they have their own setup. Like it's, it's just, that's crazy. I don't have the statistics in front of me, but at 180,000 a year, I mean, that's got to be some multiple above median income across the U.S. it is.
- [47:13]
C
And yet that's going to feel like low income in that area.
- [47:16]
A
Exactly. Yeah. Really remarkable. So, yeah, I mean, look, that story, that's the gift that'll keep on giving. As we see that those markets come back as San Francisco, Louisiana, San Diego start to come back, you're going to see that topic of housing affordability and other things just rise to the top. And on the other two office stories, look, I think this is just a narrative of great buildings with great tenants. There's more than enough capital available for them. It's the everything else that still seems to be hoping and praying. And unfortunately, in your intro, you did a really great job of saying exactly why hope isn't a strategy. Because for people hoping for rate relief, it's not coming and the math is going to have to math.
- [47:56]
B
So if you're a trap client, you would have seen, I think more than a dozen trading alerts from us this week. We had a lot of emails and alerts going out to clients about large moves on CMBS loans. We don't have time to get into all of those today and they are a client exclusive. So I'll read some of the headlines here and if you're interested or want to learn more, reach out to us@podcastrep.com but a few of the headlines include a Manhattan mixed use portfolio value cut heavily following a forbearance agreement a Virginia retail property value cut below the loan balance following a loan extension a large Chicago office value cut below the loan balance amid foreclosure and lots of loans moving to special servicing a Denver suburban office, an Austin, Texas office, Brooklyn office, Long Island City office. So if you're interested in learning more about how to get access to these stories, reach out to us. And if you're a client, check your inbox and make sure you're up to date on all our trading alerts. A few other programming notes this week. We have a lot of webinars coming up, so if you enjoy this podcast and you want to see some more of our data in action in a video format, you will definitely enjoy our webinars. We have a Lending Market Snapshot webinar. On Tuesday, March 24th at 2pm Eastern, we will be drawing from our quarterly Bank Commercial Real Estate Loan Report which is built on anonymized loan level data from large and mid sized banks. And we'll unpack recent developments across lending portfolios, discussing emerging trends across cre, CNI and NBFI portfolios. We'll also look at early warning signs and risk indicators that lenders should be watching closely. So if you're a bank lender or credit risk professional portfolio manager or just interested in what's happening in the banking market, reach out to us and we'll make sure you're signed up for that webinar. On Thursday, March 26 at 2pm Eastern, we have our next edition of our Market Pulse webinar. Lonnie and Steven will be doing a CRE Cielo deep dive looking at surging issuance, collateral trends, refinancing dynamics and really what it's all signaling about CRE lending today. And we'll also do the special segment that we mentioned earlier, really digging into the lodging market, looking at demand patterns, property performance. And finally, we'll close with some reappraisal trends and look at what rising reappraisal activity may signal about valuations, distress and loan performance. So if you want access to the Marketplace webinar, send us a note the week after. We also have a webinar exclusive for contributors to our taller data set. This session will take a deep dive into our taller dashboards and provide insights into reserve rates, benchmarks, ratings, downgrades, debt yields, loan resolution trends, and really give you a lot of insight into our comprehensive loan level data set. So this one is exclusive for contributors, but if you're interested in finding out how to become a contributor, reach out to us and we will connect you with our banking team. And then finally on Thursday, April 2, if you've ever been curious about seeing our front end tool Trip cre, we are hosting a no pressure webinar where you can see the tool in action and understand how you can use our data for your use case and in your workflow. So reach out to us. We'd love to have you join us. Lonnie and our product lead Sumit will be leading that session and really walking through all the different ways you can slice and dice our data set alerts. Make sure you're accessing it in the best way for your business. So lots of webinars and events coming up at trep. And of course I can't close this podcast without mentioning our Trep Connect in New York City conference. Somehow we're less than 50 days away, which is crazy. But every week we keep having more of our podcast listeners, clients and people in the market sign up, which has been so exciting. And we also have several new speaker announcements since last week. So we have Dan Thorman of Ambridge Hospitality joining us, Stephanie Stewart of Voya, Justin Stein of Tanger, and Barbara Denham of Oxford Economics joining our speaker roster. So if you want more details about this event, visit our TREP Connect website. You can also find more details on our LinkedIn or reach out to us and we'll share all the info. And finally, some shout outs. Dave L. Reached out and said, I first want to say how much I appreciate the show, especially in these uncertain times. Knowing how to interpret prints and larger macroeconomic events is incredibly valuable. So thank you for the great pod. He also shared some insights into the Phoenix market and said the Phoenix economy is indeed built on Sun. I have sold a bunch of deals there over the last 20 years and it's the only thing I can point to. He loved some of our coverage from last week's episode and we will be getting back to you Dave and sending you some details on the mall information that you requested. Brian T. Reached out looking for info about our APIs and how to ingest our data within his team system. So we are excited to work with you. Brian. Marian G. Loves the show and has been listening for more than four years. David P. Is excited to meet the team at Trep Connect in May and Kevin C. Is interested to see our data sets across multifamily and really appreciates the show and our Marketplace webinars.
- [53:33]
A
Okay Haley, I have one this week, our friend Shlomo Chop, he sent me a video of one of his colleagues, Danielle, who's a fan of the show and she was saying all right. And so he sent me a video, wanted me to know that she's a fan. So I sent her a video back saying that maybe over the next couple of weeks we'll have her record the all right closing at the end of the show. So thanks for listening Shlomo, as always and Danielle, thanks for listening and maybe we'll figure out a way to make that happen.
- [53:59]
B
Love it. And if you're listening still and you make it to the alright, send us a note. It's pretty cool to hear how many people make it all the way through the show and hear the shout outs, the closing and the alright every week. So with that we'll close. Thanks to our producer Carly Sento. 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.
- [54:30]
A
All right.