← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
386. Escalate to De-Escalate: Bank Capital & Lending Shifts, CRE Fundraising, Construction Cost Pressures, & More
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- [00:06]
A
Welcome to the Tripwire Podcast, the show where commercial real estate meets data and insights. This is our week in review for the week ending March 27, 2026. I'm Hailey Keen with TREP, a data modeling and analytics firm for the CMBS Commercial Real Estate and CLO Markets. I'm with Lonnie Hendry, Chief Product Officer, and Steven Bushbaum, Head of Applied Research and Analytics. This week the macro story was all about volatility and this escalate to de escalate dynamic playing out in real time. We've seen geopolitical headlines drive sharp swings across markets, with oil pushing higher and treasury yields following the 10 year has moved up towards 4.4% in recent days as inflation fears build, with mortgage rates also jumping to their highest levels since last fall. At the same time, we're seeing intraday reversals, yields briefly pushing higher on weak demand and inflation concerns then pulling back as markets react to any signs of de escalation. Alongside that, we have a few key Fannie and Freddie stepping into MBS fundraising showing early signs of recovery and capital getting lined up with new credit facilities even as rising construction costs are starting to stall projects. So in this episode we'll dig into how all of this energy driven inflation rate volatility and shifting capital flows are impacting credit and cre. Stephen, when you look at this escalate to de escalate setup and how quickly rates are reacting, what stands out to you?
- [01:42]
B
Well, I'm going to pick something that wasn't on our initial bingo card and this one snuck in because it was announced late last week and that's the new bank capital framework that the Fed, FDIC and OCC put out for comment last Thursday the 19th. Now we'll dig into that in a minute, but there's a funny tie in here for this week's theme because you could argue that easing capital requirements for banks is its own form of de escalation, at least relative to the initial Basel III endgame regulations that were proposed under the prior administration. So perhaps our theme or phrase for the week, like you said, is escalate to de escalate because it seems to be playing out in various corners of the market. Now this weekend was a masterclass in escalate to de escalate and perhaps we're going to see re escalation. So this past Saturday night, Trump threatened to obliterate Iran's power grid if the Strait of Hormuz wasn't reopened within 48 hours. Markets braced, I mean, oil futures, stock futures, everything was really really, really ugly going from Sunday night into early Monday morning. And then Monday morning, Trump walked it back and claimed there were productive talks underway and postponed the strikes for five days. And on the heels of that, oil dropped significantly, stocks rallied, yields pulled back, and the preppers at least paused prepping. Joking about one of my friends here who has been stockpiling like it's Covid, because he's very, very bearish on this outlook. And I get why this has been a classic relief trade. So by midweek, heck, by mid morning really, Iran publicly rejected that US ceasefire plan. Now the official rejection came later, but on the heels of the announcement, they were basically claiming that the US was retreating based on Iran's threats. And it's not really clear who we're negotiating with, but I do get the difficulty of this game because some of the negotiators on their side might be killed if they were publicly outed for being part of these negotiations. So now you have new missile strikes, the 82nd Airborne is deploying additional troops to the region, and every one of those swings is feeding directly into rate volatility and energy pricing. I mean, shoot, going into this weekend, we just had a new ultimatum issued by the White House basically saying that Trump telling Iran get serious or else. And so for our world, this is really complicating the cost of capital calculus for some folks. Now let's bring this back to the bank capital. The proposal I mentioned a moment ago would lower CET1 requirements. So that's the core equity tier one, basically it's the best capital banks hold and it require those lower those requirements to roughly 5% for the largest banks and closer to 8% for smaller ones. Now keep in mind what we were initially at last, gosh, back in 2023 with the Basel III in game attempt that would have raised requirements by up to 20% for some banks. So we're going to go deeper into that topic later on in the show. But the headline for CRE is that if this goes through, you're potentially freeing up meaningful balance sheet capacity at exactly the moment the market needs it. Now, whether this actually translates into more lending is the open question, but the regulatory signal is clear and it's a very welcome one. Now finally on the agency side, Fannie and Freddie are pulling a similar level. Now, Lonnie, I'll be curious to get your thoughts. They've ramped up purchases on mortgage backed securities under that $200 billion directive earlier this year. And the timing matters because mortgage spreads have widened sharply alongside rate volatility so they're stepping up to try and cushion this blow that we've gotten over the last call it almost a month now. So between the capital relief on the bank side and the GSEs buying into this sell off on the agency side, you've got two distinct policy channels working to ease credit conditions even as geopolitics keep us pushing in the other direction. And it doesn't feel like we have a great sense of, or I should say, great conviction in a reversal of that trajectory anytime soon. So, Lonnie, help me out for where we sit now. Do you have confidence that some of the agency intervention is going to help in a material way? The commercial real estate sector?
- [06:09]
C
Look, I think it's, it's going to help. It's like what we saw during COVID with the stimulus. Those things help in the moment, but they have consequences later on down the line. And I think that's the challenge that we're potentially facing here. You maybe add a bunch of liquidity to bank balance sheets, which is great. You add some additional flexibility for the GSEs to lend. However, this is all during this really, as you're saying, kind of up and down market dynamic with this geopolitical escalation and inflation that continues to hover and tick up. So if you have strong conviction that the market needs to have liquidity so it prevents freezing up, this is a great move. If you're someone that says, yeah, that's great, we need the markets to be dynamic and fluid, but we don't need to artificially pump things into the market when, you know, all the risks are present. This is potentially bad. I mean, on the bank side, I know we're going to get into it, you know, what a reversal. I mean, if you look at the end game, you know, as you said, raising capital requirements 20% now you're seeing, you know, measurable decreases in capital requirements. It'll be really interesting just to see how the markets react to that. I mean, what we know is history doesn't repeat itself, but it often rhymes. And guess what? Lenders that have the ability to lend are going to lend and borrowers that have the ability to borrow are going to borrow, even if and when it's maybe pushing the envelope a little bit. And the one thing that we don't need amidst all of this crisis is banks being under capitalized and having some challenges. So I think for all of this, we're in this week to week mindset right now because as you mentioned, it's escalation, de escalation Escalation. And so everyone's like watching every move. It's like a roller coaster. You're either like, you know, shouting for joy or screaming out of fear. And effectively that's where we're at. I mean the one thing I think that's interesting is the 10 year treasuries hovered around 4.4 plus or minus during COVID and post Covid we felt like 5% 10 year was kind of the push pull where things really shut down. So if these policy moves can keep rates controlled and under that, that 5% threshold, I think this is a net positive for the markets. If, you know, even this doesn't help because people are worried about the geopolitical and rates continue to push up. I think it does add some increased risk to the, to the system.
- [08:39]
B
Yeah, I mean where we're at with rates right now, just to give some historical perspective, a recent historical perspective, the last time we saw the 10 year hovering around this mid 4.33 range was gosh, right around July to August. And then we had a good leg down, let's say mid late August. And that's really, you know, once we hit, gosh, September until last fall when we stabilized right around that 4% level and had that 4 to 4.2 resistance band. So now it feels like we've kind of broken that resistance band and maybe we're looking at a 10 year closer to around that 4.3 to 4.5 level for the near term, which that's going to have some, some knock on effects for residential and commercial real estate. Transaction volume, like residential was already anemic from what I've been seeing out there. It is really, really painfully bad right now going into spring selling season.
- [09:43]
C
Yeah, I mean I think that that's the one area where this is undeniably impacting volume is when people are unsure of their job, when people are unsure of cost of gas and people are unsure of just their day to day expenses and they're locked into a low interest rate, they're not going to trade up to that payment even if they've outgrown their space. And so you're going to continue to see residential, I think in most markets struggle. This doesn't mean that there aren't some markets that are continuing to see escalations in prices. Like we talked a little bit about last week in Silicon Valley with the AI trade, you're seeing housing costs and transaction volume explode in that market. But on the whole, I'm with you. I mean it's a very tough time to sell a single family residential home right now. You know, I think we're teetering here a little bit, Steven, where we're, we're effectively through 1Q26. And for all the optimism that everyone came into this year with, I still think the numbers bear out that this has been a productive first quarter from an issuance perspective, from a transaction perspective. But as we know, deals on the commercial side take time to close. And I think there's a very strong likelihood that we're going to see a little bit of a tail off the end of March that maybe leads through April and May. That puts us in a position where 2026 ends up nowhere near where we thought it might in terms of origination volume and transaction volume. So that's the part that just doesn't show in the data yet because the first quarter was so strong with optimism, at least the first part of the first quarter. But if rates continue to hover, if oils continue to be an unknown, if, if all of these things kind of just keep lingering, even if they're not escalating, you know, we're not seeing escalation. It could make for a challenging, you know, middle part of 2026. And so that's what I'm probably keeping an eye on most. It is, it is interesting just to see the new dynamic. And we've talked about this with social media and other things. But you know, when you and Haley did the lead in and you talk about just the market swings that happen by these tweets or by these press releases or whatever the case may be, I mean, like if you go back this week, you know, there was a moment where President Trump said the US And Iran have had productive discussions to end the war. That was at 7:04 Eastern. By 7:10, the S&P surged 240 points, which added 2 trillion in market cap. And 27 minutes later, Iran denied that the claims were true and said there's been no contact. And by 8am Eastern, the S&P had fallen 120 points, erasing a trillion dollars in market cap. So you're talking about a $3 trillion swing in market cap in less than 1 hour and 56 minutes to be exact, in the S&P 500. So when you're talking about this escalate de escalate, et cetera, like that gives you some ability to quantify what we're Talking about a $3 trillion swing in market cap in less than an hour, just based off a couple of comments.
- [12:40]
B
That's absolutely wild. How can you price in this environment with confidence and you can't. So what we face right now is this really weird environment where you get these incremental concessions and we're squeaking trades through. At least that's how it feels to an outsider. We're squeaking trades through on the margin. Now, just for fun, because I love looking at data, I went and pulled some CMBS spread data just to see how much spreads have widened over the last month. So let's start with new issue. So new issue spreads on the AAA level. So best bonds brand new out of the gates. We're not talking about secondary trading here. The AAA has moved from right about 69 to 70 basis points as of month end in February. And right after the attacks, those spreads widened by about three to four, maybe five basis points. Right now we're up to the low 80s. So it's not, not too bad. We're only about, let's call it just broadly 10 to 15 basis points wider on new issue AAA spreads. Now if you look at the aa, right, this is the accordion move I always talk about when you go down in credit. It's not a parallel shift in spreads. It's typically this exponentially widening band. So the AA widened about 30 basis points over the last month. The single A has widened right, about 40 basis points. Now that's new issue again. That's, that's kind of our benchmark for where deals are getting done. So from the AAA level where you're getting most of your proceeds on CMBS, if that's widened 15 basis points, from historical perspective, that's not catastrophic, it's not fun, it's not pleasant, but it's not catastrophic to turn off the spigot. We can absorb that, no problem. Now the secondary market is a little bit of a different beast. You tend to get a little bit wider reaction in those spreads. So if I go back and look into February for the super senior 10 year broad benchmark, we're not talking about like any single bond here, we're talking about a collective. So if I'm looking at 2025 vintage super senior 10 year duration, basically the bulk of the proceeds from 2025 issuance, where are those bonds trading? It's right about 26 bo. Looking at upper 70s spread to swap, where we ended February and those have blown out to gosh, we're, we're touching a hundred right now. So as you can see, a little bit wider than where primary issuance move to, we go down a notch. The 2025 sub senior bonds. So those are the 20% enhanced, a little bit riskier. Oftentimes you'll see those split rated double A, triple A. The spread of nose widens. Gosh, going to call it right about 25 to 30 basis points. So really similar to what we're seeing in the new issue market, just a little bit wider. Call it maybe 5 basis points on the margin. So yeah, these moves are digestible. But like you said Lonnie, if this continues to hold on, we're going to see a downshift in volume through the rest of the year.
- [15:54]
C
Yeah, I mean I think that's the story there and I think this is all predicated on do we actually send foot soldiers into this excursion? If we do, I think that changes the para. It's a paradigm shift and just mentality around this, this war at this point, heavily air artillery, drones, no people. When, when you send foot soldiers in, it sends a different message and I think the markets will react in a very negative way if and when that happens. Hopefully it doesn't. Hopefully we get to some sort of deal and then, and then things level back off and 2026 reverts back to, you know, that spirit of optimism around where we're at. I mean, because it was palpable at the beginning of the year just how excited everyone was for deal making. So I wanted to go through just a couple of quick headlines here, Steven. You know, there was an article in Biznow this week that talked about commercial real estate fundraising is on the rise for the first time since 2021. Now again, this is for the private fundraising. So you know, we've talked a lot about private credit, but global private real estate funds have raised 172 billion last year, up 13% from 152 billion in 2024. So pretty sizable increase to round out 2025. Now for those that are maybe wondering, it's still significantly less than the peaks that we saw in 21 and 22. But obviously those were aided by all the uncertainty caused by Covid and the stimulus in the marketplace. You know, the 10 largest real estate funds have maintained fundraising levels since 2022. They brought in 68 billion in 2025. So it's pretty top heavy marketplace here. And what's really interesting if you, if you look at a couple of these, you know, funds in particular, you know, JLL Income Property Trust lined up a substantial new line of credit. They're going to place fresh bets on possible recovery in some of the commercial real estate sectors. The non traded reit has, as I mentioned, raised a billion dollars. That's a syndicate of 10 lenders. There's a $600 million revolving credit line and $400 million term loan with an option to increase the facility up to 1.3 billion. Just to give you some perspective on what some of these individual deals look like now, they're going to be placing that capital into this now strained market. And that's the part that's really interesting, Steven. There's a thesis behind some of these pitches when they go and raise money, but deploying that is a completely different thing when the market dynamics shift. So it'll be interesting just to see how these funds actually deploy. You know, there was an article this week from BNP Paribus on Reuters talking about how they want to push into alternative assets despite the private credit jitters. So I think for everything we just said in the intro, you know, those are, to me, strong signs of optimism around people wanting to put capital to work in commercial real estate. So to your point, you know, spread movement has been measured and I think people are obviously paying attention, but it hasn't cooled people's ambitions around investing in the commercial real estate space, which is, which is an overall positive. So, you know, I think we end up 20, 26. Maybe this is like liberation day in the sense that there was a 30 day, maybe 45 day kind of moratorium on people making big decisions, then everything returned back to normal and effectively. I think this could have a similar trajectory if we get to some resolution fairly quickly.
- [19:19]
B
Yeah, and I've heard, speaking of the fundraising narrative, I've heard some folks chattering about how the pain that's been rolling through the private credit markets is maybe going to have a positive knock on effect for real estate if you're seeing some of those capital flows pivot into real estate, specifically commercial real estate, as we continue to see some of this exit from a private credit fund. So more recently we saw Apollo Global Management and Aries Management have capped quarterly withdrawals at 5% for the respective credit funds. Apollo, this was, I think, a $25 billion fund in Aries. This is like a $10.7 billion fund and they had redemption requests exceed 11% in March. So that capital has to rotate into somewhere into something else. So I'll be curious, you know, once we get on the other side of this, to see after the fact, you know, how much inflow benefit did real estate get as a result of this private credit drawdown?
- [20:20]
A
Yeah. And on the topic of fundraising, just this week there were a Lot of market specific examples of firms raising funds. A few headlines that caught my attention. SFF Realty Partners raises 500 million for Bay Area office buildings amid AI boom. Equus Capital Partners looks to raise 600 million multifamily fund and a Denver company, Griffis residential is raising 550 million to buy underperforming apartments. So this will definitely be a theme that we continue to track and watch across markets. So let's look at another part of the market and talk about construction costs. The headlines this week were saying construction costs have shot up 12.6% in the first two months of 2026. We know that this is in part due to rising prices for energy and materials, but are we seeing this play out and any builds being paused?
- [21:16]
C
Yeah, it's a great point, Haley, and I think, Stephen, this is where you, you start to see actions having consequence here. Now obviously the, the spike is not directly in line with the, the current geopolitical environment, but it's indicative of what's to come. 12 and a half, 12.6% increase in the first two months of 2026 is nothing to shy away from. That's significant. And just to give you some perspective here, there was an article in the Real Deal this week that talked about Five World Trade center have put their plans on pause due to rising cost. So this is nearly three years after the state announced a deal to move forward with the project which was to build housing at 5 World Trade Center. Now they're, they're hitting the pause button. So this was announced during a Manhattan Community Board meeting this week. Officials indicated that the planned development, led by Silverstein Properties and Brookfield Properties, they were going to add 1200 apartments, a third of which would be affordable, are currently on pause as they said, as they figure out what is exactly possible on the site. The cost of everything is going up now is what they were quoted as saying. So whatever the budget was a few years ago, we've seen increases of 50% on certain construction costs as well. And the situation in Iran and Middle east certainly isn't helping at all. So this is a real life example in a market where you have some really strong participants. Silverstein and Brookfield are no rookies here. It makes me wonder at some level though, does this provide a convenient cover for them maybe to pivot to a higher and better use or to something else now that maybe some of the housing policies have shifted in a way that doesn't make this as palatable? It is kind of interesting that they reference the war already having an impact when in reality it's probably not. There's no dotted line directly to the costs that they've incurred to this point or would in the near future. But you know, that's, that's an example to Haley's point of construction costs are unavoidable and if they get to a certain level, people start backing out of projects.
- [23:17]
B
Yeah, I mean aluminum is one of the big inputs I could see is maybe having a pretty immediate near term impact if they're having to do like forward, you know, spot contracts. Because I think, gosh, I don't remember the exact number, but it was a massive percentage of aluminum. The world supply of aluminum flows through the Strait of Hormuz or is somehow impacted by this shutdown. But yeah, you're right, Lonnie. Like I would hesitate to, you know, draw any stronger than a dotted line here between the war and construction costs. Like it's not all aluminum. Right. But yeah, like you said, this might be convenient cover if they're, they were already looking for a pivot if they kind of suspect that there might be some better options that they need more time to flesh out.
- [24:03]
A
So Steven, I want us to go back to what you kind of said was catching your eye this week specifically and that is the change of capital rules. So to give some context, for the past several years banks have slowed direct CRE lending. Not uniformly and not without exceptions, but generally slow growth characterized direct bank lending. Capital rules have made certain CRE exposures less attractive on a risk adjusted basis. However, proposed bank capital rules got meaningfully looser with the intention of improving bank competitiveness with non bank lenders. So talk to us about the newly released package of the three proposed rulemakings and really what it means for the market.
- [24:50]
B
The Fed, the FDIC and the OCC jointly released the proposed rulemakings on March 19 that would reduce capital requirements for banks of all sizes with a 90 day comment period that runs through June 18th. So as I mentioned earlier, this is the Successor to the 2023 Basel III in game attempt that stalled after industry pushback. But this time the direction is in the, well, the opposite direction. Less capital, not more. The Basel III endgame got extremely negative feedback and I think if, if you remember at the time, we even about Jamie Dimon's pushback to that regulation and he was incredibly bearish on it and what it could mean for the industry. So we've taken the opposite approach now. Now banks make up more than a third of the $4.9 trillion income producing debt market and half of the broader $6.1 trillion commercial mortgage market. So even a marginal change on how much capital banks have to hold against CRE loans will ripple directly into pricing and credit availability. Now, one of the interesting changes on this rule is the LTV bucketing. So for us CRE folks, we don't talk in leverage ratios, we talk in ltvs. Anytime somebody starts throwing around leverage ratios, I always have to kind of like pause and be like, okay, hold on, wait a second, let me get my calculator and put it in LTV equivalent terms. That's what makes sense for my brain. So the way they've structured this framework is that a stabilized 50% LTV multifamily loan and a 70% LTV hotel loan get the exact same 100% risk, essentially a flat charge that ignores leverage. So that's the current framework. In other words, the current framework doesn't care what your LTV is. These loans are getting the same flat capital charge. So under this proposed new framework, there will be three LTV tiers for income producing properties backed by property cash flow. So you get a 70% risk weighting if your LTV is 60% or below, or I should say below 60%. You get a 90% weighting if your LTV falls in the 60 to 80% range. And you get 110% risk weighting if your Ltv is above 80%. So that means conservatively underwritten deals actually get meaningfully lower capital charges, while higher leveraged stable stabilized loans will actually get penalized relative. Today's flat 100% now qualifying for the tiered treatment does have some conditions. The loan has to be underwritten to prudent standards with documented borrower repayment ability. The property must be fully complete and stabilized, and the valuation has to meet the proposed LTV requirements. So transitional and construction loans don't qualify. Those are going to stay at the 150% risk weighting. So this is squarely aimed at permanent stabilized CRE lending. Now, the freed up capital doesn't automatically flow into commercial real estate. Large banks are estimated to be sitting on roughly 175 billion above regulatory minimums. And the net effect on category one and two firms is about a 2.4% reduction in requirements. But banks still operate within internal risk appetite limits, concentration guidelines and portfolio targets. And more than 1,000 banks already carry SIRI exposures above 300% of capital. So more headroom doesn't necessarily mean more lending right off the bat. Now, the tiered risk weights could make banks materially more competitive on lower leverage permanent loans. If the capital cost on a 55% LTV drops by 30%, the spread required to hit return hurdles compresses. And borrowers are going to see better pricing. But higher leverage, transitional and value add deals in the 70 to 85% LTV range either won't qualify for the tiered treatments or they're going to land in those higher buckets. So non bank lenders might remain better positioned for that segment of the market. The proposal narrows the gap at the conservative end of the capital stack without really changing the picture on the riskier end. So net net, yes, this is probably a good thing, but it's really, again, targeting that lower leverage stabilized part of the market.
- [29:17]
C
All right, I'm going to take the other side of the coin here, Steven. LTV is just a calculation, right? The loan amount to the value and these words that we're reading here, prudent underwriting standards, documented borrower repayment ability, property fully completed and stabilized valuation has to meet the proposed LTV requirements. I mean, I think we've gone down this path before, right? I mean, LTV is a metric. But if LTV is a determining metric, I don't feel super great about that. Because as we know, I mean, valuation by definition is an opinion. You know, from an appraisal perspective, it's implicit in the definition. It's an opinion of value as of a specific date, usually in a report format. I don't know how I feel about this on that side of the spectrum. There are so many other metrics that need to be considered, nor I think there may be some interesting disruptive things that we're going to see across our industry is people getting much better at scoring borrowers. It's not so much about the properties in a lot of cases, it's about the borrowers and their capital positions and their ability to actually fund the property when they need to. We've seen the challenges of these syndicator models over the last couple of years that we've documented fairly well. But, you know, I just think that low LTV is not necessarily indicative of a great deal or a fundamentally sound approach because there's a lot of properties that in 2021 had very low LTVs because interest rates were zero and values were sky high that are making headlines today because they're not able to cover debt service. And so, you know, you hope the market has learned from the past a little and you hope that, you know, things like prudent underwriting standards and documented borrower repayment AB actually carry some weight and people administer them properly. But if you're in a position where value needs to be higher or lower by a few percentage points in order to qualify for less impactful, you know, capital requirements, it just makes me think we've seen this rodeo before.
- [31:27]
B
But Lonnie, the appraiser is an independent third party that gives an objective opinion of value. How can you be so bearish?
- [31:36]
C
All I'm saying, I like the HAHA there with my background in the valuation space, but I think my opinion on this has shifted slightly. And we've talked a little bit about it on the show, but I think value is best concluded in a range. I think there's some. If you just look at the definition of market value, it starts off with a willing buyer and a willing seller. It's the most probable price, you know, if. If the property's exposed for sale on the open market, trades for cash or its equivalency. Both are motivated, neither under duress, both are acting in their own best interest, seeking to maximize gain, et cetera, et cetera. Right. But inherently, if we're talking about market value, market is different than what an individual would pay, and we see it over and over. Why is there a process for highest and best offer? Well, it's because they're trying to get a price above what the broader market will pay. And as an appraiser, it's really tough to draw that line between what is the value to the broader market compared to what a willing buyer is willing to pay for it, as evidenced by the sales contract. And the markets just shift so fluid now. It's just really challenging to look at anything at a point in time and make a decision of this magnitude off of that point in time valuation. I mean, just like you've highlighted today on the show, with spreads movement, with interest rate movement, with all of these things, all impact valuation. How many of those office buildings that were financed at a 3.5% interest rate are having trouble refiing at a 7 because cap rates have moved? It's just an interesting dynamic. I don't think it gets enough discussion because it's so embedded into the process and people are so used to just the workflow. Oh, going to get a loan, call an appraiser, get the report. Does it meet the LTV threshold? Yes or no, move forward or don't. I think there needs to be more substantive discussion around, you know, an enhanced process given the new tools that are available.
- [33:42]
A
So let's turn to our deals and data segment and Talk about some property type news across the sectors. Why don't we start with data centers? This week there was an article in Commercial observer about Starwood, who is set to pay $4 million an acre to build data centers in Fairfax County, Virginia.
- [34:02]
B
So, yeah, this is an absolutely wild price per acre. The Board of Supervisors in Virginia's Fairfax county have agreed to sell an underutilized section of the county's police training campus in Chantilly, ostensibly for more data center development. The county will sell roughly one third of the 128 acre campus at 3721 Stonecroft Boulevard to an affiliate of Starwood Capital Group for 1 66.8 million. The deal for the 42 acre parcel will enter into a contingency term until early 2027, according to the business journals which first reported the news. Starwood's exact plans for the site were not immediately clear, though the county has indicated that the Miami based developer aims to build a data cent. Indeed, Starwood is actively developing a roughly 60 acre data center campus not far from the Chantilly property, dubbed Renaissance Technology Park. The developer late last year filed plans to extend that project by another 400,000 square feet on 8 acres it purchased from Word of Grace Christian Church in 2023 for 25 million. The Chantilly site does not include entitlements or land use approvals for new data center development. The spokesperson for Starwood was not immediately available for request for comments here. So still more to come on the plans for this site.
- [35:26]
C
Do they say that this actually transacted or there's some sort of clawback or holdback to make sure that they get the entitlements? I mean, this is really big money on a hope and a prayer.
- [35:38]
B
Yeah. Doesn't sound like this thing is a done deal quite yet. Basically we want the land really bad, but if you can't give us the approvals and what we need, this won't make sense.
- [35:49]
C
Yeah, that's, that's what I was hoping you would say because that's how these typically trade. But you know, it's, it's. I think we could do a whole show just on data center land trades or farmers and others. There was an article this week from a Kentucky farmer where they were offered some multiple of of the land's true value for data center construction. And they said we're farmers, we're not. I don't care how much you offer us. And it'll be really interesting that the shift is, is real here where people are pushing back hard. But for every One of those stories, there's probably a 1020 where people are like, show me the money.
- [36:20]
B
Oh yeah.
- [36:22]
A
So next on our list is the office market. And before we turn our attention to some of the stories that caught our eye this week, I wanted to make an exciting announcement. We have a new speaker edition for our Trep Connect conference and this is actually our keynote speaker announcement. So we will be having a sit down discussion with Scott Rechler, Chairman and CEO of rxr, who, if you don't know, is one of the most influential voices in commercial real estate. Scott oversees a platform spanning tens of millions of square feet across office, multifamily and development assets. And he brings decades of experience across investment, development and capital markets. So at our Trep Connect conference this May, our own trip CEO AnnMarie Dicola will be joining Scott for a one on one discussion on where the market is heading, from capital flows and investment strategy to the evolving role of office in this cycle. So we're so excited to have Scott joining us for the conference. If you haven't gotten your ticket yet, this is definitely the time to do so because tickets are now selling fast. But we're really looking forward to hearing Scott's perspective on the office market and really what he's built at RXR and where they see the future of office.
- [37:37]
B
Yeah, I am super, super, super excited about this one. If you remember, like if you can rack your brain back in the podcast, like, gosh, a couple years ago when the office doom and gloom started to hit, Scott had one of the probably most iconic quotes I can think of for our industry talking about how, you know, a lot of folks out there who have crafted very meticulously their office portfolios feel like they now have a Polaroid camera in the digital age. So to have somebody speaking at our conference that, you know was right at the forefront of all of this transition and fallout was making those hard decisions, that's super exciting for me to hear from somebody like that directly in person for this conference.
- [38:24]
A
So if you need any other information about the conference or looking for the rest of our speaker lineup, visit our website or search for Trep connect on our LinkedIn or our X or reach out to us@podcastrep.com and we can send you all the details. A few stories in the office market in Commercial Observer. This week we saw the headline that SL Green has secured a $1.65 billion refi for a historic New York City office tower.
- [38:52]
B
Yes, one of SL Green's prime New York City office properties just Got a new round of capital Mark Holliday's real estate investment trust, the largest owner of office space in the five boroughs with 30 million square feet, secured a $1.65 billion refinancing of 1 Madison Avenue historic 1.4 million square foot mixed use office building between East 23rd and East 24th Streets in Manhattan. Wells Fargo, along with participants Goldman Sachs, JP Morgan, bank of America, Deutsche bank and Credit Agricola provided the commercial mortgage backed securities or CMBS debt that's structured as a single asset, single borrower deal or a SASB deal. This was structured as a five year fixed rate loan that priced 181 basis points above the U.S. treasury index, giving the deal an interest rate of 5.81%, according to the release. The new debt will replace a $1.25 billion construction facility over the property and creates a new outstanding balance of 1.17 billion per SL grain. To quote the chief investment officer of SL Green, he says here quote the strong investor demand for this transaction underscores the depth of liquidity available for high quality office assets even amid periods of market volatility. He added that the deal closing brings the Firm's financing activity to 4.5 billion in less than three months in 2026 as the firm continues to secure capital in hopes of reaching its stated goal to execute 7 billion in financings this year. Commercial observer reported last week that Essel Green extended and refinanced 2 billion of a $2.4 billion corporate credit facility at a lower interest rate. So Essel Green is on the move here.
- [40:38]
C
Yeah, four and a half billion in less than three months is nothing to sneeze at Stephen. But it is. It just continues to show the bifurcation across the market where that super high end Class A has many suitors. Just not sure it follows down the quality chain.
- [40:54]
B
Next up here we have Exonic lends $50 million against a historic San Francisco office property. Now this is against the 245,000 square foot merchants Exchange building in the heart of San Francisco's financial district. The loan has a three year term but can be extended by two additional one year terms. It allows Clint Reilly Organization, which owns the historic building to retire existing debt and fund leasing costs. Affinius Capital, which formed a lending partnership with Exonic last year, effectively refinanced a mezzanine loan against the property. Northmark arranged the latest financing. The 15 story building was constructed in 1904 at 465 California Street. It was completely renovated after Clint Riley purchased it in 1995 for 17.5 million. The property is about 80% occupied by roughly 40 tenants including California bank and Trust, Asia Foundation, Spotify and the Bay Area Sports hall of Fame.
- [41:52]
C
So as we mentioned we got a mixed use property story. JP Morgan VICI lend 4.3 billion for one Beverly Hills completion this comes to us from the Commercial observer and a joint venture led by Kane in partnership with Eldridge industries. They secured 4.3 billion of construction financing to complete the One Beverly Hills 17.5 acre mixed use development. This development is going to have a hotel, retail and residential space. So the way that broke down JPMorgan Chase provided a $2.8 billion senior loan with Vici Properties supp 1.5 billion of MES debt for the 5.2 billion dollar project. Similar to your quote from so Green Stephen, on this particular transaction, the quote is this transaction is indicative of the confidence the market has in our vision for one Beverly Hills. That was from Jonathan Goldstein, co founder and CEO of Kane was said in a statement. The demand we are seeing from residential buyers and global brands speaks to the rarity of this project, the strength of our hospitality partners and the enduring appeal of the Beverly Hills market. If you listen to the CEO of Vici Properties he said he has strong conviction in the strength of high end experiences and world leading destinations. Vici also provided a 300 million investment in this center earlier last year. Construction for this property commenced in late 2024. It's slated for phased completion starting in 2027. Development will ultimately include two residential towers, a renovation of the 570 key Beverly Hilton Hotel and a new 10 story Aman Beverly Hills featuring a hotel and condominiums. It's also going to include new retail and 10 acres of garden oasis parks. So I think this is a great story for mixed use development and a really sought after marketplace with some really strong, you know, sponsors leading the the debt side of the equation here.
- [43:40]
A
So news in the retail market and Lonnie, you'll have to tell us if you've been to this store but the Nordstrom at Galleria Dallas is closing, the department store chain confirmed and it's set to close next month.
- [43:53]
C
Yeah so I definitely have been to this store. When you're a kid that grows up in North Texas, every year during the holidays we used to have a field trip where we would go to the Galleria for the day and we would ice skate at the ice rink. We would listen to the people singing around the ice rink and eat Chick fil a at the mall and thought we were really cool. So, you know, this one gets some headlines because. Because obviously the Galleria is a pretty prominent retail outlet for the Dallas market. I think what gets lost a little bit here is they are going to keep their footprint with their other store open in North Park Mall in Dallas. Even though they filed chapter 11, they're just restructuring. This one in the Galleria probably had seen a decline in sales. It feels like folks that prefer the Galleria over North park probably grew up in a time where the Galleria was the thing. But the reality is now more modern shoppers prefer shopping at North Park Mall instead of the Galleria.
- [44:51]
B
So if you had to guess, Lonnie, what backfills this?
- [44:55]
C
Well, it's really challenging because I think there's so much competition to the Galleria now for that high street retail at north park and kind of the newer Frisco Plano North Dallas type of modern retail experience that's going to be hard for them to lure someone. Now look, Galleria Dallas still has really great footprint foot traffic. It had from a, from a regional mall or super regional mall perspective. It's still one of the top malls across the U.S. but it's, it's going to be challenging. I mean you saw Netflix House open in the mall last December, which shows that they are trying to find some of those experiential attractions to kind of draw people in. So maybe they go that route where they don't actually try to backfill with a one to one retailer. They try to find something that's more experiential. I'm confident they'll figure out a way to get this backfilled. You know, on these though I haven't looked at the docs, but a lot of times these big boxes actually own their own real estate. So Nordstrom may be the one that actually tries to sell this off or parcel this off to someone else. So I think there'll still be strong demand. I don't have a strong conviction on what exactly would would take this space, but I'd be hard pressed to think that this doesn't have a pretty strong demand driver.
- [46:08]
B
Yeah, I'm really curious to see if this stays as like one entire tenant, the entire space or this gets densified.
- [46:16]
A
And there was news this week that asset manager Apollo will invest $1 billion for a 49% interest in a new joint venture with Realty Income Corp. To own a portfolio of single tenant retail properties with long term net leases.
- [46:32]
B
Yes. So Realty Income here will continue managing the portfolio which includes approximately 500 retail assets, according to a Realty Income press release. The CEO, president and CEO of Realty Income, Sumit Roy said in a statement. We expect this partnership will serve as a template for multi billion dollar programmatic co investing relationships in the US Apollo partner Jim Shidashani echoed that the partnership represents long term alignment and repeatable capital deployment over time. In the 12 months ending in June, the sale of net leased assets was up 37% year over year as investors sought stability while global trade was the source of uncertainty and disruption. Now, with questions around the conflict in Iran and where interest rates may be headed among the sources of unpredictability, it seems investors are once again reaching for reliable property types here.
- [47:29]
A
And on the topic of retail and something the industry is certainly feeling this week, we want to acknowledge the passing of David Simon, who built Simon Property Group into one of the most influential platforms in retail real estate. So Lonnie, I'll turn it over to you. Maybe you can talk a little bit about David Simon's impact and the legacy that is Simon Property Group.
- [47:53]
C
Yeah, I mean, for those of us that have been in the real estate market for a while, the Simon Property Group has emerged under David Simon's leadership as, you know, an international powerhouse when it comes to retail properties. I mean they've, you know, he led the, the IPO when he was young, I want to say he maybe 30s, early 40s, something like that. Pretty remarkable leadership. I've worked with several people that have worked at the Simon Company over my career and they all said that when you came to work, you better know your stuff because he was on top of everything. You know, it's a sad day for the real estate community when you lose somebody that has been so instrumental in kind of shaping their industry. You know, I guess the silver lining here is that they have really good, strong governance at Simon. They had a continuation plan in place, succession plan in place. And so the board is actually elected for his son to take over operations. And so it should be a fairly seamless transition for the group. But it's, it's a sad day for commercial real estate. And you know, there's not that many people, even though we say this is a global industry and it is, it's a pretty small community of practitioners and participants that everyone, when they say their name, we, we mentioned Scott Rechler earlier on the show. You immediately know of Scott and rxr. Like he's, he's one of a few people where when you say their name, they know when you say David Simon, Simon Property Group. Like everyone immediately knows who you're talking about and so there's not that many people that fit that bill. You know, hopefully the company continues along the path and this just turns into an opportunity for his son to blaze a new trail for the the firm. We'd be remiss not to mention him on this week's episode, just given the impact he's made across the REIT space and the commercial real estate industry as a whole.
- [49:39]
A
So to close today's show, we'll give a few programming notes. I mentioned Sharp Connect earlier, but we have several exciting new speaker announcements across our panels as well. So we have Nishat Nadala, who has recently started a new role as partner at Derby Lane. He'll be joining us on the dislocation panel. We've been mentioning Catherine S. For several weeks now, but we can finally reveal her name. Katherine Sierakowski, Managing director and group Head of Corporate Banking, North American Real Estate at BMO Capital Markets, will be joining us for our Lending Reset panel. We are so excited for you and your team to come out to New York. We have Bliss Morris, founder and CEO of First Financial Network, joining us on our risk panel, Prashant Kamath, Director of Real Estate Valuation and Advisory Services at Houlihan Loki, joining us on our data center panel, Stav Gan, head of Securitized Products Research and Strategy at Academy securities, also joining us for the data centers panel. So go check out our website. You'll see the agenda, the speaker lineup and learn more about how to get a ticket. We are really excited to see so many of you at the conference and shout outs this week. Spencer S. Said he is doing a report on New York City and was wondering if he can get his hands on some info about luxury condo buildings and luxury rent trends in New York City in general. Any thoughts off the top of your head? Stephen?
- [51:05]
B
Yeah, this is an interesting one. Very, very like niche, very new trend. So let me start with an article that the Wall Street Journal published recently and you've seen a smattering of these articles over the last year. So the Wall Street Journal put an article last week about how a private club to the stars is testing its appeal by pursuing new investors. And you've seen like a couple of articles as I mentioned, like this where basically the private club model is being tested out in well to do areas. So tracking down data for something like this is going to be really, really difficult. What I would personally do is start looking at the neighborhood history for where these clubs have popped up and basically just see like what sort of common threads you can find on the underlying mixture of property use types, demographics, tenants, etc. Because there's a real neighborhood, I think, appeal and effect that you'll find like Lonnie, have you gotten to go eat at that members only club in Manhattan yet? Rubbed rubbed shoulders with Jamie Dimon and such?
- [52:13]
C
No. I mean I have got to eat at. Our CEO Anne Marie Dicola is a member of of the Harvard Club and so we got to eat there as a private, private venue, but none of the new stuff. It is interesting just how that these private clubs are emerging. Everything becomes a subscription, everything becomes some sort of membership, everything becomes some sort of experience. I haven't really been a part of that, unfortunately. Maybe one day I'll be at that level.
- [52:37]
B
Yeah, when you hear people say like, oh, $15,000 initiation fee, that's pocket change.
- [52:42]
C
Sure.
- [52:43]
B
Like pocket change. I hear you there bud. Oh,
- [52:49]
A
Richard M. Asked us to join our March 26th Marketplace webinar. So unfortunately if you're listening to this episode, you just missed it. But we still have a chance for you to join our Trep CRE demo webinar that's taking place on April 2nd. So if you've been interested or curious about all our Trep data that we talk about and really want to see it in action, join us on this no pressure demo webinar. You can see a visualization of the data and then if you're looking to ingest the data via data feed or APIs or into your snowflake, any way that you would like to access our data, we are happy to work with you on, so reach out to us if you want to join our next webinar. On April 2, Matt V. Reached out and said he wants access to all the upcoming webinars. So we're excited to see you on there. Megan F. Reached out and was looking for market data on the downtown Ann Arbor market. This is good timing because we were just saying we'd like to cover what's happening in the Michigan area and walk through recent transactions, CMBS information and any of the info we have. So Megan, we will cover this on an upcoming episode. Thank you for reaching out and she said looking forward to Thursday's episode. So so thank you for being a loyal listener who listens as soon as we drop the episode. Miriam A. Gave us a nice shout out on LinkedIn and actually gave some great shout outs to our friend John B. Aka Dr. Debt yield as well. She said as an avid listener of the Trip podcast. I'm always impressed by the insights and perspectives they offer to the commercial real estate community. She's looking forward to our Trep Connect event and said she's especially excited to hear from Dr. Jet Yield. So if you haven't listened to our guest podcast episode with John B. From Byline bank, go check that out and you can also hear more from him at the TripConnect conference. Trey W. Is a loyal listener and friend of the firm. We're so excited that every week he finds a new way to add Trapp's podcast to his multifamily newsletter. So thank you for your shout outs on LinkedIn. The last one he gave us said the Truck team is one of the best in the business when it to comes comes to breaking down CMBS data, Siri Distress and how macro forces flow through to the debt markets. And he also gave us a shout out for our podcast anniversary. So thank you so much. He said our voices have been consistent through some of the most volatile years in CRE history. From all of us in the CRE industry, thank you so thank you so much Trey. We'll give you a full shout out. That's Trey Wheeler on LinkedIn. Check him out and look at some of his newsletter and commentary. Emma P. Said, hi POD team. Interested in learning more about your AI tools? Thank you so much Emma. We will I know we have our team getting on the phone with you and we'll walk you through all our offerings. Richard H. Was very excited to see the news of our keynote speaker and said he's excited to attend the conference for the second year in a row. He also was interested in our coverage of the CRE cielo market, so we will work with you and get you some of that data. And Joel R. Who is a really loyal listener and has been around for several years, said you asked in the last podcast who has listened to your podcast since March 2020. He said, while I cannot swear I listened to every first few episode, I certainly have been a regular listener since the spring of 2020 and plan to continue to be one. He also had some commentary on the new US bank capital proposals so so hopefully our segment on here gave you some more color on that. Thank you Joel for reaching out so busy show this week. With that we'll close. Thanks to our producers Mariana Sobrana and 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 Trepwire Podcast with your favorite provider. Thank you for listening and stay well.
- [56:51]
B
All right.