← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
392. Gigawatts & Green Shoots: Data Center 101, Blue Owl's Healthcare Grab, & NYC's Pension Housing Bet
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Foreign.
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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 24, 2026. I'm Hayley Keene with TREP, a data modeling and analytics firm for the CMBS commercial real estate and CLO markets. I'm with Lonnie Hendry, Chief Product Officer, and Steven Bushbaum, Head of Applied Research and Analytics. This week's backdrop gave us a pretty useful read on where the economy and the CRE market stand right now. On the macro side, retail sales came in strong for March, which told us the consumer is still hanging in and that spending did not roll over at the end of the first quarter. Pending home sales also moved higher, which was a better than expected result, but the broader message there was a little more mixed since affordability still looks like the main constraint on housing demand. On the real estate side, we also saw Blue Owl agree to acquire Sila Realty trust in a $2.4 billion deal, which is another sign that strategic capital is still moving towards sectors viewed as durable and defensive. And then for a deeper dive, we're going to talk about why multifamily development still looks tough even as bigger players gain Share how New York City plans to use pension capital more directly to support housing, what the latest Fed Z1 data says about where CRE credit growth is actually coming from, and why power access is becoming just as important as land and capital in the Data center story we'll continue on the data center topic this week with a one on one on operational resilience and power, as well as covering a slew of headlines we've seen recently. So Stephen, when you put all of that together, does this feel like a real reopening in commercial real estate or or more like a selective stabilization where capital is coming back but only to certain sectors and sponsors?
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You know, I'd call it selective stabilization. Not a full all clear and that's really consistent with what we're seeing in broader markets though I guess, you know, if you wanted to be really picky you could say the tech sector, yeah, stabilized and now looks like it's spring loaded again. It's wild just how quick we've looked through the geopolitical uncertainty and stabilized things and really where we're poised to go for going go from here. But I think that's a good thing. So the macro data this week mostly support the stabilization view. Retail sales were firm, so the consumer still looks resilient and pending home sales show there's still demand in Housing, it's just there's not enough affordability to really unlock the broader rebound. So the economy looks like it has forward motion, but not the kind of momentum that suddenly removes all the pressure points in commercial real estate. So when you look across the series stories this week, you see that same pattern again and again. The blue alle still tells you that capital is absolutely available. Sectors with durable cash flow, long term demand story. And in multifamily, capital may be thawing a bit, but it's still mostly the larger, better capitalized developers that can actually get projects to pencil. In fact, our good friend Jay Parsons highlighted this In a recent LinkedIn post talking about multifamily supply dynamics and the Z1 data reinforced that as well. Credit is expanding, but it's still being led by the institutional channels, securitized lenders, GSEs and insurers, while banks are just really kind of starting to re enter in a bit more meaningful way. That's why 2026 looks less like a cliff, more like a sorting year where stronger assets and sponsors sponsors are finding a path to refinance or extend weaker deals seem to be facing tougher outcomes, which perhaps is a good thing to show where we're at in the cycle. I also think the data center stories are a really good example of where the market is headed. There's absolutely no question whatsoever that capital wants exposure there. But the bottleneck is increasingly infrastructure, especially power, in some cases political and community acceptance as well. So even in the hottest sector challenge is no longer just raising capital or finding demand, it's execution. The New York City pension fund story fits that broader theme as well and shows parts of the market are trying to step in directly where transitional housing finance is still falling short. So to me, the big takeaway this week is that the market is functioning, capital's flowing, sectors look very healthy, but it's a selective market where access, structure and sponsorship matter more than they did perhaps in easier parts of the cycle.
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Yeah, so I think it's interesting, Steven, if you just stripped away some of the names and some of the property sectors here and we just gave like a general overview of what you just said, this is how the market is supposed to function. Yeah, I mean the anomaly has been zero interest rate, environment, government stimulus, intervention, all of these things that we've seen over the last five years, which artificially propped up some sectors, drove demand and drove new construction and did a lot of things in some of these local markets that were not sustained or supported by local economics or fundamentals. And you know, what you've highlighted is how the market is supposed to function. Guess what? Better quality assets in great cities are going to be preferred by lenders.
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Shocker asset selection. What?
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You know, it's. That's why they call them Class A for a reason. And, you know, lenders are going to be, you know, more aggressive when there's less regulatory pressure put on them. And when they're in a tightening part of the cycle, guess what has to happen? They got to make sure that things pencil underwriting gets more conservative. And so none of this really comes as a shock for me. I mean, I think, if anything, it's actually kind of a sigh of relief that we're actually getting back to how the market is supposed to function. And, you know, look, we would love to see banks come back in full force. We'd love to see them make a more competitive bidding environment for financing. The reality is that there are some pressures on them that are not allowing that to happen at scale. GSEs are great. There's been a lot of transitioning at the GSEs. There's been a lot of chatter at the GSEs around privatization, and institutional buyers and sellers are always going to have cheaper access to capital. And so you're going to see them in these types of, you know, more selective parts of the cycle outperforming. And so, you know, I think for me, this actually gives me a little bit of comfort knowing that the market is still capable when left alone, of functioning how it's supposed to function. And I think one interesting, you know, story that caught my eye this week was the Blue Al Capital that you mentioned. You know, they're going to acquire the Healthcare REIT Tila Realty Trust. Now, listen, Stephen, $2.4 billion deal. And I know I'm that nerdy guy that makes a huge point every time we see one of these acquisitions just at the price, but 2.4 billion and nobody even blinks an eye this week when this is announced. I mean, obviously people reacted positively, but the scale of these acquisitions are just incredible to me. Blue Al has been in the headlines the last couple of weeks for other reasons in the private credit space outside of cre. And so, you know, people were thinking that maybe they were going to pull back or you might not see them being as prolific, but I think this just reaffirms that they feel very strong and where they're positioned to take advantage of, of opportunities in the marketplace. They've really been an active investor in data centers, and now, you know, with this acquisition, they're going to absorb 137 developed properties. What was really interesting is this REIT stock price was up 20% when this was announced and markets opened. The acquisition price correlates to just about $30.38 per share. So Blue Al paying a 19% premium comparing to where the stock was trading at last Friday's close. And a quote from the folks at Blue Al, this transaction provides us with a compelling opportunity to acquire a scaled portfolio with durable cash flows and attractive long term growth characteristics, while further expanding Blue's managed fund exposure to an asset class and sector we view as both resilient and essential given its critical role in both society and, and the economy. And that was from Mark Zar. So I think it's really interesting, Stephen here that, you know, bluehouse going on the offensive. And for all of the chatter and noise around private credit and the opaqueness and people's concern about it, it feels like you're seeing a lot of this private credit activity rotate into the CRE space because guess what, they're buying tangible assets with real leases and things that you can see and predict and project with insurance and all, all the stuff that we know makes real estate valuable.
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So we're not dealing with any paper tigers here. We're dealing with the physical, the tangible, the real, which is exactly what we hoped and thought might come out of this private credit rotation. So, you know, the fact that it is Blue Owl that's making the move to me just kind of is a continuation of the liquidity theme from last week and is more of a confidence builder. So hopefully Blue Owl is going to continue on their upward trajectory from here because their stock price, if you look at the chart, it's had a rough go over the last year, but I think we're all rooting for them and hoping that the worst is behind us.
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Yeah, and I think this, this takes them out of, you know, maybe the data center loop of, you know, what's real, what's hyperbole, what's hype. And into this, you know, medical facility practice, which has really, outside of industrial, has probably been the strongest performing sector post Covid. And so I think, you know, these are, these are primarily outpatient medical and healthcare services. And guess what? America's not getting healthier. And so I think this adds some stability to them. I think it's a good strategic play. I think the timing is actually really good as well. So you probably assume these had been in the works for a while. But I think given all of some of the negative recent publicity, this is a really great stabilizing transaction for them and I think it bodes well for continued M and A and acquisition type of opportunities in 2026. I don't think we're done yet. And I know we talked a little bit last week on mortgage applications. There were a few highlights this week on pending home sales. I want to get your thoughts on this too, Stephen. You know, so if you look at the housing demand, it improved a bit in March, but kind of to your big picture lead in, it's not fully healthy. You know, pending home sales rose 1.5% month over month. So that, you know, suggests that buyers are willing to sign contracts, you know, even though rates are not super favorable right now. If you look at consensus growth, they had predicted zero percent. So one and a half is a beat to the good, but it's not great. And if you look at the annual picture, even with, with the monthly increase, pending sales were still down 1.1% year over year. So, you know, last month's 1.1%, 1.5% increase is really more of a stabilization signal, kind of fitting the theme of what we're talking about in the broader CRE landscape, more so than an all clear for housing. So I don't know what your thoughts were, if you saw any geographic dispersion or if there's anything here that you thought was interest. Interesting.
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Well, I'll tie this to a data point we didn't mention. I saw a headline this week from Daily Mail that there was something like 50 odd thousand contract pending home sale contract terminations in March. And saying like that was a record number. So yeah, seeing pending home sales up that much, especially when consensus forecast was for zero growth and when rates really haven't been breaking meaningfully to the downside, shows some resilience and just how pent up the demand must be to persist in this environment. But again, like so many parts of the economy at risk of overusing this term, you still have the K shape.
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Right.
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So to have a record number of contract terminations that maybe in part is driven by broader macro concerns. And a bit skittish consumer still tells me like we have a little bit more road to plow before we're in solid territory.
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Yeah. And I think, you know, if you look at this by geographic boundaries, the south was driving that 1.5%. So if you look, the south was the strongest region. It was up 3.9% month over month and is up 2.3% year over year. If you look at the west and the Midwest they actually weakened on the month and most of the regions outside of the south were still down from a year earlier. So I think, you know, to take the glass half full or find the silver lining here, there's definitely still demand. People still want to buy homes. Guess what? Shocker. Affordability is still the governor. I mean you look at the west and California and some of these other markets, even up to Washington State, price is really a prohibition from people pulling the trigger there. You couple price with the interest rates that are in play, it makes it very difficult. Whereas the south and Sunbelt region still has what is considered a more relatively affordable opportunity for people to buy. So look, we're going to keep tracking this. We don't think it's a one to one with CRE necessarily, but homebuyer activity, mortgage applications, those things do have some correlation with the CRE markets.
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Speaking of residential and correlation with CRE markets, let's turn to multifamily supply. So I had mentioned a PO, a LinkedIn post from Jay Parsons. The specific one I was talking about was he was looking at the NMHC Top 25 developer list. He said for the first time since 2019, no single developer started 8,000 plus apartment units in the prior year. So this is only the second time since 2018. Also that the floor to crack the top 25 came in under 2000 units. So if you think of like the distribution of starts by apartment developer in that top 25 list, we've basically just taken the top of the bottom and just shifted them down a pretty good bit relative to what we've been seeing over the last five or six years, roughly. And so we mentioned, I think, gosh, sometime over the last couple of weeks, Lonnie, that really the dramatic drop off that we've seen in starts and specifically the supply pipeline for multifamily could end up being a really, really good thing for rent growth. We're still trying to work through some of the backlog, especially in some of those heavier supply markets. But I mean this, this really kind of speaks to both the scale and difficulty that you're seeing in multifamily right now to get projects to pencil.
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Yeah, I mean this, this is again part of the cycle. I mean it's been a while since I've looked at the numbers but I mean there for a while we were saying over about an 18 or 19 month period, I think we delivered 1.1 or 1.3 million units across the U.S. and you know, really with, without a huge drop in occupancy now Physical occupancy now, economic occupancy has been tough. There's been a lot of concessions in the marketplace, but at some level that you have to stop the supply spigot, like you got to turn it off. And, you know, I remember if you, if our listeners went back, listened to our show over the last year or two, we were saying, 26, 27, 28, we're going to be really light on the pipeline side just because of all the new construction. So nothing shocks me here. I think this is just a function of where we are. I also think there's maybe a little bit of a misconception for some of these larger players and thinking that they were going to be able to acquire newly built assets at significant discounts to replacement cost. And, you know, we love that metric. Whenever someone pays some crazy price for something and then in the footnotes they say, you know, we bought this at a discount to replacement cost. But the reality is, and you mentioned this a little bit on your lead in Stephen, some of that transaction volume has been muted. I mean, people that you thought would maybe typically sell have dug in and refinanced or recapitalized or they're still holding on to the asset for various reasons. So I think that, you know, is another challenge for some of these developers is the construction pipeline has dried up some and some of their acquisition pipeline has slowed down. And so you're going to see them start to get creative, which I think, again, is a good thing for the marketplace. And so I wouldn't read too much into this as a net negative. I think we'll start seeing, you know, 27, 28, 29, these things will tick back up. The markets will, will find an equilibrium where land prices and opportunity, you know, meet today in some of these markets, you still have land prices that are just prohibitive and you have a lot of affordable unit requirements and other things that cities have imposed on new construction that just make these new projects penciling really tough, especially amid a backdrop that has a lot of rental concessions.
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The stat I like the most in this post that I see as a positive, because it should be this way. The top 25 developers comprised 26% of apartment starts in 2025, which is the highest on record. So to me, like, this is a good thing. Scale matters and it should matter the most when we're in this part of the supply cycle.
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Yeah, and I look, I mean, scale is an interesting term in real estate because it can mean just your overall footprint. And a lot of times you see Especially in the industrial sector and maybe a few others where people will take down portfolios to try to acquire scale in a certain asset class or certain geographic region. But I think in the multi side it's twofold, it's, it's physical footprint, but then it's also just the economy of scale that you create when you own X number of units. And these developers have gotten really good at maximizing that economy of scale both from a personnel perspective, a supply chain perspective, an execution perspective of operations. And so I think you're, you're right here that you know, the winners are going to keep winning. And, and for people that are, you know, trying to break into that, that mix, there's still opportunity. I think this, you know, development slowdown does create some opportunity in some of these markets that maybe the institutional guys don't want to play in. You know, you see this a lot sometimes with the hotels too. Some of the hotel REITs benefit from that economy of scale because they can operate more efficiently than, than smaller competitors.
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So let's turn to the New York City pension fund headline here. New York City is going to spend 4 billion from pension funds on affordable housing. I mean 4 billion with a B, which, okay, it's also New York City, so really, really expensive as well, really expensive real estate. So the plan is to spend 4 billion from its pension funds into affordable housing over the next four years, or about 1 billion annually. The money is expected to support mixed income and affordable housing and preservation of existing units and also office residential conversions. City officials framed the move as a way to address a financing gap in housing production while still targeting risk adjusted returns for pension beneficiaries. For cre, the takeaway is that public pension capital is being used as a more direct housing finance tool. I think perhaps it had been in the past at least, certainly at this scale, including the conversion related projects, which to me was a little bit of a surprise to see office to resi conversions rolled in there. I typically don't, you know, at least in my mind when I calibrate like who's taking what risk across the player spectrum. Typically I don't think of pensions as taking that type of risk. So this is a really interesting play for me to see.
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Yeah, this one's what I would call a head scratcher at some level. And I think it's, it's, it's important to understand what this means and I think the headline is great if, if you're the pension fund and you're looking for some positive PR and you're Trying to also achieve some yield. But in today's market you have to be much more definitionally bound to what is affordable housing versus just saying affordable housing or affordable homes. Because if you're talking about New York City, you know, as we know we've detailed significant with the rent stabilized projects and other things. If I'm, you know, someone who's invested into this pension through my working year, I'm not excited about hearing about the pension fund investing in rent stabilized housing because we know that's a non starter for, for any type of productive growth. If we're talking about affordable housing in the context of new supply and markets that allow for economically viable affordable housing, okay, then I think you get the double win here where you're providing a service to the marketplace and you're going to reap some financial benefits on the, on the growth side. So 4 billion again as you mentioned, big number. Billion dollars annually. Big number. To me this one hinges on what is being defined as affordable. And is this going to be specifically in New York? I would assume this is going to be across the US where they're going to be investing strategically. I could get comfortable if it was under the ladder there where you're finding opportunities in growth markets where there's sensible affordable housing components.
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Yeah, I hope six, eight years from now we don't look back at this headline and shake our heads. That's the real concern. Because as you allude to Lonnie, from what we've seen for some affordable projects in New York City, especially with that 2019 regulation being a binding constraint, some of these projects have not done well. Now the market rate ones have done very, very well. So still a lot of questions to be answered in this space.
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Yeah, I mean this is one that we're going to talk about for a while. Yeah, I wouldn't want my pension funds being a backstop for rent stabilized housing in New York City. I'm taking the under on that one.
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Now speaking of capital allocation, one of the reports that TREP put out this past week was our, we call it internally the Z1 report. So this is the report that looks at commercial real estate debt and where it's being held, when it's maturing and who's been originating. So the income producing commercial real estate debt universe stood at roughly 5 trillion in 4Q25. Banks remained the largest leader in that group at 1.89 trillion or about 37.5% of the market, followed by GSEs at 1.14 trillion and insurance coming in at 807 billion. Non bank growth stayed steady, but banks finally showed early signs of expansion in that fourth quarter data release. Institutional channels still drove most of the market's incremental credit growth, especially securitized lenders, GSEs and insurers. So on a year over year basis, securitized lenders grew the fastest at at 8.2%, followed by GSEs at 7.4, government at 5.1, insurance at 3.7% and banks at 3.6. That tells you that the market recovery is still being led more by that institutional capital channel than by traditional bank balance sheets. Still, the notable shift in fourth quarter was that banks moved from cautious re entry to early expansion and that nearly 40% of their full year growth happened in just the fourth quarter alone, suggesting that rate cuts may finally have started to loosen credit formation a bit. The securitized lenders were still growing, but the quarterly gains slowed in that fourth quarter to 0.7%, which is less deterioration and more of a timing effect, especially after a strong third quarter. So taken together, the second half of 25 growth was about 25% above the first half. The refinancing story remains concentrated in banks. Securitized lenders. About 797 billion of the Siri debt universe matures in 2026, including roughly3.71 billion for banks and 232 billion for securitized lenders. That makes those two channels the biggest places to watch for refinance pressure here this year, as well as resolution activity. One important nuance though that we always have to note is the difference between stated maturities and hard maturities. A lot of the loans that are slated to mature in 26 and 27 still have extension options or modification pathways. So the maturity wall really typically always overstates how much debt is actually going to refinance immediately. So again, we've said this so many times, 2026 is more of a sorting year. Now if we want to zoom out the lens a little bit in the broader $6.3 trillion CRE universe, once you include bank construction and owner occupied loans, the report shows that banks are still de risking construction. Construction balances were down 6.4% year over year, while income producing and owner occupied lending both grew. So that's a useful signal that banks may be reopening selectively, not broadly, across risk lending buckets. So the closing takeaway is basically that the market is stabilizing, showing early expansion, but not at all clear. Lower rates helped, but the durability of the rebound still depends on Whether rate relief feeds into origination, whether geopolitical volatility and private credit risks start to weigh on lending appetite or if we're able to look through these tensions and continue plowing forward through 2026.
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Yeah, I mean I think we have the benefit now of kind of seeing how the first half of, or at least the first quarter of 2026 has played itself out relative to how we wrapped up the the Q4 25. And you know, if you look at that bank growth, the number that jumped off the page was 40% of their total growth was in 4Q25. And it makes sense because if you overlay January of 26 and the CREF C Conference and all the optimism and everything that we saw coming out of there feels like everyone was riding the wave coming off 4Q25. And I think 26 has started off to be reasonably strong across the sectors but I think that that geopolitical volatility and the broader maybe non cre private credit risks that have been pontificated upon are starting to show up at some level. So I think when we see this updated data at some point and we look back at 1Q26, you're going to see a continuation of kind of what we've seen and some tepid growth across the sectors, maybe a few securit market obviously, you know, ramping back up on the growth and heavily concentrated across good markets and good assets. I mean I think that's the story. If I were to sum up what we've said all day. Construction's difficult, lenders are pulling back, there's a lot of supply and a lot of markets for a lot of property types and better located, better constructed, better tenanted buildings are going to see the bulk of the origination and refinance volume.
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So let's turn to the topic of data centers. For those of you who've been listening for a long time, we have covered data centers in depth, always trying to bring the latest headlines, new capital raising or even one on one segments about what is a data center? Is it infrastructure? Is it real estate? Today we wanted to go a little beyond that and talk about two variables that now drive some of the underwriting debate. The operational resilience and power. So let's get into some of this on a one on one basis Steven and then we'll dive into some of the latest data center headlines.
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Sure. So global data center inventory just crossed 115Gw. Or if you're Doc Brown from back to the future. It's gigawatts. No, it really should be gigawatts here. So 115 gigawatts. So that's up from 93 two years ago. And get this, JLL projects another 97 gigawatts coming online over the next five. That's 1.2 trillion in real estate value creation. Now, we kicked off our data center series a while ago with part one. We've talked about demand drivers, how these leases work, site selection. Today we're going to pick back up the thread and dive into some of the operational issues that are really important to focus on for underwriting. So just as a quick refresher, we covered in the past, we've talked about wholesale versus retail leases. Some of the standard terms, including lease length, which typically ranges three to 10 years, uptime guarantees, which can be up to 99.99%, and cost structures that can be fixed, metered or hybrid, with megawatt pricing being the common pricing method in wholesale deals, where tenants pay for power capacity, which suits AI and crypto workloads that need to scale consumption. Demand drivers include your AI, which ranges from compute training and storage, to crypto, which includes mining, security and compliance, and then cross sector trends including cloud adoption and edge computing. So today we're going to focus on two variables that now drive some of the underwriting debate. Operational resilience and power. Let's start with resilience. The Uptime Institute classifies data centers on a four tier scale. You got tier one, which is the simplest design. That's a single power source, one cooling loop, and any hiccup is going to cause downtime. Tier 4, the opposite end, is your fault. Tolerant by design, Tier three is the workhorse. Today it's concurrently maintainable and roughly half the build cost of Tier 4. With Tier 4, you're basically having to double everything. That trade off matters because the property value in this asset class lives or dies on uptime. Now, our CRE Direct team reported last year that some of these leases also include termination rights which are triggered by outages, which could be as short as two hours. So for debt investors, that's a covenant that's worth reading carefully. Then there's the power, the real bottleneck. Grid interconnection is still the cheapest and most reliable source, but the average wait time is now more than four years. In Northern Virginia, it's closer to seven years. That lag is pushing developers into long term power purchase agreements, typically 10 to 25 years. Often you're seeing wind or solar and behind the meter power generation, which includes natural gas turbines, fuel cells and solar plus battery. And you're even hearing talk about developing small modular nuclear. Now that's probably a little ways off, but still the fact that it's getting thrown in the mix is wild. Now what's emerging isn't a single power strategy. It's a stack with alternatives. Bridging the grid and staying online afterward is absolutely key for flexibility. The takeaway for underwriters is that tier classification tells you how the assets perform, but power access tells you whether it exists on time and in today's market. And both are as material as location and lease credit.
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Yeah, I like how you framed the, you know, what's emerging isn't a single power strategy. I think you said it's a stack and it, it kind of conjures up the image of the capital stack formation for me on the, the debt and equity side, similar to, to how deals are, are put together today you're going to start seeing the same type of activity on the, the energy side where you're going to multi source at least now until some of these options maybe take hold and become scalable at a level that actually solves the problem. You're going to see people creatively engineering these, these power stacks and you know, it's really, it's one of those things. I think we're seeing a transition, or maybe we're at an inflection point, if you wanted to say it that way, of, you know, these, these properties are no longer priced on a per square foot, per acre, front foot, whatever you want to look at, these are going to be priced based on power. And it's just really interesting, Stephen. You know, utilities have always been a component of the development process. I mean, properties that have entitlements for utilities or properties that have had utilities taken to the property for development sell at a premium to properties that need to have power, you know, taken to the lot. But in this case it's, it's, you know, that times a thousand or a million, depending on where you're at in terms of do you have enough power? And, and it's a component that I think in the marketplace people are getting educated on this real time. I mean you used to not have to have a power consultant to actually do some sort of due diligence on property in advance of the acquisition. The question was just do you have power? Not in some of the industrial buildings. You might want phase three or whatever. But here I think this is, it's becoming something that's Very sticky for commercial real estate. And we're entering a phase now where this is not, not some optional skill set or knowledge, it's a requirement to compete in this space.
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C
Yeah. What's really difficult for me to wrap my head around is, you know, for us, like old school, classic commercial real estate folks, you look at this and you just can't help but wonder, okay, what's part of the real estate and what's really the tenant's responsibility?
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Right.
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You know, is all of a sudden the real estate becoming this high tech asset? That's beyond my comprehension and I need like three different engineers to explain it to me in like simple elementary terms or is this getting offloaded to the tenants and as long as my building has the capacity to handle X, Y and Z, I'm okay.
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A
Yeah. I mean, and listen, that's the question that remains unanswered. And I think if you talk to 10 different people, you're going to get 10 different responses today on how they feel about that. In fact, just a simple plug for our Trep Connect conference this next week, we're going to have a dedicated panel on data centers, and we have some of the leading industry experts that are doing these deals every day on that panel. And I was lucky enough to join the prep call. And it's just really remarkable to see the, the differing views on that question. Steven. I think it's undeniable and it's universally agreed that this has a significantly bigger infrastructure play than any of the other asset classes. But some firms still view this as a real estate play and others are staying away from it because they're pure real estate players and they would contend that this is outside of the real estate landscape. And so I, I think if you listen to them talk, you could argue that both positions are correct. And I think that dislocation of, of thought actually creates opportunity on both sides of the equation. You know, it's, I'm excited that we're getting to see this play out real time because in your career and my career, we've seen the evolution of certain asset classes. We've gone from the, you know, fully enclosed shopping mall to more of the outdoor shopping experience. And we've seen some other transitions take place across retail. But this is, this is a very interesting dynamic where we're entering into a new phase. If we get to a point where you have small modularized nuclear on site for these things, I mean, that is going to be a pretty significant transition for commercial real estate.
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C
Yeah, I've heard about some of these Forward contracts for energy purchases from these startup fusion companies. And it's mind boggling the scale that's being talked about. So hopefully the technology proves itself and can actually work out because fusion would be the game changer. Question is, can anybody deliver? Can anybody actually create more energy than they can consume to make fusion happen?
- [34:03]
A
Yeah, I mean, it's just the pace and scale at which technology is evolving. You have to assume that those things are going to get figured out in our lifetime. And, and we kind of joke sometimes because there are people that make a living as a futurist. They go around and they talk to audiences and they, they tell people what's going to happen. And you know, you, you listen to them in real time and you think sometimes they're, they're out of their mind. I mean, I remember probably at this point, seven, eight, ten years ago, everyone was talking about the autonomous vehicle, like that was the future. And you know, we were having discussions and debates across CRE around what's going to happen to parking garages and how are parking requirements going to change and how does this impact the market. And here we are 10 years later and we still don't have that fully. But guess what, like, autonomous vehicles are like, very, very close to being normalized in, in the US and across the globe. And I think some of these issues that we're talking about today, with power in particular, in 10 years, maybe they don't have it fully solved, but I think they're going to have a lot more of this in practice and it will be a lot less theoretical. And if you listen to Elon Musk and some of these others, like, if this data center stuff gets figured out where they can scale, it just creates an overabundance of opportunity across the spectrum. So, you know, there's been a lot of talk about slowdowns across the data center landscape, but at the same time, there's still a lot of activity. I don't know if you saw this deal in Oklahoma, Steven, but Meta broke ground on what's being called a $1 billion AI data center. This is an AI optimized data center in Tulsa, Oklahoma. So It'll be the first facility in Oklahoma and the 28th in the U.S. this is for Meta. It's expected. And this is the part that I think is really interesting. I'd love to get your take on this. It's expected to create more than 1,000 construction jobs at its peak, but only about 100 permanent operating jobs and includes about 25 million of local infrastructure investment. So that's been something. And I mentioned this a couple of weeks ago. You know, we had Mike Flood, the congressman from Nebraska at the Real Estate Roundtable talking about just how, you know, these, these data centers are unlike some of the other major projects that, that cities and municipalities covet because they don't create a lot of long term permanent jobs. But I think it's interesting here because they're highlighting that, well, maybe it doesn't create long term permanent jobs at scale, it does create a thousand construction jobs during the construction. So I wanted to get your thoughts. Is that enough of a positive to maybe entice some of these municipalities or is the fact that it's only going to create 100 permanent jobs still pulling that down?
- [36:39]
C
Well, Meta took this one a step further. They are developing partnerships with Tulsa Tech and Tulsa Community College and what they're going to do is basically train up the graduates. So they're going to have 200 plus graduates annually, train in skills like digital infrastructure, fiber optics, structured cabling, cooling simulation, AI and data analytics. So they're basically developing their data center workforce to provide a steady stream of job ready graduates. Meta is also putting money into local build out around the site. They're going to spend about 25 million on local infrastructure, including roads and water systems. It's also going to pay for grid related upgrades. Get this, even though they're going to be consuming power, Meta said they're going to match the facility's electric use with 100% clean energy and about 1500 megawatts of clean power to Oklahoma's grid. So what I suspect Meta is going to get is reliable on demand electricity. But then they're going to feed back maybe less reliable clean energy to the grid. And so that should be enough power to serve roughly 500,000 homes, which gives a sense of just how large the energy footprint is of this AI oriented data center. Water also another major issue for these sites. So Meta says that the Tulsa facility will use a closed loop liquid cooling system that recirculates water and should operate with zero water consumption for most of the year, which tied to the broader goal of becoming water positive by 2030. What's especially unique is that Meta's trying to get ahead of some of the usual local backlash. So beyond the cooling design, the company said it will support community programs including water bill assistance, annual contributions to a local utility assistance program, and grants for neighborhood improvements in East Tulsa. I mean, heck, they're even going a step further and doing a restoration component tied to local agriculture. According to the Story Meta is working with Fitech on a water restoration effort across 1500 acres of crops. It's expected to save more than 50 million gallons of water annually, which is part of how it plans to offset water use in the region. So really, I mean, the big takeaway here is that this reads like a template for next generation data center development. It's not just a land plus building plus power play. I mean, Meta spent obviously a ton of time and effort on this development strategy, tying it in and making it more palatable for the local municipality.
- [39:08]
A
We saw something like this personally with the Barnett Shale back in the 2006 time frame here in North Tex, Even where you saw these oil and gas companies doing these same type of beautification projects, investing in local schools and doing all of this stuff. It really helps soften the pushback from the local communities and it allows the elected officials a cushion to say, hey, look, I know maybe my constituents don't want this here per se, but if we let them come here are all of the benefits that we're going to get, which is net positive for you all as voters. It is interesting that they've chosen Tulsa, Oklahoma to kind of roll this out because if you, if you talk about infrastructure, $25 million worth of infrastructure projects, I reasonably have to assume that that's much cheaper in Tulsa, Oklahoma. You're getting a lot more bang for your buck there than you would in a lot of these more densely populated markets across the US and so I think they're trading out that permanent job, you know, the underwhelming component of the permanent job number with all of these other things. And I think this is a scalable model. I think for some of these, you know, second, third, fourth tier, you won't see the pushback that you're going to see in the major metropolitan areas. If this type of package comes to them, I think they'll view this as a net positive. So we'll see how this continues in Tulsa. I'm happy for the folks in Oklahoma. Sounds like this is going to be a good partnership for them. You know, there was another article this week about data centers and this is kind of took the opposite end of the spectrum, Stephen, where Maine lawmakers passed a ban on large data center construction. So it's the first state, state across the country that has effectively said we're not going to allow data centers to, to be built here. Now you can turn this into, you know, a political back and forth of, you know, this is a Democratic controlled state legislature, yada yada, Yada. Now this isn't in a perpetuity. It effectively, you know, says they can't do anything through November 2027. Now the lawmakers are suggesting this just gives everyone time to assess the risks. Risks to the environment and to the electrical grid, et cetera, et cetera. I'd love to get your thoughts on this. Like I, I think we've seen this play out across the landscape before where certain states take super aggressive proactive steps to try to prevent things from coming their way, which just creates outsized opportunity for the states that are willing to take these projects on. I don't know if this is the case here because of some of the things we've talked about on the downside, but it feels like if these states just, you know, say we're not going to have you come here, it's going to just mean that some other states get to be the winners. When these things decide to build, where
- [41:45]
C
they're, where they're located is the opposite of NIMBYism. YIMBYism. Yes. In my backyard. Yeah, I think that's definitely going to happen. Though I would say in the broader context, the Federal Energy Regulatory Commission is supposed to be weighing in on this grid interconnection issue, which could be an even, even bigger, I think, kind of overlay for the Federal Landscape, the U.S. landscape for data centers. So the Federal Energy Regulatory Commission or the FERC was supposed to rule by April, basically saying how the grid interconnection should be permitted for data centers given how much they're consuming. But they've pushed that out now until June. And I think behind the scenes, my guess is big tech is weighing in and a big, big way and how this guidance gets passed. But effectively regulators are weighing how to connect these projects without pushing up consumer power bills or creating grid reliability problems. So one idea under discussion is making some data centers bring more power to the table than just relying on full fully on the existing grid. Which is exactly what you saw with that meta project, which is why perhaps this FERC guidance could end up being a non issue. I think really it's in big tech best interest to tackle this proactively. And that meta deal highlights that that's exactly what they're doing. So I guess in a nutshell, what it probably means is the cost for some of these projects will be pushed up incrementally. But I suspect that's already happening behind the scenes given the amount of natural gas turbine demand you've seen. It's like I think a three year lead time now for ge, I think GE is the largest producer of these natural gas turbines and most of them or a lot of them are going to, to data centers. So they have this really healthy backlog of turbine orders. I don't know how much that's going to carry down to the bottom line for GE and if that makes it an interesting stock play. But yeah, the couple of times when I've heard some of their folks talk about order pipelines and profitability projections sounds really, really good.
- [43:56]
A
I'm actually excited that we're kind of hitting this dialogue and people are starting to take, take pretty strong positions on both sides here. Because if, if we take a step back, what do we think about the electrical infrastructure across the U.S. i mean like the power grid is archaic and you know, we finally got something on the demand side that is forcing these entities to have conversations and start the dialogue and actually contemplate how we solve for the, the challenge. And I think it's going to be painful and that the data centers are obviously going to be the developers here. Guess what? News flash, people don't like developers. On the broad spect, they're going to take the brunt of this. But I think this eventually gets us to a much better stable electrical grid and with capacity that we would otherwise never achieve if we didn't have these, these developments pushing these lawmakers and others to actually effectively deal with these issues. And so this will be an interesting day. I mean I for our listeners that are maybe tired of hearing about data centers, we apologize in advance but at the same time time these are very relevant stories because as we've mentioned they're changing the layout, the structure, the approach to how CRE development is being done and it's sector wide. So more to come on this. We'll have plenty of back and forth. I think coming out of the Trep Connect conference we'll have a lot of sound bites from that panel around how people think we're actually going to, you know, deal with some of these things in the immediate future.
- [45:26]
C
One last story we have here on data centers. Speaking to just the wealth of stories we've seen here. We have Google linked data centers selling a record 5.7 billion in junk bonds. This news being reported by Bloomberg. So data centers linked to alphabets. Google are seeking to raise 5.7 billion from a junk bond sale and what will be the largest deal of its kind to finance the artificial intelligence build out. Boom. Morgan Stanley kicked off the marketing and is expected to price those notes very soon. They haven't priced them already. So the proceeds will fund the construction of two data centers on a campus in Sullivan County, Indiana, which will be leased to cloud computer startup Fluidstack and backstopped by Google. The rapid expansion of AI has created an unprecedented shortage of demand center space, graphics processing unit chips and quick access to electricity to power all of it. So to fund that, the companies have tapped every corner of debt markets from junk bonds to project finance. So at 5.7 billion, this deal marks the largest US dollar junk to test investor demand for data center debt and the biggest to be led by one Wall street institution, Morgan Stanley. According to Bloomberg compiled data, the deal would mean the bank beats its own prior record for a sole LED high yield bond offering for cryptocurrency miner Terra Wolf, a deal that was also backstopped by Google. So really, really good news for Morgan Stanley here.
- [46:53]
B
So let's close here with our deals and data property types type segment. We had a lot of trading alerts this week that we sent out to our trip clients. You would have seen those emails through Tripwire. So if you're not a trip client and you're curious to find out what these stories were, send us an email to podcastrep.com but I want us to talk about multifamily here. We saw sales across the country. San Francisco, New Jersey, Florida. So Lonnie, let's do a rapid fire on some of these headlines.
- [47:22]
A
Yeah, so San Francisco apartment Property sold for 105 million. Bridge Capital Partners paid just over 432,000 per unit for the 243 unit Sunset Towers apartment property in San Francisco. I think you're going to start seeing a lot more positive stories coming out of the Bay Area given where we are with AI. Multifamily office acquired the property at 8 Locksley Avenue from Avalon Bay Communities as highlighted by Kidder Matthews. Financed in part with 78.75 million Fannie Mae loam with a five year turn that pays at a fixed rate of 5.34%. On the East coast we had apartments near Princeton, New Jersey. Sell living residential paid 115.9 million or 386,000 per unit for the 300 unit Woodmont Forge apartment property at 100 Forge Circle. This is in Pennington, New Jersey just outside of Princeton. The Lakewood, New Jersey investor acquired the property from Woodmont Properties of Fairfield, New Jersey. So a whole lot of New Jersey going on here. In a deal arranged by Sage Investment, real estate advisor TIAA provided 74.4 million of mortgage financing for this transaction. And then lastly, this one. Maybe not such a great story, but Precedent Asset Management has filed a foreclosure suit against the owner of the Captiva Club, a 361 unit apartment complex in St. Petersburg, Florida. Fun fact, my high school senior trip was to St. Petersburg and all of us Texas high schoolers thought we were in heaven until we got there and realized that Everything closed at 7pm no joke. The local real estate company which filed its suit in Hillsborough county circuit court on April 10, claims that Sinatra and Co. Real Estate owes 45.9 million on a delinquent loan used to finance its purchase of the property along with regular and default interest. Sinatra of Buffalo, New York paid 45.74 million for the apartments in September of 23. That lined up a $47.5 million loan from City National bank of Florida, Florida, which precedent asset assumed last August. So Stephen, this is one of those where you buy a property, you take out more proceeds and financing than what you paid because you're going to do some sort of value add, I would assume. And it seems like they've been unable to execute on that. And so this is one of those stories where you see pricing, financing and execution not lined up. And guess what happens when that happens? Foreclosure. Sure. Yeah.
- [49:51]
C
The end of the peak.
- [49:52]
A
Right.
- [49:53]
C
If you catch things at the wrong end of the cycle and you leverage up, it can be a very quick negative outcome. And unfortunately, that's, I think, what you're seeing play out here for, for context, when this property was purchased back in 2023, the loan that was retired on that property was 21.27 million. So that kind of gives you an idea of roughly what the AS is ltv, you know, would have been as stabilized versus the value add and as stabilized pro forma projection that was underwritten in 2023.
- [50:26]
B
All right, so let's move on to some programming notes. If you're listening to this right after we released it, you still have time to join us for our Market Pulse webinar on Thursday, April 30 at 2pm Eastern. We will be covering CMBS, loan maturity outcomes, extensions, payout offs and unresolved balances across vintages and property types. We'll be doing a deep dive into the retail commercial real estate market looking at delinquency trends, valuations and where stress is and isn't emerging. And we'll also do a deep dive into geopolitical risk and the impact on commercial real estate. So send us A note to podcastrep.com if you want access to the webinar and you would like to join us and Lonnie mentioned it earlier but but we are less than two weeks away from Trep Connect in New York City. This has been our conference that we've been talking about for several months now. On this podcast taking place May 6th through 7th in Rockefeller Center. We have sessions, panels, keynotes, a networking reception with a with a casino night, food and drinks and we're so excited to see so many of you there. As of now, we probably have 15 tickets that we can still sell because the room is filling up. So so if you want to join us, please send A note to podcastrep.com we would love to host you and meet you and you can meet fellow podcast listeners and real decision makers across the commercial real estate industry. So we're so excited to see everyone and hear from our exciting panelists and speakers. Turning to shout outs, our friend at Macro edge, known as Mr. Awesome said he's looking forward to Trap Connect in May. The Macro Edge crew will be joining us. There's and he has a discount code if you're interested in signing up. So reach out to Matt the Macro Edge crew for that. Danny S. Is a longtime loyal listener of the podcast. He listens weekly and has never missed an episode. He works in credit risk with a focus on Cecil and stress testing and was interested in our Taller, which is our Trep anonymized loan level repository reports about the bank commercial real estate market. So he was interested in seeing some of the reports and talking with our team members to learn more about the format and level of detail we can provide for comparison and benchmarking purposes. So thank you so much Danny for being a listener and we're excited to share our banking information with you. Richard H. Gave us feedback on our episode with Justin Kennedy, the co founder and managing partner at 3650 Capital. He said it was a great session showing superior insight and a very helpful long view perspective on secular shifts. He did ask why we didn't talk about their most recent transactions. So Richard, we might just have to get Justin or another member of the 3650 team back on the podcast to dig into that on that one.
- [53:16]
A
Hayley I did want to say we did talk about that off air before we started the podcast and I think that's why we didn't go back to it when we did the recording. So apologies on our part of having some off the record discussion and not sharing that with the audience, but I'm sure we can get Justin or somebody on to give us some details on that for the broader audience.
- [53:37]
B
There's only so much we can cover. Sometimes these shows run an hour and a half and then we have to cut it down. But thanks for the email. Evan S. Is a friend who is who we're excited to see in New York City. He said he'll be getting to New York City on Sunday and staying through Sunday, so hopefully we can all get dinner one night when he's here for Truck Connect. Mike W. Plans on attending our webinar and appreciated the podcast with Justin Kennedy. Charles Q is joining us for our May event in New York City and is looking forward to meeting our team. Michael P. Reached out and said he enjoyed last month's Marketplace webinar and he had some questions around the series CLO segment that we covered. He shared some insight and then then mapped out some questions for us. So Michael, we will make sure to get back in touch with you and walk through what we're seeing in the CRE Cielo market and show you how to access all the insights within our platform.
- [54:34]
A
A couple shout outs this week Haley for me, we've had some outreach from a couple of different valuation groups over the last month or so that have asked me to come and do some presentations for them. So I'm really looking forward to some of our clients getting to see them face to face and get to meet them on a personal level and walk through how our data and insights are going to be able to help them continue to do what they do at a very high level. So we appreciate all the support and definitely are available to to do what we call, you know, road shows or house calls in your office to kind of highlight how our data and tools can continue to help people be more efficient in their day jobs.
- [55:11]
B
And with that we'll close. Thanks to our producer Carly Sento. Join us next week as we look at what's happened during the week and how it may be impacting you. If you have a question or just a comment, send an email to podcast@trep.com and subscribe to the TrepWire podcast with your favorite provider. Thank you for listening and stay well.
- [55:30]
C
All right.