← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
388. Strait Talk: Oil Shock, CMBS Issuance and Private Credit Signals, Appraisal Reduction 101
00:49:25
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- [00:00]
Lonnie Hendry
Foreign.
- [00:06]
Hayley 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 10, 2026. I'm Hayley Keen with TREP, a data modeling and analytics firm for the CMBS commercial real estate and CLO markets. I'm with Lonnie Hendry, Chief Product Officer, and Steven Bushbaum, head of applied research and Analytics. It has been a busy week. A ceasefire between the US and Iran sent oil plunging more than 12% intraday, with WTI crude falling below 95 after trading above 112 just a day earlier. Stocks surged, stocks surged, yields dropped and the mood shifted fast. But the macro calendar is stacked. February PCE comes out this week along with March CPI and Michigan Sentiment. And these are the first inflation prints that capture the energy shock heading in Wall street was bracing for headline CPI north of 0.8% month over month, which could push the annual rate above 3% for the first time in over a year. Last Friday's jobs report added Another wrinkle with 178,000 jobs added versus roughly 60,000 expected, though nearly half of that was Kaiser Permanente's workers coming back from a strike. Wages cooled to 3.5% year over year, and fed funds futures are pricing in essentially no rate movement through the end of 2026. And then layered on top of that, Jamie Dimon's shareholder letter warned about geopolitical risk and regulatory dysfunction, while we're also starting to see signs of pressure in parts of the private credit market, with rising redemption requests and tighter liquidity dynamics starting to emerge. So on today's episode, we'll unpack it all and explain what this could mean for creepy. And we'll also dig into the latest CMBS issuance data, including signs of strength in the office market, and walk through a 101 on valuations and appraisal reductions. We'll also share several of the latest office headlines and discuss Bed Bath and Beyond's buying binge. Stephen, I know that is a lot to unpack. What are you starting with and what are you watching most closely?
- [02:12]
Steven Bushbaum
Well, first I'm watching out for the truck. I don't know if you you heard it, Lonnie, but. But that beeping sound was the headline truck backing up. I mean, this has been a lot to digest and that's kind of been the go of it every single week for the last couple of weeks, honestly. So for me, this week really comes down to one question. Does the ceasefire actually change the inflation trajectory or did the energy Shock already leave a mark that's going to show up in the data regardless. And I think the answer is the damage is probably already in the pipeline. So look, oil came back down fast and that's great. But WTI spent the better part of two weeks above 105 and 110 and ultimately that feeds into transportation costs, input costs. Ultimately we'll see some impacts on maybe even shelter and services with a lag. I think honestly the forecast from a number of different folks that I've heard on the street is for oil to hover around 100. So even if oil stays at that 95 to 100 level from here, the February and March prints are going to reflect the run up, not the reversal. If we do see a headline CPI print above 3% this week, that's going to be a psychological threshold and it changes the narrative from inflation is grinding lower to we're re accelerating. And the Fed has to respond to that narrative even if they believe it's transitory. Now the jobs number is interesting because the surface it looks hot. But Haley, like you noted, when you peel it back, it's really a Kaiser story. When you strip out the health care, the return to work effect and you're really looking at a much, much softer print. But the market doesn't necessarily parse it that way in real time. And the headline number gives the Fed cover to stay on hold. And that's exactly what the futures data is telling you. There's really not a lot of hope for cuts through year end, even if some folks are talking that up. So that's the world Siri borrowers are living in. And then as you mentioned, the Blue Owl story is one that I think deserves more attention than it's getting.5 billion in redemption requests from a major private credit platform. That's a liquidity signal and we've been seeing that for, I mean, gosh, weeks, months. Just for fun, I went and used a LLM, one of the major chatbots, and I asked it to harvest the major companies that have shown up in the headlines. You got Blue Al, Cliffwater, Aries, Apollo, Barings, Morgan Stanley, Blackstone, Goldman, Blackrock. I mean, it's amazing how many folks have shown up in the news and honestly that in a way it's maybe good for commercial real estate and I think we've maybe seen that in the Siri CLO sector the first part of this year. So that doesn't mean that the sky is falling, but it does mean that allocations are shifting in certain parts of the market. That were priced for a soft landing and low volume. So if that redemption pressure spreads, it will have implications for CRE capital availability, maybe even in a good way, and particularly in that bridge and transitional lending space where private credit has been a huge source of liquidity. So say it another way, the siri CLO issuance we've seen seen so far this year I think is probably in part a signal of some of the capital flows shifting away from private credit back into our space, which is great to see. So to bring it back, I'm watching the inflation prints tomorrow to see whether the energy shock left a fingerprint, watching the Fed reaction function and I'm watching private credit flows for any signal that the liquidity backdrop is shifting underneath us.
- [05:38]
Lonnie Hendry
That's a pretty full slate of things to watch, Steven, but I think those are all valid things to be keeping an eye on. I agree with you. If inflation goes over 3% percent, I think it changes the narrative for just the way people look at that. It's a psychological barrier. I don't know necessarily that 2 point, you know, something above 2.5 is substantially different than 3.0, but the psychological barrier will have been broken and we've seen that with the treasury yields too. When they get close to 5 on the 10 year, things start to slow down and so it'll be interesting to see how and what gets reported on that. I think the job stuff that you mentioned, you know, you just got to dig a little bit below and that's kind of the theme we've had heading into 2026 is you can't just look at the headline numbers on some of these. The oil stuff is very interesting. A two week ceasefire doesn't really mean anything. Right. But these things have all priced in now as if we've got some resolution. I think a two week ceasefire is completely different than some sort of agreement or memorandum of understanding or pact or whatever you want to call it. This effectively just is two weeks and hopefully within those two weeks they can reach something that's more permanent as a solution. But I think oil prices and other things are very optimistic given what we saw yesterday in the markets. And so it'll be. I still think this is going to ebb and flow. I think this is going to be similar to what we went through with the tariffs where there was kind of a wait and see approach. I think people are optimistic, but I wouldn't be surprised if we get another two week extension or a week extension or maybe a 30 day extension to a ceasefire where they try to work things out. Hopefully that's what happens. You know, the private credit stuff is very interesting. I mean, we've seen kind of a rotation from some of the traditional corporate credit stuff into CRE. And you mentioned the CRE Cielo's. I looked this morning. I think we've had 16 deals price or 16 deals come to market this year already. So it's been very active. I think there's still going to be a lot of opportunity for the private credit markets, but maybe they just funnel money back into the CRE space, which could be good for the cre, the market, as you mentioned. So I think that's something I'll definitely be keeping an eye on because we've seen a resurgence in that space in 2020, and thus far in 2026, it's on pace to do even more.
- [07:46]
Steven Bushbaum
So, Lonnie, you mentioned oil and we've talked about Treasuries, So let's merge these two together because I love economic history and I think this is some interesting backstory here. So if you haven't heard of it, let's just briefly walk down the road of the origin of the petrodollar system. So after Nixon ended the gold standard in 1971, the US needed a new mechanism to sustain global dollar demand. A 1974 deal with Saudi Arabia established that oil would be priced in dollars in exchange for US Security guarantees. And other OPEC members followed suit. So that created what's known as the petrodollar recycling loop. Oil exporters plow dollar revenue back into Treasuries and US Financial assets. So one of the things that I've heard come up in some commentary out there on the street is concerns about maybe potentially, potentially some damage being done to that petrodollar recycling loop. In other words, if a lot of oil now starts getting priced in other currencies, does that do some damage to US Dollar demand, the strength of the dollar, and ultimately result in higher treasury yields? Now, I think we're a long way off from seeing that yet, but the fact that it's even being discussed has me just a little bit concerned. But I don't know, like, am I, am I thinking too far, kind of off the road and down the road here, or is this something that maybe concerns you a little bit as well?
- [09:13]
Lonnie Hendry
Look, I think given where we are, I wouldn't take anything off the table. And as we've seen, both with the implementation of tariffs and some other things on the global scale, things that were implemented 100 years ago might find their way it's kind of like, you know, fashion. Things that were fashionable 20 years ago find a way their way back into fashion now. Maybe this comes into play at some level. I probably would say. I don't think we're quite there yet. I mean, for all of the instability we've had over the last couple of weeks, we didn't see two or three hundred dollars a barrel oil prices, you know what I'm saying? Like it's, it's outside the range on a typical scale, but it's not some multiple. So unless we get to something that's just completely way out in left field, I think things will settle themselves down and we probably won't have to revert back to some of the stuff that was implemented in the 1970s.
- [10:05]
Steven Bushbaum
I'm with you. I think until we start seeing more headlines in real time, show up about oil not being priced in dollars, I'll feel okay and continue sleeping just fine at night. But if you are interested in going down that conspiracy theory road, just Google petrodollar war theory. You'll find some pretty interesting commentary about U.S. geopolitics and the history of anyway, some Middle east confrontations. But that was something I thought was maybe worth bringing up because I've heard it a couple times just related to the Iran war. But leading up to this about just generally de dollarization, I think we even talked about in the podcast a couple months ago. So the fact that it's come around again, just something to keep your finger on the pulse of, even if it's a weak pulse.
- [10:51]
Hayley Keen
So let's go back to something we chatted about earlier, but I want us to look more deeply into Jamie Dimon shareholder letter that came out this week. He warned shareholders of mounting risks from geopolitical conflict, AI uncertainty and what he described as flawed bank regulations. So let's walk through any takeaways from this letter. And then we hosted a bank webinar last week where we had some very similar themes that we were reflecting on when it comes to the bank market and some of the key risks we're watching.
- [11:23]
Steven Bushbaum
Yeah, I'm not sure if Jamie was joining that webinar and pulling some notes from our our own Andy B. Or if Andy B. Was writing Jamie Dimon's letter because there was you exact overlap in the topics, which I love. That's a reason you should be joining the Trep webinars is you get that intelligence in real time, sometimes beforehand before it becomes mainstream news. So Jamie Dimon's shareholder letter warned of a couple mounting risks and the three big ones they honed in on was geopolitical conflict, artificial intelligence, uncertainty, and what he described as flawed banking regulations, which were the exact same three that were talked about in the Tom webinar a week before. So among the threats that Dim placed front and center, the conflicts in Ukraine and Iran, instability across the Middle east and accelerating tensions with China create a very tenuous landscape. So he said, quote, the outcome of current geopolitical events may very well be the defining factor in how the future global economic order unfolds. So he said, basically fighting Iran, Damon argued, could ripple through the energy and commodity markets in ways that push prices higher for longer. In an outcome he he suggested bond and equity markets have not fully priced in those ongoing trade negotiations added to the uncertainty, according to Dimon, he said, quote, the trade battles are clearly not over and it should be expected that many nations are analyzing how and with whom they should create trade agreements. So the US Trade policy, Dimon noted, is redrawing the map of global economic relationships. A reshuffling he conceded, carries legitimate grounds in national security, even if long run consequences remain impossible to for forecast. Turning to regulation, Dimon acknowledged that post 2008 reforms had merits, but argued they ultimately left behind a system he characterized in his own words as fragmented, slow moving system with expensive, overlapping and excessive rules and regulations, some of which made the financial system weaker and reduced productive lending. As CNBC reported, Dimon offered a guarded verdict on regulator's latest version to the Basel III endgame and GSIB surcharge framework, telling shareholders holders his overall reaction was mixed. While the proposals reduced capital requirements compared with the 2023 versions, there are still some aspects that are frankly nonsensical, according to Dimon. At the proposed combined surcharge level of roughly 5%, he wrote, J.P. morgan's required capital buffer on most consumer and business loans would exceed what comparable non g Sib lenders must hold by as much as half a disparity. He quoted directly as much as 50% more capital across the vast majority of loans, US consumers and businesses when compared with a non G Sib bank for the same set of loans. He called that outcome, quote, un American. That's pretty strong phrasing, Lonnie.
- [14:26]
Lonnie Hendry
You know, it's interesting for some of these CEOs that become household names, right? They love the shareholder letter because it talks about their business, but it really gives them a chance to kind of just say whatever they want about whatever they want. And then the media loves it, they pick it up and it becomes this huge like, you know, event. I think, you know, we've sat on this podcast for some time and I still believe it. People just talk their book and listen. I think some of the points Jamie Dimon makes here around geopolitical conflict, artificial intelligence, bank regulations, valid, they probably have some, some significant merit. But I also think some of this stuff is just a bank CEO talking about how and why they think the system is unfair to them and how and why they shouldn't have to comply with certain regulations and how it's, it's not in the best interest of the system to continue down this path. Look good on him for putting himself out there. I think it is good for the system to have people like him speak out when they think something is unfair or something is, as he says, un American. He should use his platform to try to be a catalyst for change and bring about regulations that maybe do level the playing field. But at the same time, look, they're doing just fine. JPMorgan Chase was gifted some of these insolvent banks and there's been a lot of favorable things that have gone their way. And so, you know, it's good for discussion. It's got us talking about it. I'm sure it'll have a bunch of other people talking about it. I do like the fact that our banking webinar last week, you know, kind of front ran some of these topics. It highlights how our subject matter experts are plugged into the market dynamics. Good on him for putting it out. Great for us talking about it. I hope a lot of other people that maybe have some ability to make some of these changes talk about it. But what I'm confident of is tomorrow we'll wake up and there'll be a whole other slew of headlines that we need to cover on our show.
- [16:17]
Steven Bushbaum
That's what keeps us in the seats. So since we covered mostly just what was coming from Jamie Dimon's letter, let's turn to some of the takeaway themes that were talked about in the taller webinar, since I'm sure there were plenty of our listeners out there who were not able to attend. So this is going to be only just a brief cross section of some of the topics that were discussed. So first up, one of the things that was talked about is, quote, a new Siri cycle that has become evident with growing origination volume at tighter spreads, while legacy troubled assets have pushed delinquencies higher. And of particular interest, you can see that extensions remain the primary risk management tool in our banking data, albeit with extension quality deteriorating since the rate tightening cycle started. So one of the interesting things you get to see with this bank loan level data in our taller data set is both what's happening with these loans and the credit migration and also restructuring. So you get to see those loans getting extended and their new credit risk ratings. Also of note, new construction lending remained predominantly in the multifamily sector, suggesting that lenders are confident that the supply wave has crested and rent growth will accelerate. Now, legacy multifamily construction loans tend to be rated roughly one letter grade lower than an equivalent income producing loan as lease up and rent likely did not meet the underwritten plan. Now turning to the C and I side, overall CNI portfolio quality remains stable, although a recent increase in 30 day delinquency and downgrades in AI have impacted industries and suggests future portfolio deterioration. So that's something we're definitely going to be keeping our finger closely on the pulse of is how some of the ultimately value and credit destruction the software industry plays out. We all know I think a lot of it has been overhyped, but there's definitely some real migration happening that we need to keep track of in real time. Now banks are downgrading AI impacted industries. So you're seeing that come through as a higher concentration of low rated credits are being downgraded in professional services while banks are downgrading credits to information firms across rating grades. And then finally turning to some of the private credit topics here. Although recent headlines highlight specific liquidity situations at select private credit cards funds, bank ratings and reserving suggest minimal credit concerns at this point. Banks tend to lend more to limited partners than the funds themselves, also limiting risk. Now that being said, bank credit to private credit funds tends to quote jump to default, which requires active collateral management and also inviting regulatory questions when that jump does occur.
- [19:10]
Lonnie Hendry
Yeah, Steven. So on this, I think a couple of things that I wanted us to maybe dive into a little bit is just when we say the divergence is worth watching, like aggregate CRE lending momentum appears to be stalling as caution replaces optimism and CNI and nbfi so non bank financial institution lending continue to grow. Couple that with the private credit stuff that we just talked about, where maybe some private capital private fund funding comes into the CRE landscape, which we probably view as a net positive. The timing of this is positive. Banks are pulling back even more. But what does this really mean? I mean like if, if that caution turns into reality where people are still pulling back. I mean, I think 2026 was pred predicated on this Optimism that banks were going to get back in the lending space and we were going to see more competitive pricing and another option for borrowers. It sounds like it maybe isn't going to play out that way this year.
- [20:03]
Steven Bushbaum
It's definitely framing up that way that there's a strong potential for us to take 1, 2, 3 steps back here, but it's not baked in yet. So why I say that is if you look at primary and secondary CMBS spreads and look at their movement for this current event, the Iran war, relative to prior events like say, Liberation Day Covid, the Russia Ukraine war, the jump in spreads was not quite as dramatic. And the pullback was, to me at least looking at the data, it looked a lot more confident than what I would have expected if this were expected to be a persistent negative shock, persistent negative hit to growth. So the fact that we have snapped back so quickly and by that amount gives me hope. Hope is not a strategy, but at least it's providing me some comfort.
- [21:01]
Lonnie Hendry
Even with inflation potentially ticking over 3%, do you think that that has any implication or ramification for some of these bank lenders?
- [21:09]
Steven Bushbaum
They're definitely going to be concerned about it. I mean, the question is, how long does it persist? And I think that's where the likes of Jamie Dimon when they say it's not fully priced in, I suspect that's where a lot of that conviction and that commentary is coming from and that they're thinking markets have really underpriced the persistent hit to inflation and what that's going to mean for consumer impacts and a reduction in growth.
- [21:33]
Hayley Keen
So going back to our bank data, if you're not familiar or you haven't heard us talk about it on the podcast, I wanted to do another quick plug for our Trep anonymized loan level repository. A lot of people in the market think Trep is only synonymous with cmbs, and that's not the case. While we do have the most trusted and robust CMBS data out there in the market, we also manage a consortia of bank data. And that's what this taller data that we've been talking about is. We have just unveiled new ways to get access to this data via interactive dashboards. So we now represent over 180 billion in outstanding commercial real estate and 345 billion in outstanding corporate bank loan data. You can get access to it via data feed, via dashboard, and in so many different ways. So if you're interested in seeing a view of our bank loan data, looking at the market intelligence, getting insights into Construction, lending and peer benchmarking. Reach out to us. We'd love to showcase this data set to you and give you some insights from our consortia.
- [22:37]
Lonnie Hendry
And we do custom advisory work using some of that data too. So if you're interested in needing insights, just like we did the webinar. So, Stephen, you can maybe talk about this, but we have subject matter experts that have lived and breathed and, you know, worked with this data for many years. And so if you need some understanding of market dynamics or trends or where things are headed, our team does provide advisory solutions for those needs.
- [23:00]
Steven Bushbaum
Yes, we're very flexible. We offer a range of solutions. You don't have to think of it as, oh great, we're going to pay a steep fee and we're going to be hitting, you know, this tiny nail with a sledgehammer. We're very flexible and the last thing we want is for our clients to underutilize our data. We're here to help and we're here to offer you the range of solutions that will help find a solution for you that's most efficient and most cost effective.
- [23:25]
Hayley Keen
Yeah, it's funny timing. We actually just had a client today reach out and give a shout out for your fixed rate CMBS loan analysis from last week, Stephen. And he said this was the exact information that my team and I spoke about on an internal meeting yesterday and he wanted to see if he would share that breakdown. So we shared it with our client. We're even willing to break it out by property type or geographic region. So reach out to Trapper. We would love to work with you. So, speaking of Trep data and Lonnie, you mentioned cre, Cielo issuance and where we're at for the year earlier. But I wanted us to get into what we're seeing in terms of commercial mortgage backed securities issuance so far. We just released a piece on our Q1 2025 data set and we're seeing some positive momentum and some signs, especially in the office market, that we wanted to share.
- [24:17]
Lonnie Hendry
Yeah. So if you're not thinking of Trep as the source for issuance data, you're missing out because we track all of the securitized deals across the spectrum, so we'll kind of run through these fairly quickly. But again, if you have specific questions, feel free to email us@podcastrup.com so we break it down. 42 domestic private label CMBS deals with an outstanding balance of 32.74 billion were issued during the first quarter of 2026. So this marks the second busiest first quarter since the GFC. Now that's super exciting and we're, we're optimistic what that means for us in 2026. But if you compare it to last year, it's about a 12.8% reduction from the first quarter last year, which was the busiest first quarter post GFC. So, you know, I think our predictions, Stephen, of exceeding issuance in 2026 are maybe teetering at this point because we saw a pretty drastic pullback from what we saw in the first quarter last year.
- [25:15]
Steven Bushbaum
Yeah, I'm not feeling super confident about that number right now. But on the flip side, I mean, if we bring in Siri CLO volume as well, it's still looking pretty good. I gotta say, when you combine this all together, this does put us on a very good track. And yeah, if you look at the annualized volume across both private label cmbs, so that's conduit SASB large loan. And then you add in series silo as well, we're on track to hit roughly 150 billion, which is just shy of our banner 2021 year. We hit a total combined 1 63.7 billion in that year. What's interesting though is the conduit sector has actually been the laggard here. Conduit is the weakest of the four sectors so far in 2026, but honestly it's still early in April and so all of that could change dramatically. It's too early to get too bullish or too bearish here.
- [26:12]
Lonnie Hendry
Yeah, I think there's still promise for 2026. We've had a lot of stuff happen in the first quarter and despite that, the issuance numbers have still been impressive if you break it out by sasb. So we talked a lot about SASB over the last year or so just because the percentage of deals that have been SASB has been astronomical. And you know, as we've said, it's increasingly taking on a larger proportion. So We've seen about 32 deals to the tune of 24.54 billion worth of SASB issuance. There were six SASB deals at over a billion dollars each. And I'm hopeful that we're going to have some research coming out here shortly that kind of highlights some of those large transactions. To give you a little bit behind the scenes, there was one deal that was a 3.05 billion worth of origination. Pretty interesting. If you look at the CRE clos, which we talked about earlier and Steven, you added into the total there, 16 CRE CLOs have come to market in the first quarter. Outstanding balance in aggregate at 14.5 billion. So as you mentioned, while the conduits pulled back about 12%, CRE CLOs were up 76% from the same time period last year. So again, maybe just a rotation of where the, the deals are flowing, but still really positive first quarter and maybe something that doesn't get enough attention at least right now. I think that the momentum is shifting here. It feels like office optimism is starting to come back at a scale that we haven't seen in some time. 5, 6, 7 years. CMBS lenders are getting more comfortable with writing office loans. So on the 10 conduit deals that were priced in the first quarter, 18.7% exposure to office, that was up from 16.32% during the same period a year ago and 15.75% when you look at the full 2025 year. So there were 44 total conduits issued in 2025 with office exposure of 15.75% in the first quarter of last year there were 16.32% office concentration in the first quarter. This year, 18.7. And I think if we go back and take a longer historical look, Stephen, you would see office concentration generally was about 25%. So we're not too far off the long term average here.
- [28:25]
Steven Bushbaum
That's right. All it takes is a couple trophy deals that bond investors can, you know, really get behind and support and you hit that number pretty easily.
- [28:37]
Lonnie Hendry
Now I don't know if you saw some of the multifamily numbers here, but concentration of apartment loans shrunk pretty sharply to 14% from 21.1% a year ago and full concentration of 23.25%. So I don't, I don't think that's atypical, Steven, given where we are in the cycle for apartments. And again, this is looking at CMBS issuance for apartments. These are deals that probably didn't qualify for Fannie or Freddie in the first place. Generally not quite the same level of quality in terms of financial performance, but it feels like office is taking some of that share back.
- [29:12]
Steven Bushbaum
It is. And I don't know how much of this is balancing the risk scales, but if you look at the underwritten credit metrics, I think this speaks to ultimately what it takes to bring deals to market sometimes if you have exposures that maybe invest, bond investors will be a little bit hesitant about. So if you look at the average LTV for the 10 conduit deals that priced during the latest quarter, it was 57.6 up from 57.1 a year ago. Not a huge change. The more telling metrics are the debt service coverage ratio or DSCR and debt yields. DSCR increased to 1.99 times from one spot 76 and debt yield climbed to 13.3% from 12.5. Those are some pretty noticeable increases.
- [29:57]
Lonnie Hendry
Yeah, I think it highlights some pretty strong performance here at the property level and without seeing significant changes in the leverage points. And so this actually, you know, if you look at everything that happened in the first quarter, all the talk track, everything we do every week in the intro and you just reduce it down to the numbers, feels pretty strong.
- [30:15]
Steven Bushbaum
Sure does.
- [30:17]
Hayley Keen
The business decisions you make today define the results you see tomorrow. Your organization deserves more than advice. It deserves strategic guidance from a fully invested team. As a leading global advisory firm, Eisner Amper tailored solutions that drive growth, mitigate risks and navigate transactions across assurance, tax advisory, outsourcing and wealth management. Backed by innovative technology and a compliance driven mindset, we help you move confidently at every step. Get ready for what's next@eisneramper.com so let's stick on the topic of CMBS, but maybe talk about the other side of CMBS performance. We wanted to do an Appraisal Reduction Trigger 101 today and walk through what happens when a CMBS loan is believed to be backed by collateral worth less than it once was.
- [31:10]
Steven Bushbaum
Yes. So this is a really novel concept, at least relative to our residential mortgage backed security equivalents both in RMBS and cmbs, you know the value of collateral at securitization when the loan was originated.
- [31:25]
Lonnie Hendry
Right.
- [31:26]
Steven Bushbaum
You get an independent third party appraisal that validates the worth of the collateral. Now with rmbs, you're kind of blind to that value going forward. Even if the loan becomes distressed, say if the borrower defaults and the lender is going to have to foreclose or the servicer. Now with cmbs, that's not the case. You can actually get an appraisal reduction. You get an updated valuation, which is really, really important and for bond investors. So an appraisal reduction is a servicing adjustment that's made when a troubled CMBS loan is believed to be backed by collateral. It's worth less than it once was. In practice, it usually follows a new appraisal or valuation update showing the property's values declined. And the purpose is to protect the bond trust from advancing too much cash against a weakened asset. If a loan looks impaired, the appraisal reduction can actually reduce the amount of interest that gets advanced to bondholders. It's a really important differentiation relative to rmbs where you don't have that same reduction in interest advanced. So for market participants, appraisal reductions are an important early warning signal. They often indicate that a property is under stress, that losses are becoming more likely, and that the loan may be headed toward a workout, modification or liquidation. In other words, an appraisal reduction does not guarantee a loss, but it tells the market that the deal's view of the collateral has worsened materially. Now, because a new valuation can have real implications for bondholders and how a troubled loan is managed. The Pooling and Servicing Agreement, also called the psa, lays out specific events that trigger when a reappraisal happens. And those are the main triggers we're about to walk through. So what triggers a reappraisal event? Well, if a loan payment default has lasted 90 days or more, a new appraisal gets ordered. If the borrower files for bankruptcy, a new appraisal gets ordered. If a receiver is appointed for the property or for the loan. If a borrower is pushed into involuntary bankruptcy and the case is not dismissed within 60 days, if the property becomes REO real estate owned, that means it's been taken back by the lender or the special servicer. And then finally, at maturity, if the loan cannot be refinanced cleanly, a reappraisal may be triggered. So in other words, when we're getting all of these maturity defaults, if the borrower says to the lender, hey, I have a loan commitment in hand, here's proof of it. I think I can get this refi done in the next 60 days. The servicer isn't going to waste money and order an appraisal. But if borrower says, look, I don't have any promising prospects to refinance this loan, I'm really looking for a modification here, that's when the reappraisal event gets triggered and the special servicer will then order that new appraisal.
- [34:08]
Lonnie Hendry
So if you are a user of the trip CRE products, you know that you can set triggers in our system to get alerted anytime a property is reappraised. So we've short circuited that process for our clients to actually get real time access to those reappraisal values. And so it's interesting when we do these one on one, Stephen, you know, it sometimes, sometimes feels like in the market that these things are kind of done on a whim, when in reality these things are just come back to the covenants. Like it always comes back to the covenants. And we actually, we have the pooling and servicing agreements available for these documents for these deals as well. You know, I would say today, right, we're probably seeing most reappraisal triggers from a loan going into default for 90 days or longer or maturity default.
- [34:51]
Steven Bushbaum
Yeah, absolutely. The two by far the two most common trigger events. And what's funny is if you follow trupwire closely and our credit story timelines closely, you'll hear us talk about the maturity defaults or the special servicing transfer and then it's usually about three to six months later. Then you'll see the reappraisal story come through. It's been a very predictable information flow for these loans. So oftentimes you'll see two Tripwire credit stories within a six month time span for these matured loans.
- [35:23]
Lonnie Hendry
Yeah, and that's another feature we have in the tool is you can actually see anytime we mention the property in Tripwire. So to your point, it's kind of funny to go back and you see, you know, a credit story that says appraisal value slashed by 80%. And to your point, you click into the property and you see, well, we wrote about this three different times over the last year. It's been in and out of delinquency and got transferred to special servicing. And so, you know, we definitely feel like that's something that provides additional value for our clients that you're probably not getting everywhere else else.
- [35:52]
Hayley Keen
Some not so subtle trip plugs. But you know what, this is a trip podcast and sometimes people forget that. They come to us and they say, I love your show so much. Great free CRE information. But a lot of you guys have become clients or are loyal clients as well. So we do have a lot of data and offerings and we will talk about them from time to time. So great shout outs. Reach out to us if you need anything. And I'll move us along now to a few other CRE headlines we wanted to talk about this week. Week in our deals and data segment in the office market. There was a story in Commercial observer this week about Empire State Realty Trust entering a contract to sell its 26 story office building at 250 W. 57th St. To Namdar Realty Group for roughly $280 million.
- [36:39]
Steven Bushbaum
Yes, this 540,000 square foot building is along Billionaires Row in Midtown Manhattan and is currently 84% leased. According to the Real Deal, which first reported this news. The apparel retailer TJ Max anchors the retail portion of the building while Corporate tenants include Mercer real estate platform Hanover Street Capital and music recording and publishing company Concord Music Group, led by Igal Namdar. Namdar Realty will acquire the Midtown building at a bit of a discount from what ESRT originally asked for when it put the building up for sale in February at an asking price of of 350 million. Namdar is set to buy the property along with frequent partner Empire Capital. According to the Real Deal, ESRT has been in possession of the full block building between 8th Avenue and Broadway since before the firm's October 2013 IPO. The company has invested 140 million in capital improvements to the building since then, according to the Real Deal spokespeople for esrt. And Namdar did not immediately respond to commercial observers requests for common. The sale was brokered by Newmark and Newmark declined also to comment on the sale. So, Lonnie, that's a significant amount of capital improvements. 140 million. Yikes.
- [37:59]
Lonnie Hendry
That's more than just inflationary pressure, Steven. They've had to do quite a bit there. I did pull a pretty quick report on Namdar because this one jumped out at me a little bit because they're known as, you know, Stephen, as being an opportunistic acquisition shop for underperforming class B and C regional mall. And they pretty much have purchased things in small to mid sized markets and you know, generally they're buying stuff for pennies on the dollar. The firm was founded in 1999 and if you look at their website, it says that they have over 70 million square feet of commercial real estate nationwide and retail assets dominate the portfolio. You know, they do own office, multifamily mixed use and health care properties. Just typically when you see a headline with Namdar, it's not for an office acquisition and it's certainly not for an office acquisition in New York City. City. So, you know, look, this, this one's got some details that we don't have. I'm with you. The 140 million in capex seems really high, especially on a 200 and 280 million dollar purchase price. But we'll see. Maybe Namdar has something up their sleeve with this one.
- [39:04]
Steven Bushbaum
I mean, in fairness, TJ Maxx is the retail anchor there. So, you know, maybe there's, there's, you know, something there that is in their core wheelhouse and they say, well, I mean, let's just build on top of that.
- [39:15]
Lonnie Hendry
Yeah, I think that's probably, yeah, they, they like the tenant. They probably have relationships with TJ Maxx and some of Their other centers. I think that's a, that's a valid point there for sure.
- [39:24]
Hayley Keen
All right. And moving over to Los Angeles, we don't have all the details on this lease yet, but we saw that the official hospitality provider for the 2028 Summer Olympics has signed Southern California's biggest office lease so far this year.
- [39:40]
Steven Bushbaum
Yes. On location, which fulfilled the same role for the 2024 Summer Olympics in Paris and the 20, 2026 Winter Olympics in Italy. Signed for just over 108,000 square feet at the 40 story Union Bank Plaza. It's a little bit more than 15% of the rentable space at 445 S. Figaro St. You know, I wonder what
- [40:02]
Lonnie Hendry
the economic impact on some of these things are going to be. Stephen, I know we have the Summer Olympics coming to the US in 2028. You have the World cup that's being hosted in the US this year. There's a lot of these external events that should drive some significant positive economic impacts for those.
- [40:19]
Steven Bushbaum
Oh, absolutely. It's always fun to see exactly how much activity gets spun up from these major international events.
- [40:26]
Lonnie Hendry
It does feel though like the Olympics, in particular the Winter Olympics this year, maybe we have too much availability or real time news, but when I was a kid, the Olympics were like must watch tv. And if I'm being honest, I don't think I really watched anything start to finish this year on the Winter Olympics.
- [40:44]
Steven Bushbaum
Yeah, I mean I cut a little bit of my favorite sport, curling, but you know, so many of the athletes, I mean, I don't know if it was so many, but you had some major injuries which I think definitely hurt a little bit on, on ratings. You know, when you have some of the, the folks that gather the most headlines getting injured and I don't know, I think there's a real negative knock on effect there.
- [41:05]
Lonnie Hendry
I do remember as a kid though, the Olympics were something special and it just lost a little bit of its luster. And even the, the parts that I did watch, it's like it's been such a production now. Like they have all of the media with like all these skits and specials and they're trying to make it like interactive and entertaining versus just like covering the Games, it's kind of changed the dynamic some. But the Summer Olympics, hopefully I'll catch some because I definitely, you know, with, with track and field in particular, those being such individual events, I really like watching those and seeing how our athletes compete.
- [41:37]
Steven Bushbaum
Yeah, I mean, I was really bummed with Lindsey Von crashing out. Like absolutely gruesome. Knee injury. Like that was going to be a fantastic story. Battling back and then, oh, the details of that injury were gruesome. Like almost losing her leg. That's, that's terrible. But I mean, she's, she's the goat of women's super G downhill skiing. She's a beast.
- [41:59]
Hayley Keen
So turning to retail, maybe we can talk about the buying Olympics or the buying binge that Bed, Bath and Beyond has been on. The first headline here is that Bed, Bath and Beyond is Buying Lumber Liquidators parent company.
- [42:13]
Steven Bushbaum
Yes. The publicly traded company said it's under a preliminary agreement to buy F9 Brands Incorporated, which owns and operates Cabinets To Go, Lumber Liquidators, Gracious Home, Thomas Baker and Southwind Building Products. The buyer said the purchase price equates to nearly 150 million, including 37 million in cash and 16 million in shares, with which equates to 107 million. Bed Bath and Beyond, which trades as BBBY owns retailers Bed Bath and Beyond, Kirkland Overstock and Bye Bye baby. The new F9 brands, along with Alpha and Closetworks, which BBBY is absorbing through its Container Store acquisition, would be part of the company's beyond home services arm. The release also said the acquisition will help position the company to increase transaction sizes and margins and customer lifetime value. Lumber Liquidators has more than 200 stores, stores across the US and Cabinets to Go has over 100. While they will continue to operate their own retail stores, their products will also be showcased at the Container Store and Bed Bath and Beyond stores, the release said. So this is a really interesting one, Lonnie. Like if you think about the world in which we live and kind of the appeal of do it yourself renovations in today's world of higher price levels and also the wealth of knowledge, that's even more at our fingertips with AI. This is an interesting integration look.
- [43:36]
Lonnie Hendry
They've gone from selling pillows and sheets to lumber. But I do think it makes sense. You know, everyone wants to be part of a, you know, vertically integrated or full life cycle type of experience and if they can effectively, you know, be part of that, as they said here, from full life cycle of renovation all under one platform, it makes sense. You know, I've actually used cabinets to go in some rental properties and had clients use them and actually offer a really nice product at an affordable price, nice service. Lumber Liquidators has had a pretty long standing run in the marketplace. And so, you know, I think this could be a good reposition kind of strategy for them. It's still weird when you hear Bed Bath and Beyond. I immediately think of the 20% off coupons that would come in the mail, like, incessantly. And it's been a very long time since I've even heard the store buy by baby. But, you know, I've seen quite a bit of activity on Kirkland's too, too. They've actually gone away from some of their smaller storefront services and moved into larger footprint storefronts, so I'm rooting for them. I mean, that Marcus Lemonis, he's pretty notable. You know, I think they. He also manages or owns Camping World and a few other businesses. Pretty active on social media. Love to have him on the podcast. It'd be really great to get his interpretation of where things are in the market today. So if anyone knows him, send them a shout out and let's, let's get him on the show.
- [44:58]
Hayley Keen
Yeah.
- [44:58]
Steven Bushbaum
Because with this acquisition, it almost feels like they're trying to tackle an Ikea, like, business strategy.
- [45:05]
Lonnie Hendry
Yeah. Which, listen, IKEA has grown very rapidly across the US despite having to assemble everything at home when you get there.
- [45:15]
Steven Bushbaum
Did you know that there's actually a competition, I believe, like a speed assembly competition?
- [45:21]
Lonnie Hendry
Yeah, I would not qualify for that,
- [45:23]
Hayley Keen
but I'm pretty good at building IKEA furniture, actually, so maybe I'll join. We'll see.
- [45:30]
Lonnie Hendry
They actually, they, they have services now where people come and they just assemble the IKEA stuff. You know, it's. I used to, I would laugh. I used to live near an Ikea and those stores are so massive you could just get lost in them. It's. It's pretty incredible. But, yeah, it'll be interesting, Stephen, if they're able to execute on this. I think assembling the parts is one thing. Executing on the strategy is something different. I'm optimistic they can do it, but they're pulling quite a few things together
- [45:55]
Hayley Keen
here, so we'll close with some programming notes. We've mentioned a lot of trip reports and data today, but we had another report out this week, our special servicing report. And we found that the CMBS special servicing rate rose again in March and the increase was driven mainly by six large office loans. So if you're interested in seeing the overall rate and the breakdown by property types, reach out to us@podcastrep.com or find the latest report on our website site. And we are officially one month away or less than a month now from Trep Connect, which is crazy if you're new here or you need a reminder. Trep Connect is our annual CRE and capital markets conference taking place in New York City right in Rockefeller Center. We'll be hosting this conference on May 6th and 7th. We have a really robust agenda. Scott Rechler will be our keynote speaker. Lonnie will be hosting a Fireside chat with Bill Sexton. The CEO of Trimont. Steven is leading several panels on data centers dislocation and deployment and several of our other Trep experts are going to be talking about the lending reset, AI in commercial real estate risk and the bifurcation across property types. So we're really excited about all the robust content and material that's going to be presented at this conference conference and all the networking opportunities. This is not your typical trade show. It's a much more intimate conference, about 200 senior leaders across commercial real estate and capital markets. So we still have some tickets available, but don't wait too long because seats will fill up quickly. We'd love to have you there. We have so many of our podcast listeners who've reached out and are already joining us, but if you haven't yet, send us a note. We're happy to send you extra details and make sure that you can get a ticket to join us. And turning to some shout outs. So thanks to James B. For reaching out. He said he really appreciates our work and finds the podcast to be one of the most interesting and informative out there and it's definitely most fitting to our niche corner of the CRE world. So thank you for the kind words. James Res gave us some comments on our CMBS defeasance Report. Michael B. Said he's excited to join us at Trep Connect this year. Susan T. Is building out a lot of new AI tools and wants to find ways to integrate TREP data in them. So we are looking forward to showcasing that to you on a call. Scott B. Said he's really excited to hear our keynote session with Scott Rechler at TrepConnect and we also had inbounds this week from William C, Derek D, Ken S, Sarah B, Edith F. And Philip D. So thank you to everyone who reaches out. I think Lonnie and Steven, I probably need to do an audit of your LinkedIn pages because I'm not sure you answer all the DMS that you get. So if you've emailed or reached out to Lonnie and Steven and they haven't answered, don't take it personally. I will go and make sure that they get back to you, but thanks to all our listeners as always. With that we'll close. Thanks to our producer Carly Santo. Join us next week as we look at what's happened during the week and how it may be impacted. If you have a question or just a comment, send an email to podcastrep.com and subscribe to the Tripwire podcast with your favorite provider. Thank you for listening and stay well.
- [49:18]
Steven Bushbaum
All right.