← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
387. Houston, We Have a Slowdown: Loan Outcomes, CRE Reality, & Capital on the Move
00:52:33
Loading summary
Transcript73 lines
- [00:00]
Lonnie Hendry
Foreign.
- [00:06]
Hailey Keen
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 April 3, 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 data is sending somewhat mixed signals. Retail sales for February came in stronger than expected, suggesting the consumer was still holding up earlier in the year. But more recent data like consumer confidence and labor market indicators are starting to show some softness beneath the surface. At the same time, rates continue to move around as markets try to get a clearer read on where the economy is heading. And one signal getting attention this week is a measure of consumer behavior tied to Walmart, which is now nearing levels last seen during the financial crisis. At the same time, we're seeing continued volatility in rates and broader uncertainty around growth expectations, which is feeding directly into real estate and lending activity. And on a completely different note, but one that puts long term cycles into perspective, we'll also touch on the Artemis 2 mission and what's changed since the last time humans were near the moon in 1972, including how income, home prices and the built environment have evolved. Then we'll bring it back to commercial real estate, looking at our latest CMBS delinquency data, what we're seeing across property sectors and where capital may be starting to move. Steven, what do you think the market is getting right or wrong about the economy right now?
- [01:50]
Steven Bushbaum
Well, this week's data is really interesting because you have this tension between what consumers are experiencing versus what they're expecting going forward. And those two things are telling very different stories. So the conference board headline ticked up slightly to 91.8, which beat expectations. But when you pull apart the internals, the present situation index jumped to 123.3. People still feel okay about jobs and current conditions, while the expectation index slipped to 70.9. For context, historically, when that expectations reading drops below 80, that's been a pretty reliable precursor to a recession. So at 70.9, we're well into cautionary territory. And that's before you factor in the University of Michigan sentiment reading, which cratered to 53.3, the lowest level we've seen since the 2022 inflation peak. So if we just step back from this and think, okay, like, what are the headline narratives telling us? The President just came out on Wednesday night and basically said we're going to continue bombing Iran for another two to three weeks. So that effectively means that the Strait of Hormuz is going to be shut down, I mean, for the rest of April. And what I've been hearing this week, which is really scary, Lonnie, is that we're going to start seeing government mandated gas rationing in Europe possibly as early as this summer. Call it like June, if this plays out. You already have mandated rationing in Asia. But just think about that. We're kind of disconnected from the rest of the global economy right now with respect to the immediate oil shock and gas prices. I mean, our gas prices have hit $4 a gallon, but that's crazy to be talking about rationing. And so this disconnect we have between the paper markets, the oil indices versus physical markets, the oil actually flowing, that gap is massive right now. So if the Strait of Hormuz continues to be shut down, I mean, $4 a gallon might seem cheap come June for us. That's just wild.
- [03:55]
Lonnie Hendry
Yeah, I mean, I think you've hit it on the head here. It's. There's a disconnect. We know what's happening, but we don't know how long it's going to continue. To your point, if this goes on another three or four weeks, you're talking the end of April into May, school gets out, travel season starts. There could be a lot of ramifications here. And to your point, if this plays out that way, $4 a gallon for gas is going to seem like a really cheap bargain to what we might see at the end of the summer. I'm still optimistic that I think a lot of this can be fixed as soon as the bombing stops and we get to some sort of ceasefire, which I think is, you know, behind the scenes being discussed at a level that probably isn't publicly appreciated enough. But it's a real interesting dynamic. And, you know, it takes me back at some level, Stephen, when we see these natural disasters or we see other things happening across the globe of as sophisticated as we are, as people and our economies are and our markets are, you know, it just takes one or two outsized things to happen, whether it be loss of power from an electrical grid due to a storm or people being, you know, put into a war or conflict to where markets just really go haywire for a while and you start rationing gas. If food prices go through the roof, I mean, there, there could be a lot of downstream ramifications. The interesting part, you know, from your lead in and, and Haley's is the reality or return of recession discussions. You know, we haven't really talked about recession since interest rates started rising. And it, you know, it feels like inflation went through a rapid period of increase. Fed, you know, took action. Everyone was nervous about recession never materialized. But over the last two weeks, we've seen a lot of people start talking about the reality of a recession hitting the US and so that'll be something I'm keeping an eye on. You know, just a kind of a fun fact here is if you look at the Walmart recession signal that Haley mentioned, you know, we've talked about this before on previous shows, and it's a pretty straightforward train of thought. When the economy weakens, you know, consumer spending shifts from luxury spending to discount spending, and Walmart generally outperforms. If you look at that ratio now, it's at the highest level since 2008. So while no one's officially calling a recession yet, I actually maybe saw a couple of notable economists over the last couple of days saying if things continue, they've caveated, saying that in the next couple of weeks, you start really fearing a recession. But the data is increasingly pointing towards a meaningful slowdown. I think this forces some policy accommodation. When you consider oil still hovering in that 110 to 120 a barrel, you have tariff pass through that starting to show up in inflation expectations, you start to realize just exactly the predicament that the Fed is in. They want to cut inflation data isn't giving them the green light. And then you have all this uncertainty around the other aspects we've talked about. So not even getting into the CRE directly, I mean, there are some real macro forces at play here that could have some significant ramifications for us in 2026.
- [07:07]
Steven Bushbaum
Yeah. Right on the heels of Trump's speech Thursday night, one of the economists or market strategists from bank of America came out first thing Thursday morning. And their baseline assumption or their baseline forecast now is for the war to end by the end of April or for basically US Engagement to end by the end of April. And then gas stay at right around or slightly above $100 a barrel through the end of the year.
- [07:34]
Lonnie Hendry
Yeah, I mean, then if that happens, I mean, that's a completely different trajectory than what we had written on our 2026 economic bingo card. And so, and I think obviously you're going to start seeing a lot more pessimistic forecasts from all of these economists. I, I still feel, though, as long as there's no foot soldiers on the ground, the Markets will react very favorably. If and when we come out publicly and say we're done with this excursion and it's, you know, bau, it's generally when there's, when there's a bigger force, there's, there's logistics involved with equipment and other things. At this point it feels like, I think a return to normalcy could be faster than what maybe the economists expect. Just because we're preconditioned at this point that we want to see growth, we want to see the markets positive. We, you know, the sentiment is evidenced here. I mean it shifts negative. But if we say okay, the war is gone and there's a prospect you start seeing some reduction in gas prices, people will immediately shift back into a positive perspective and I think you'll see spending and everything else continue if it drags on or there gets to be a foot soldier presence. We've said this for a while now. I think that really changes the dynamic because at that point withdrawal is a lot more difficult.
- [08:52]
Steven Bushbaum
Yeah, I think we'll be talking a lot about energy price and energy availability through the rest of the year. It just seems like we're now kind of stuck in this reality where energy costs and energy availability are going to dictate a lot of the outcomes. Like Maine for example, maybe not directly related to this conflict at all. But a related note, Maine just came out and announced that they're basically prohibiting data center development through the rest of the year. I mean they basically killed data center development until 2027. So they can assess energy availability and energy pricing.
- [09:31]
Lonnie Hendry
Yeah, I mean you've seen similar Texas legislatures, one of their interim charges, they've commissioned a project for data center analysis. And I think what you're going to start seeing there is financial ramifications for these developers. They're going to have to self fund a lot of these energy components because these states are really pushing back on them. And so it's a double edged sword at some level. Right. I mean, because there's some valuable components to energy prices and oil and other things having high demand on one end of the spectrum, on the other end it becomes challenging for consumers because it just starts to compound. And so we'll see where that push pull ends up. You know, the fact that we didn't go into an official recession during COVID after Covid with interest rates, everything else, like the markets are probably too for a reset at some level. It would be really interesting if after all of that it's a conflict and energy prices that actually tips the scale. But I think people are aware, I think the politicians are aware. And I think if they think we're finally getting to that point, I think you'll see a swift change of direction in terms of what we're doing right now.
- [10:43]
Hailey Keen
So let's talk more in depth about retail sales that came out this week. We saw that retail sales increased by 0.6% in February, the largest gain in seven months. But what do these numbers really mean since we're looking backward and what do we expect as we move ahead?
- [11:02]
Steven Bushbaum
Yeah, I mean, like you say, Hayley, this was a funny print. It was great news on the surface that we had retail sales come in above expectations, showing that consumer resiliency. But since we're backward looking here, there's this question in everybody's mind about, okay, that's nice, but what's going to happen in March? So the strength that we saw in February was driven by higher spending on motor vehicles, clothing, electronics and online purchases, with tax refunds also helping support demand. Poor retail sales used for GDP also rose solidly signaling that consumer spending remained resilient through Q1, or at least the first part of Q1. However, economists are really warning that surging gas prices, we're now above $4 a gallon, could weigh very heavily on consumer spending in the months ahead. And so the big takeaway is really, okay, this is nice. We have our baseline now. Now let's try and figure out how much we're going to drop in March and April because typically you get some a nice seasonality bump with the big Easter spends. So it'll be really telling to see on a year over year basis when we get to that point how much demand destruction you've seen from oil and gas prices feeding into a pullback in consumer spending which everybody's expecting.
- [12:24]
Lonnie Hendry
It is crazy though, Steven. Like it's not hit yet. I mean, drive by any of these large retail centers and the parking lots are still completely jam packed full. Try to go to the mall on a Saturday or Sunday. Even though people generally say they don't go to the mall, parking lots are still full. And it's anecdotal. But if you look at just for myself, the number of times I see the Amazon van in our neighborhood, it doesn't feel like there's been significant pullback. Now obviously there are certain segments probably where you're starting to see that, but you know, the American consumer is just undefeated. It's, it's, it's interesting just how people are maybe nervous but, but not to a point where they've really cut things off. I think we'll start to see some slowdown and pull back. But I, I don't think you're going to see a huge pullback here. If, if the Easter spend is something that's notable, I think that'll be in line with what people generally expect.
- [13:17]
Steven Bushbaum
Yeah, that'll be definitely a fun one to watch. If the Wall street expectations are a lot dimmer because of what they're experiencing versus Main street like you say, that maybe just continues to plow forward.
- [13:32]
Hailey Keen
So before we turn away from news this week, let's talk about the NASA Artemis mission. NASA successfully launched Artemis 2 on April 1, marking the first crewed mission beyond low Earth orbit in nearly 50 years. So walk us through this headline news. And then Stephen, I know you did some analysis to look at some stats about medium income, a gallon of gas, mortgage rates and also some CMBS year built stats from 1972 to now. So let's talk about the news and reflect a little bit.
- [14:09]
Steven Bushbaum
Sure. So this is a crazy awesome mission that we have astronauts right in the middle of right now. So the launch took place on Wednesday and as astronauts are basically going to slingshot around the moon and back to Earth and the fact that humans haven't been in that close a proximity to the moon since 1972 is absolutely crazy to me. Like to basically think, you know, from a ex ante perspective, you know, humans achieved this great feat. We made it to the moon. Okay, now let's move on. We don't have to do it again. Let's, let's just focus on other stuff. It's just wild to me that we built all of this crazy awesome technology and then put it on hold since 1970. So I wanted to get an appreciation for just how much the world has changed since 1972 to today. So some fun trivia facts for you here, Lonnie. The median family income in 1972, what would you peg it at?
- [15:10]
Lonnie Hendry
$25,000.
- [15:11]
Steven Bushbaum
Just over $11,000.
- [15:13]
Lonnie Hendry
Oh my goodness,
- [15:17]
Steven Bushbaum
about $11,120 according to the U.S. census Bureau. In 2024 that was 83,730 according to U.S. census data. Now the median new home price, well,
- [15:31]
Lonnie Hendry
I mean, based on income of 11,000, it's probably got to be closer to 30,000.
- [15:38]
Steven Bushbaum
There you go, $27,600, man. I mean it's just we think of that as like a car price now versus now. We're just over $400,000. Now here's a really telling one. The house price to income ratio it was two and a half times back in 1972, 4.8 times in 2526. Now a gallon of gas, old school gallon of gas.
- [16:05]
Lonnie Hendry
50 cents. Yeah. Or 2550 cents. Because I remember when I started driving in the 90s, you could still buy a gallon of gas for like $0.87 or $0.89.
- [16:15]
Steven Bushbaum
It was $0.36 according to amortization.org. now I do remember a brief period when I was in high school driving by 1982 Buick LeSabre that weighed about 4,000 pounds, largely due to its crazy amount of insulation because it was my grandparents in St. Louis. And so this, this 1982 Buick LeSabre that got eight miles to the gallon was a gas eater. And the lowest I paid for a gallon of gas was this was crazy low. 74 cents.
- [16:47]
Lonnie Hendry
Yeah, yeah. I mean I remember in high school if you could get gas and it was like racetrack, gas station here in Texas, they had like the cheapest gas and everyone was like, oh, it's not even all gas. They're, they're filling it with stuff. And 82 cents was kind of the low water mark there. But it's amazing. Those cars got eight or ten miles to the gallon. That was the norm. Obviously. We had a lot of cars back then. Fuel injection was like a new thing, electronic fuel injection. Before that it was carburetion where you had an actual carburetor that spit fuel into the engine. And it was so amazing that you could, if you floored it, you would actually see the gas gauge move real time. Like in today's cars, you're driving hundreds of miles before you see the gas gauge move. And those cars, literally you could fill up, peel out, out of the gas station and go down about five miles and you would actually start seeing the gas gauge move.
- [17:39]
Steven Bushbaum
Yep, that was the Buickless aver. It's depressing. Now a 30 year fixed rate mortgage was right in the low 7% handle today, right about 6% S&P 500. Here's a fun one. S&P 500 level. December 1972, 119. Yeah, that's wild. US nominal GDP 1.28 trillion. Today's numbers, it's above 30 trillion. National debt 427 billion. Now we're almost at the 40 trillion mark. US population 209 million now 343 million I think. Now here's one for you, Lonnie. How much did a new Ford Mustang cost?
- [18:28]
Lonnie Hendry
Yeah, I'm actually, I know this one because cars, cars are my thing. It's two to three thousand bucks would buy you a nice souped up car. And that seems crazy cheap. But look, if you're making 11,000 a year, still expensive on a relative basis, but crazy cheap. And you were getting like V8 powered fast cars, these were performance cars that you could get for three or four thousand bucks on the high end. So I don't know, what's the number? I'm saying two to 3,000, that's spot on.
- [19:00]
Steven Bushbaum
2,500.
- [19:02]
Lonnie Hendry
Yeah.
- [19:03]
Steven Bushbaum
I remember those good old days in elementary school when they had you look through the stats book, like you had to create a budget and you were obviously using like pretty old stuff back in our days when everything was paper. And yeah, I remember looking at those books, I was like, oh man, I want a car for that level. And I'd come home and tell my parents I want, you know, like a Ford Mustang when I grew up. They're like, sorry kid, that's not what it costs anymore.
- [19:26]
Lonnie Hendry
You know, the interesting thing on the mortgage rates here is the mortgage rates were higher as you had indicated, and the terms were shorter. I mean it was typical in that time that you had a 15 year mortgage in most instances. And so kind of an interesting dynamic shift, you know, as prices have exploded, amortization terms have expanded. You know, obviously this last year we had talk track of maybe a 40 year amortization on a single family residence, which just kind of interesting to see how that's how the markets have adapted to the higher prices as they've just stretched the term. Not just for houses, cars too, obviously.
- [20:02]
Steven Bushbaum
Now I wanted to do some data parsing with our trip data as well. So what I did was I went and pulled down all of the CMBS office loan property information in our Universe. It's over $180 billion of office loans in the CMBS universe. And I wanted to look at year built. So how much of this office stock was built in 1972 or before versus what was built post 1972? Because I thought that would give a really interesting picture about, you know, basically how developed some markets were back when humans were last at the moon, versus how much office stock have we built since then? So Lonnie, what would you guess for New York City? How much of the office stock was built 1972 or earlier?
- [20:57]
Lonnie Hendry
I think on this one it's actually going to be a big number because as I said last week, we couldn't replicate New York City today because of all the zoning and all the headaches, unions, all the stuff. So I'm going to say it's got to be 50% or greater, but I don't know, I don't have strong conviction.
- [21:16]
Steven Bushbaum
Spot on. 54% was built 1972 or earlier. So only 44%. I say only that's still pretty sizable number. But 44% of that office stock was built since 1972. Now compare that to say a market like Los Angeles, especially given that, well, you have earthquake risk. And so the engineering and development standards are very, very different in that market. I was really loving this. 74% of LA's office stock has been built since 1972. So only a quarter of it was built 1972 or earlier. Now here's a market that I would have gotten wrong. Chicago, because you would think Chicago maybe was closer to that balance that you see in New York. Not so not so Chicago. Actually only 36% of that office stock in the CMBS universe was 1972 or earlier.
- [22:14]
Lonnie Hendry
Yeah, that's surprising. Yeah, I agree with you. I would have thought it would have been higher on the, on similar to New York in terms of percentages. But I mean that's really incredible for Chicago. It, you know, it's such a huge office market. I'm surprised that so much of that was built post 72.
- [22:33]
Steven Bushbaum
So now I'm going to lump three markets together here. San Jose, Miami and Dallas. They all have the same distribution for office stock 1972 or earlier or post 1972. So what percentage of office stock would you have guessed here would have been built 1972 or before?
- [22:53]
Lonnie Hendry
I would say these are probably lower numbers. Maybe 25, 30% 2%.
- [23:00]
Steven Bushbaum
Oh my gosh, absolutely wild. Only 2% which kind of makes sense, right? Like Miami, office wise, that was historically not really an office market. And so most of that stock has been built since 1972. One last set of markets here for you, Phoenix and Las Vegas. 0% office 1972 or before completely new markets since the last time humans were at the moon.
- [23:32]
Lonnie Hendry
Well, first of all, it's just really crazy that it's been since the 70s since we've had people at or around the moon in space. Like it just the disconnect there with my mind and reality is just really interesting because to your point earlier, with all the technological advancements that we've made, you would think it would be easy. And we see all of the SpaceX stuff and we see all of the International Space Station and we see all this stuff where people have been going to space. But this highlights just how over the Last call it 30 years, commercial real estate has kind of been redefined as an asset class or maybe even just defined as an asset class. In the 70s, if you weren't in New York or you weren't in one of these top five or six cities, CRE was just not really like an institutional investable asset class. So I'm not surprised by the sparseness of some of these markets in terms of development. I do think that what we've seen, though, is with some of these growing sectors of technology, industrial, et cetera, it's created economic engines where you needed to have office, you needed to have some of these things in some of these outlying cities like Phoenix and Vegas and others. And so it's great to see. I mean, I think for these markets that have seen significant growth since the 70s, you know, if you went back and looked at some of the economic drivers, those are probably still driving growth in those markets today.
- [24:57]
Hailey Keen
Okay, so one more digging through the data segment for this week's episode, and I guess this is something else that's very newsworthy this week. Everyone's talking about and obsessed with March Madness, and they're especially obsessed with the final four. But what's interesting isn't always just who makes it, but it's how many teams don't. March madness starts with 68 teams, and only four make the final four. So that's about 6%. And in commercial real estate, when you look at a cohort of loans and track them through their life, you see a similar dynamic. Not every loan makes it to a clean payoff at maturity. So, Steven, I know you put together some more data on loan outcomes for maturing loans from the first quarter of 2020 through the first quarter of 2026. So walk us through what you're seeing in your March Madness loan outcome bracket.
- [25:51]
Steven Bushbaum
So let me start off by saying this was a really tricky exercise. Really tricky because you're balancing so many different variables and trying to categorize loans cleanly. So some of these stats might seem pretty clean and straightforward to interpret, but I just want to impress. It's not quite so easy, as I would have thought, to ultimately arrive at these categorizations, but the legwork is definitely worth the outcome because it gives us some very clean perspective to interpret after the fact. So I looked at the entire universe of CMBS loans that were slated to mature between first quarter 2020 through first quarter 2026, and I just want to point out I narrowed this down to the fixed rate loans that do not have extension options. And so in other Words, if a loan had any number of months recorded as remaining extension options or was categorized as an extension or ARD maturity type, those got removed because that would obviously muddy up the analysis. Loans that can continue on past the maturity dates and not be considered in default are a completely different beast and deserve a completely different lens for the analysis. So what we see if we look at all of these past quarters, first quarter 2020 through first quarter 2026, the percentage of loans that paid off at or before the maturity date was just under 70%. It was 68%. Now, over the past three years, where our delinquency rate has been trending up, that stat is lower, as you would expect. Only 64% of loans paid off at or before maturity. But there's still some good news to come. You still had a pretty sizable chunk of loans that paid off either post maturity or paid off because they were modified. And so that modification did end up working out. So over the past or since the first quarter of 2020, 6% of loans paid off after maturity and another 6% paid off and were modified at a previous point, like they had been modified and were provided a maturity extension. So that's another 12% of loans. So that tops it off at about 80% of loans paid off at some point, either because they were modified or they just need a little bit of extra time after maturity, or they paid off at or before maturity. Now, over the past three years, those numbers change a little bit. You have 7% of loans paying off after maturity and only 3% of loans have paid off and were modified at a previous point in time. Which makes sense. Obviously, over the last three years, if you got a modification that bought you probably anywhere from one to. I think the maximum extension we've seen is like a five or six year maturity extension. Now, in terms of loans that took a loss since 2020, only 3% of loans have ended up taking a loss after maturity. Now, over the last three years, that stat drops to 1%, which makes a lot of sense, right? It takes time to liquidate these loans. That 1% is going to creep up over time as more loans get liquidated. And then finally, the last two categories we have are basically the loans that are still outstanding. Either they've been extended or they're still unresolved. So since 2020, 10% of loans have been modified and extended and 7% still are unresolved. And over the past three years, that extension stat jumps up to 13% and we still have 11% unresolved. So that unresolved and extension is basically rounding out the categories here.
- [29:40]
Lonnie Hendry
I mean, Stephen, is there anything here that just jumps off the page at you? I mean, I think this all makes reasonable sense to me given the talk track that we've had over the last couple of years.
- [29:50]
Steven Bushbaum
Yeah, I mean, 80% of loans pay off as we'd hope, that's dropped to about 75%. And so the takeaway for me is yeah, this isn't great compared to historical norms where we've been like 85 to 90%. But it's definitely not as bad as some of the headlines have implied in the news.
- [30:11]
Lonnie Hendry
Now, when you look at the loss percentages on these, I mean, I think all things considered, those are actually not as negative as you would would expect. Maybe at face value.
- [30:20]
Steven Bushbaum
Absolutely. But it does, it does take some time. I mean, some of these loans can be hanging around for like five years before you finally get a loss resolution. So that's a stat. We'll just have to continue tracking because again, we have probably close to 20% of loans that have reached the maturity date are still outstanding and they bought themselves some more time or negotiations are still ongoing.
- [30:44]
Hailey Keen
And finally, in TRAPS data segments, as I mentioned earlier, we released our March 2026 delinquency report and found that the CMBS delinquency rate jumped in March, led by a surge in the lodging rate. So the overall rate increased by 41 basis points to 7.55% in March 2026, which reversed February's decline at the property level. Four of the five major property types increased. Lodging posted the largest increase this month, jumping 137 basis points to 7.31%, which is the first time it has been above 7% since its recent April 2025 peak of 7.85%. So if you're interested in seeing the rates across property types and would like to get more information on the five largest newly delinquent loans and what they accounted for, reach out to us@podcastrepp.com and we'd be happy to share the latest findings with you. So let's get into our property type news of the week in the office market. We saw a headline in commercial observer that 9 W. 57th St gets $328 a square foot for an office lease, which is likely a New York City record.
- [32:00]
Steven Bushbaum
Solaviv Group, a prominent New York City based development firm, has signed what it calls a record setting lease deal at its flagship office tower in Midtown, according to the company's announcement on Wednesday. So what the owner Described as a private international family office, has signed a 10 year lease for just over 5,000 square feet on the 50th floor of 9 West 57th street with a rent of $327.50 per square foot. According to the company, asking rents in Manhattan's office market increased 4.9% year over year during the first quarter 2026, with trophy assets such as 9 West 57th street driving the strongest gains, according to a new report from Savills. In addition, the average asking rent for Class A products reached its highest level since July 2020 during the first quarter, driven largely by demand from the tech sector and office to residential conversions, according to a report from Colliers. The biggest competitor rent wise to the new $327.50 per square foot would be one Vanderbilt, whose landlord, SL Green Realty, said in February that rents in the building range between $250 to well over 300 per square foot, according to Commercial observer, who was reporting on that.
- [33:24]
Lonnie Hendry
Yeah, I have, I have some mixed feelings on this, Stephen. I mean, I get it. 5,000 square foot lease, you know, private family office, 32750 a foot maybe is in the range there. If we have Office rents over $300 a square foot at any scale in New York City. I mean, that's incredible. Like, I don't think my brain has fully wrapped itself around those numbers. I thought 250 was kind of the high watermark. But you know, SL Green having commented that they have rents well over 300 a foot is interesting. So pretty, pretty significant number. I mean, $327 a square foot for an office lease is nothing to joke about.
- [34:06]
Steven Bushbaum
It is, but like you said, it's 5,000 square feet. So to put this in perspective, the total annual rent payment for that lease would be about 1.65 million or 1.66 million per year.
- [34:19]
Lonnie Hendry
So.
- [34:19]
Steven Bushbaum
Yeah, I mean, that's a, that still is a sizable amount, like for personal budgets, but in the scheme of, you know, office towers like one Vanderbilt, we got to sign a ton of lot more of those leases to cover our debt payment.
- [34:34]
Lonnie Hendry
Yeah, for sure. And look, there's not a whole lot of 5,000 square foot leases making headlines like this. You know, I mean, people are executing 5,000 square foot leases every day. But it's a good story. Look, it's again, $327 a square foot. I don't care what the size. Pretty rich. And it's a good sign for just New York office. I mean, I think we finally are starting to feel some positive momentum, both on the sales transaction side, the debt capital market side, and obviously now on the leasing side.
- [35:08]
Hailey Keen
So did you guys see this other office headline this week? There was data released by the federal government's real estate arm, the General Services Administration, that federal agencies are using less than 60% of their space at nearly 10,000 sites. Now, I don't think this is new news. We know government office space is underutilized, and there's been downsizing discussed for years. But does this new data tell us anything, or does this headline bring any new sentiment to the market?
- [35:39]
Steven Bushbaum
Well, it definitely doesn't look good at face value. So a 2024 law mandated that the 23 largest agencies have to measure their utilization rates of their leased and owned buildings between January 12 and March 6. So the results of that data collection effort shows that just over 9,700 government spaces, including offices and other properties, as you mentioned, Hayley, their utilization rate fell below 60%. So all this is going to do is dump more fuel on the fire for the current administration to say, look, we need to continue trimming our footprint. We can't have this much slack. 40% slack is not a good look. My guess is they probably want to target closer to 80%. I think that would be, you know, a fair target, try and hit. So it'll be interesting to see what comes on the heels of this in terms of continuing to shed space, because, yeah, 40% Slack is just too much.
- [36:43]
Lonnie Hendry
News flash, Stephen. Nothing will come of this. I mean, as evidence, this was a 2024 law that, that had them, you know, measure these things. We're now in 2026. If anything happens, it'll be a fraction of what should, and It'll probably be 2030 before we actually start seeing those play out. And so it's. If Doge didn't torpedo the government inefficiency with office leases, nothing at this point, in my opinion, is going to dramatically change the scale here. I mean, it's just too embedded. I mean, the leases are there. You're just not going to see any sizable pullback, in my opinion, relative to this. It's great for headlines. It's kind of gross in the sense that we're. We're funding this, but it's. It's not going to change, in my opinion.
- [37:31]
Steven Bushbaum
Well, we should. We should try and find you a bet in prediction markets, Lonnie, to go. To go short the utilization rates target here. I'm sure we can find something in prediction markets that says, will the. The utilization rate of you know, GSA buildings be higher or lower than X percent. So you can take the, you can take the short side on that one.
- [37:53]
Lonnie Hendry
Yeah, I think, because look, I think if we were being honest with ourselves, across the US office market, even pre Covid utilization rates are probably people, about 70%, 80% of people were in the office every day normally. So government has to be less than that. And 60%. I'd love to see the stats on that because I think for a lot of these it's even worse than what they're probably reporting here on the survey.
- [38:19]
Hailey Keen
And turning to multifamily big news for BGO or Bento Green Oak. The headlines this week said they have acquired Bell partners in a $350 million deal which will increase its assets to $100 billion.
- [38:36]
Steven Bushbaum
Yeah, this is, this is a great milestone for them. So BGO or Bental Green Oak is expanding its US multifamily business via its acquisition of Bell Partners, a 10 billion vertically integrated property management and development firm with more than 70,000 units in its portfolio. BGO, through its publicly traded parent company Sun Life Financial, entered into an agreement to purchase Bell partners in a $350 million deal that was announced March 30 and is expected to close in the third quarter of 2026. The deal is expected to create a partnership that will place more than 100 billion in assets under BGO's purview and bring Bell Partners diverse and expansive multifamily portfolio, which is managed by nine offices across 12 US regions, into the fold while retaining its operational independence from bgo. Amy Price, the co president of bgo, told Commercial observer that while her firm has a vertically integrated multifamily business in Canada, it does not have that same investment in the U.S. making Bell partners a perfect match for its domestic ambitions.
- [39:46]
Lonnie Hendry
Yeah, Bell has some nice assets, especially in the Sunbelt states. So this is a, we want to make a splash in multifamily. This is a pretty good deal. They have some nice exposure and some growing markets. And so for Bell, if they get to maintain their independence and continue to operate these properties, it seems like a win win for both sides. The numbers here though, Steven, still, if just in the context of the 1972 stuff we looked at earlier today, I mean, it's amazing just how many of these firms now are crossing over into that 100 billion plus territory of AUM.
- [40:21]
Steven Bushbaum
Yeah, I mean consolidation, it's inevitable. It continues and we have some real just generational behemoths being created here.
- [40:31]
Hailey Keen
And another story this week, 3650 Capital has provided 104 million pref equity injection into a 455 million acquisition this one caught my eye because we are actually about to record a guest podcast with 3650 Capital's co founder Justin Kennedy, so we'll definitely ask him about some of the details behind this deal too. But walk us through this acquisition.
- [40:56]
Steven Bushbaum
Yeah, this is a sizable preferred equity injection into a 1500 unit multifamily portfolio in Chicago as part of Latera Capital Management's and Res Park Residential's acquisition of a 7 property just under 1500 unit multifamily portfolio in the Chicago area from Amco, a $455 million transaction. 3650 Capital provided 104 million of preferred equity in the deal. The assets were already encumbered by a $308 million Fannie Mae loan or Fannie Mae financing package. The agencies do not allow subordinate debt to enter behind their capital stacks, but make exceptions for preferred equity from specific investors and lenders like 3650 Capital that have obtained designated approval, according to sources close to the deal. The promote was actually the one who first reported news on the steel. Jonathan Roth, 3650 Capital Co founder and managing partner, noted that 20 million of the capital will be used to renovate aspects of the properties and that the Chicago market presents favorable fundamentals for multifamily
- [42:07]
Hailey Keen
investments and Moving over to retail. We talked about retail sales, but there were also headlines this week that CVS is set to open more stores than it will shut in 2026 in a retail turnaround.
- [42:21]
Steven Bushbaum
Yeah, this is good news because CVS was on just a really strong tear of cutting their footprint. So it's nice to hear that they'll be opening more stores than they'll be shutting. But I think the subtext here is they'll still be shutting stores. So CVS will open about 60 stores this year, including nearly 20 small pharmacy only sites, according to a spokesperson for the company. The company will also close a few dozen locations. Cvs, which owns the major health insurer Aetna and the drug benefit manager Caremark, has turned around the performance of its retail pharmacy operations over the past several years by shutting stores and renegotiating contracts with insurers. Since 2022, CBS has closed more than 1100 locations and opened nearly 200 large American chain drugstores have struggled in recent years as health insurers cut drug reimbursements and consumers turn to discount chains or online retailers for household goods. These dynamics have pushed Rite Aid Corp. Into bankruptcy and led Walgreens to be purchased by private equity last year. CVS has been signing new contracts that change the way its pharmacies get paid. It said at the end of 2025 that the profitability of its pharmacy business will grow between 0 to 1% a year, up from its previous projection that the unit would shrink by 5% annually.
- [43:50]
Lonnie Hendry
This story here, Steven, is one where it's relative good news. The overarching story is still negative and I think this business model is still under immense pressure. But if you can turn around the portfolio and go to a 1% growth per year instead of 5% shrinkage per year, that's a pretty strong turnaround. But I still think, look, these discount pharmacy chains and online, it's just going to put continued downward pressure on these legacy storefronts or even pharmacies that are, you know, included as part of these big box retailers. It's just a tough business to be in these days. Yeah.
- [44:26]
Steven Bushbaum
I mean, plus when you think about all of the other things that they're selling at these pharmacies, to have so many of the goods behind lock and key, that's just, that's not good for foot traffic.
- [44:37]
Lonnie Hendry
Yeah, the experience here used to be super easy. And like Walgreens as an example, I know this is a CVS story, but Walgreens, their corporate motto was on the corner of happy and healthy and their stores were obviously located on the corner. It was a great play. You had easy access in and out. But to your point, now if you can't just go in and get stuff off the shelf, why even bother? You're going to just order it online or you're going to go to a larger retailer where you can get additional items. And, and so it's, it's, it's just a tough deal. And these stores are just tough to reposition as they're currently built out. They're, they're too big for most corner type retail chains and they're too small for some of the bigger, you know, tenants.
- [45:18]
Steven Bushbaum
Yeah, if they could come up, like I get the shrinkage issue or the theft issue to have, you know, so much of the goods that you sell being stolen and walk right out the front door. This seems ripe for some sort of technical innovation improvement. Like couldn't we just roll out some remotely controlled magnetic locks for these cabinets, you know, that are monitored by video so that you don't have to go find somebody to get a key. You can basically just press a button and say, hey, I want to grab this good, somebody remotely unlocks it and that would probably take care of big part of the shrinkage. Still not a great customer experience, but would dramatically improve I think some of the issues that these stores are facing.
- [45:57]
Lonnie Hendry
Agreed.
- [45:59]
Hailey Keen
And finally in industrial A big headline in Commercial observer this week, Mapletree Investments sells a 1.4 million square foot warehouse portfolio to Dolphin Industrial for $208 million.
- [46:13]
Steven Bushbaum
Yes, Mapletree Investments has secured its fifth US warehouse portfolio divestment in 10 months. The Singapore based investment and development firm, which had just over $60 billion in assets under management in the U.S. as of March, announced on Wednesday the sale of 1.4 million square feet of a U.S. industrial portfolio that was selling for 207.5 million. The buyer is a Texas based industrial real estate investment manager, Dalphin Industrial, and they're acquiring a total of 19 warehouse properties in this deal. The portfolio features 13 properties in the DFW area, four in Chicago, one in Cincinnati and one in Indianapolis. Two addresses included in the sale are 950 to 1000 Lunt Avenue in Elk Grove Village, Illinois and 2603 Technology Drive in Plano, Texas. Mapletree owns and manages more than 66 million square feet of U.S. industrial assets, according to the firm. The pipeline of roughly 2.6 million square feet currently in development. The new deal is Mapletree's fifth divestment of assets previously held in its closed end private fund, Mapletree US and EU Logistics Private Trust, which was launched in 2019 with 4.3 billion in total assets under management. The deal with Delphin also follows a $1.3 billion in total logistics asset sales by Mapletree since June 2025. Those divestments included a 2.4 million square foot warehouse portfolio in the Sun Belt in July of 25 and a 4.4 million square foot industrial portfolio along the East coast, sold to EQT Real Estate in March 2025 as well as six building warehouse portfolio spanning nearly 577,000 square feet. Sold to Equus Capital Partners in September of 25. But the new industrial portfolio sale is Mapletree's fifth transaction with Delphin, according to John Paul Chua, Director of Investments at Mapletree.
- [48:20]
Lonnie Hendry
You know what's interesting Stephen, I think we need to do a one on one segment on this on an upcoming show is how prominent these industrial portfolio sales are. You know, it's really the only asset class that trades as a, as a typical deal, as a portfolio. And so this is a, this is a good story. I love the diversification of geographies here, but I think we should dig deeper and kind of just give the audience a understanding of how and why these play out the way they do. I mean, we probably have some really good examples from the trip data on some of the larger portfolio deals. I know Blackstone and others have done some really significant industrial portfolio transactions over the last few years.
- [49:00]
Hailey Keen
And turning to programming notes as always, I need to share a quick reminder about our Trep Connect conference, because somehow it's right around the Corner, taking place May 6th and 7th in Rockefeller Center. The agenda is really coming together. We have so many exciting speakers. You can get a ticket up to the event, but I wanted to put out that we do have hotel room blocks that will close April 13th. So if you're planning to travel from out of town, now's your time to lock in a ticket, book your hotel room and come join us in New York City. We'd love to have you there. If you're a listener of this podcast and you send us a note, we might be able to get you a discount rate and make sure you're locked into that hotel room block. So reach out to us to podcastrep.com as soon as possible. We'd love to have you join us there before tickets sell out. We also have two exciting new speaker announcements. Daniela Marca, executive Director of Real estate debt at BlackRock, will be joining us on our Lending Reset panel. And Jeff Levine, who's a principal and a policy and market analyst for the New York Fed, will also be joining us. So we'll get some really great perspectives from the two of those speakers. We've also announced a Casino Night as our networking reception for this year, so it will be a fun chance to mingle to really meet all of our speakers, our experts, and the senior leaders that are joining us. So don't miss out on Trep Connect in New York City. Turning to shout outs, I heard from Aaron B. On LinkedIn. He said he listens to every episode of the podcast. The macro recap and transaction highlights are compelling, especially when we offer unique insights based on Trip's data sets. So thank you. Aaron Patel H Said, Good morning. We are Tripped subscribers and would love to get the Marketplace webinar. So we sent you that information. If you're listening to this and you're not a Trip subscriber and you want to learn how to be one or you're interested in our Marketplace webinars, just shoot us a note. Ryan F. Said he saw we were hosting a CRE demo webinar and was interested to learn about our AI CRE offering. So if you're listening to this podcast, you would have just missed our webinar where we're really walking through the front end of TRAPCRA and showing how you can access our data in so many different ways. But we're always happy to get on the phone and walk you through that in real time. So send us a note if you missed that webinar. Scott B. Said he and his colleague are joining us at our event in May and are looking forward to meeting us in person. So that's one of the perks of this event. We get to meet so many of our podcast listeners, our clients, and just loyal friends in the industry in person. So can't wait to see you there. Scott. So as always, thank you for joining us. If you made it this far in the podcast, give us a rating on Apple Podcasts or Spotify, recommend the show to a friend, or Tag us on LinkedIn. We love seeing people post that they're listening to the show every Friday on LinkedIn, and we really appreciate all the support. So with that, we'll close. Thanks to our producer Mariana Sobrana. Join us next week as we look at what's happened during the week and how it may be impacting you. If you have a question or just a comment, send an email to podcastrup.com and subscribe to the Tripwire podcast with your favorite provider. Thank you for listening and stay well.
- [52:27]
Lonnie Hendry
All right.