← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
395. Structure, Scale, & Liquidity: What’s Driving CRE Right Now (and Mall Ownership 101)
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Foreign.
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Welcome to the Tripwire Podcast, the show where commercial real estate needs data and insights. This is our week in review for the week ending May 8, 2026. I'm Hailey 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 we're recording a bit earlier than normal since we'll be at our TREP Connect in New York City conference all week. So instead of reacting to the latest macro headlines as they come in, we wanted to take a step back and focus on a few key themes and stories that we think are really shaping the market right now. This week we'll still bring some fresh data into the conversation, including our latest look at CMBS delinquency rates. We'll also dig into the data on retail originations over the past year to understand where capital is actually flowing. On today's episode, we'll also spend some time breaking down a few bigger picture stories from what we're seeing in large scale, multifamily strategy and capital positioning to ongoing pressure points in private real estate vehicles. And then we'll get into one of our 101 style segments to break down how mall ownership is actually structured and why that can create real challenges when it comes to control redevelopment and even how loans are underwritten. So Steven, instead of our usual macro rundown, let's have you zoom out for our listeners. If you had to frame the market right now, where do you think the real tension points are and where are you starting to see opportunity emerge?
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C
Well, I think the market is still giving us a lot of the same big themes we've been talking about recently, such as liquidity, refinancing, pressure, and the advantages of scale. But the story is getting more specific. In a few instances. It's less about saying Siri is broadly under pressure, it's about about identifying where those pressure points are showing up. And is it like a redemption queue, a refi gap, a fund structure, a borrowing base, an ownership structure where control of the assets is more complicated than it looks? I mean, let's face it, like, it's always a combination of these two tensions, but the headlines are telling us about the broad space. But then when we dig in to the micro level, what's actually happening at the asset level? So for like the NDFI and Avalon Bay stories, I mean, those are good ones. NDFI lending right now has been in the news so Much. And the question is not whether banks have exposure to private credit broadly. I mean, we know they do at some level. So it's a really true question of what exactly that exposure is like, what type of risk spectrum are we looking at here and whether it actually transmits into losses. That's the key point that I think a lot of folks are missing here. It's not necessarily like the size or magnitude of exposure. It's exactly, you know, what the loss transmission is going to look like. Because folks forget a lot of times that a lot of these bank loans are super low leverage. So, yeah, you might see it translate into distress, but it's not going to translate into losses. Now, with Avalon Bay and Equity Residential, this one is not just about how scale wins the day. It's that large owners may be using this slower growth environment to position themselves for the next cycle.
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Right.
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We're always looking forward and planning and trying to get tactical. So I'd frame this week around structure, control and optionality. The real estate itself is only part of the story. The bigger question is who has the flexibility to wait, who has the capital to move and who is stuck reacting to pressure inside the structure they're already in.
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You're waxing a little poetic there at the end, Stevens. I think these themes have been top of mind for us. I like the way you framed. It's not the size or the scale of the, you know, some of these ndfi, you know, loans or the private credit markets or whatever, it's what's going to translate to losses. I mean, I think the opaqueness of some of that lending environment leads itself to big, broad headline proclamations where people confuse having some increased size in that market as, you know, being inherently negative. And the reality is really what we're concerned about are the losses. And, you know, we track that in the CMBS world very clearly. And what we've seen is with some of these extensions, modifications and other things, some loans are still unresolved post maturity, but we're not seeing huge losses pile up. And so I think we'll, you know, we'll dig into this. We, we did talk a little bit about this on last week's podcast and so, you know, the timing is great. I think the Avalon Bay and Equity, you know, talk about a headline. I mean, that's an incredible headline. I think when everyone saw that come across and then we started seeing some of the articles and everything written about it, really intriguing, that has a lot of implications. There's going to be people supportive of that. We talk about scale. That's creating some scale. You're going to have some people that are definitely against it with some of the pressure that's being placed on creating more affordable housing, et cetera, et cetera. So a lot of stuff to cover this week and I'm looking forward to digging into it.
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So Lonnie, one of the headlines that may not have made our normal reel this week, but I feel like we should hit right off the bat is a shout out to Christopher Waller here for something he posted on his LinkedIn. Get this, he was celebrating his 67th birthday and he set a new personal best in the gym with weights. He deadlifted 365 pounds. Beast mode.
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Yeah, that's pretty impressive man. I think from now on when they quote him after every meeting or before every meeting, they need to just put in there as PR for deadlift. Like just have an asterisk at the bottom of the article. It's like 300 plus pound deadlift at, you know, whatever. 67 years old. Pretty impressive dude.
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Yeah, if I tried to do that I would rupture a disc in my back. I mean it was, it was impressive. So we might have to repost that one. That was, that was pretty cool.
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Well, when I say missing next week's podcast, Stephen Bush bombed deadlifting injury.
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I don't think the titanium in my lower spine will hold up to that. Now in all seriousness, probably, you know, one of the largest lifts this week if this actually happens, was the Avalon Bay Equity Residential potential combo. This was based on some confidential sources reporting to to Bloomberg, but supposedly they're exploring a potential combination. Both these companies are roughly $25 billion market cap apartment REITs. And so the combination would be absolutely massive in scale. So Avalon bay has about 100,000 units across more than 300 communities in 11 states. Equity Residential has more than 85,000 units across more than 300 properties in six states. So the combined entity would have especially meaningful exposure in major coastal markets and Sunbelt markets. With both companies presence in New York and California. Equity also operates in states like Texas and Georgia. Now the timing is notable because apartment landlords have been dealing with slower rent growth post Covid and dealing with that supply wave that's still in process of burning off. Share performance reflects that pressure. Over the past 12 months Avalon Bay shares are down 11% while Equity Residential is down 5.9. Though this seems like an obviously great combination, as we all could imagine, this deal will likely face heavy antitrust and political scrutiny. Not just because the size here, but because of the housing affordability issue, that seems like it's, you know, getting headlines daily and weekly. So this is still very, very early stage. The companies haven't confirmed, and this is based on just confidential reporting or confidential sources close to the matter. But if Avalon Bay and Equity Residential were to combine, it would be a landmark multifamily deal, partly a scale story, partly a capital market story, partly a signal that even the biggest apartment owners are thinking hard about how to position themselves after the supply wave and slow rent growth over the past few years. So, really interested to get your take on this one, Lonnie.
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Yeah, you know, on this, this story, Steven, because of the scrutiny that it might come under, it makes me, you know, wonder if this leaked on purpose. Right. Just to kind of get a sentiment check of, of the marketplace, because, you know, these are two of the most notable multifamily REITs in the, in the space, as you mentioned, sizable exposure across multiple states in the U.S. and brand names that everyone immediately recognizes as large multifamily players. And so I think they kind of want to see what this looks like broadly if people are receptive of this or if this gets immediate pushback. I mean, it makes for a pretty behemoth company. If they were to combine, I don't know, though, necessarily how this improves either of their positioning in the market. I mean, by combining, okay, these, these folks have already crossed over that scale threshold at 85,000, 100,000 units. You know, having an additional 85 or an additional hundred is not going to dramatically increase your, your economy of scale. You know, it'll be interesting just to see how this plays itself out. The pressure that they're facing is not unique to them. But if you look at it, and this is the part that just maybe puzzles me a little bit, is I feel like we've kind of come out of the worst part of the multifamily cycle. I mean, the supply pipeline is significantly red the next couple of years, and the new construction that was delivered over the last couple of years has, by and large, in most markets, started being fully absorbed. And so you're seeing at least a stabilization of occupancy, maybe not near peak occupancy. Still have some concessions. Like, those things are still noteworthy. But it's not like people are wondering, how bad is this going to get? Like, I think we've at least stabilized to a level where you generally know what to expect, and you can plan for modest occupancy gains and rent growth. So, you know, there's there's maybe more to the story here. I haven't looked in their filings and seen what their debt loads are or seen if there's anything else with each of them or are together that would, you know, make this synergistic or create, you know, sizable opportunity that I'm maybe not seeing in the headlines, but it's definitely a story worth watching because this would by definition create a very, very large conglomerate of multifamily operators.
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Yeah, I'm guessing there's still a little bit more to this story that we don't yet know and can't fully appreciate. I got to say though, I do love Avalon Bay. I've loved them for a long time, love that strategy, the way they're positioned in the market, looking for kind of that mid upper tier property level, high barrier to entry markets, areas where they can really grow rent. So it was a little bit surprising to me to see Avalon Bay pop up, you know, here. Which is why I can't help but wonder, is there some other motivation that we're not hearing about or that we're missing? Because like you said, the scale is already there. We're already at critical mass. So are we potentially pushing too far past that apex and maybe even getting a little bit cannibalistic here?
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Or are they, are they wanting to grow into a nationwide platform? I mean, if you look at the geographic dispersion Here, you know, six states for equity, 11 states for Avalon Bay. Total number of units are impressive, number of apartment complexes or communities impressive, 300 each. But they don't have a full representation across the US and you know, I guess if I were to take the other side, you know, kind of going against what I just said because of where we're at, maybe they're thinking this is a really great opportunity with their combined knowledge and operational skills to come in and buy in some of these markets where they don't have exposure. And as a combined entity, that would create even cheaper capital costs, et cetera, for maybe a large scale buying spree.
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Now, one headline that I gotta say, it definitely falls in the crabgrass camp was Starwood was halting redemptions at esrit, saying that now is not the time to force sales. Now, this isn't the first time we've had some redemption issues with esrit, but right now, I mean, this is a much more extreme action to take. So Starwood has halted redemptions, not just gated them or scaled them back. And as I mentioned, Barry Sternlich has framed this frame, the move, as a way to avoid forced asset sales. His argument is basically that the real estate is performing. But the fund structure is under pressure because investors keep asking for liquidity faster than the market can reasonably provide It s REIT is also cutting its annualized distribution rate for Class 1 shares from 6.3% to 4.7%, which is another sign the fund is prioritizing liquidity preservation over near term investor payouts. Starwood said Esreit's portfolio still looks relatively stable, citing 5.1% NOI growth in 24, 1.5% growth in 2025. Despite multi family headwinds, the portfolio is heavily weighted toward apartments with 598 properties valued at 22.4 billion, 94% occupied with more than 63,000 apartment units representing about 71% of allocated value. Now this is part of a broader non traded REIT story. These vehicles offer investors real estate exposure with periodic liquidity. But once rates jumped and investors wanted cash back, the redemption gates became the pressure valve. SREIT had already been limiting redemptions since late 2022, cutting its cap as low as 0.33% of NAV in June of 24 before later raising it to 1.5% of in June of 25. But now Starwood is taking that a step further by just suspending redemptions outright. Blackstone's B REIT went through a similar redemption squeeze, but its redemption requests eventually declined sharply. And the article suggests that SREIT has really become that main remaining backlog story in the non traded REIT market. Now a secondary market dynamic has emerged here with firms like McKinsey Realty and Saba Capital offering to buy SREIT shares at steep discounts roughly 22 to 25% below estimated value. Showing how illiquidity can create a gap between stated NAV and what some investors are willing to accept for cash today. This is just a reminder that in private real estate funds, liquidity is not a free feature. Starwood's message is essentially that they'd rather pause redemptions than become a forced seller in a market where pricing still feels soft. Now that may protect long term value, but for investors who want cash today, it makes the gap between NAV and true liquidity feel very real.
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Yeah, I mean I, I don't, I don't think this is anything that's net new here. I mean like this is the, this is what you get when you invest in a private non traded fund. I mean like this is part of the, this is part of the equation. I mean like the benefit you're getting is that you're getting highly trained professionals like Starwood and Blackstone to acquire, manage and operate these properties to produce reasonable returns in exchange for not having direct and immediate access to the cash. Right. And so, you know, I'm with, I'm with the stern lick position here. Like I think, you know, for all the reasons we just said about multifamily, like we're finally starting to come out of, of the softening and in a lot of markets we were pushing past that fairly aggressively. Now's not the time to be a forced seller, you know, and it's, you almost have to, you have to trust the, the judgment where you've placed your bets when you made the investment and let them operate like they're supposed to. I understand things happen, life happens, people want to cash out. You know, this whole secondary market, I'm surprised that that's not more mature at this point, honestly. I mean, because you, you have seen this for now, a couple of years. I mean, I think B RE and Starwood have been limiting redemptions, like you said, since at least 2022. And I wouldn't necessarily look at that delta between what, what they're, you know, getting from a discount perspective on a secondary market. Like obviously those are the investors that are cash strapped or want out to the point that they're willing to take a 25% haircut. I don't know that's necessarily indicative of market value. It's an interesting dynamic. I think what we'll see is you'll probably see operating agreements, fund terms, other things changed at some level because of the backlash year. But at the same time, I think for both of these, they're at, you know, Starwood 22 billion, 94% occupancy across 63,000 apartment units. You're not going to get better than that somewhere else.
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When you sell these assets. It's not like you can just go buy something equivalent back, right? I mean we live in a scarce yield world. So when you get assets that you love, you hold on to them and you don't want to become a forced seller of those. So I'm, I'm with you guys like Barry is drawing the line in the sand and holding to it because he has that long term conviction and is a long term player. And these REITs are designed as longer term investment vehicles that can offer moderate short term liquidity, not full short term liquidity.
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If you look at, just go to a definitional perspective in our textbook of dust, right, Demand, utility scarcity and transferability, those are elements that create value for, you know, real estate properties, and especially in commercial real estate property, and the fact that these are illiquid assets actually creates some intrinsic value for them. And when you're a forced seller, that goes out the window. And as evidenced here on the secondary market, you're seeing 22 to 25% haircuts. Like, not a good strategy. I'm team. Team Starwood.
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I'm team. I'll provide liquidity at that sort of a discount. More than happy.
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Yeah, for sure. Yeah. I mean, that's what I'm saying. I'm surprised that that's not been more prolific here because if these guys want out that bad, yeah, I'll take all that I can get at a 25% discount.
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Yeah, I would expect that gap to narrow here in the future. Like I would expect 10, 15% to maybe be a normal discount. 20 to 25 seems a little bit extreme. So we'll see how this plays out. All right, Lonnie, so a new headline just came across the desk here, and I want you to guess the property sector. KKR is launching a $10 billion firm. What sector?
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Let me get. I don't even need three guesses on this one, Stephen, because, you know, I remember when KKR started launching their industrial firm, industrial funds or industrial firms probably four or five years ago where they were going all in on that. I'm going to have to go with AI or data center because, you know, it wouldn't be a tripwire podcast week if we didn't have some breaking news around AI and data centers.
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That's it. 10 billion to launch Helix Digital Infrastructure. With this company being focused on AI infrastructure and data center development. Shocking. Another player.
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Welcome to the club. Welcome to the club.
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Now here's where it gets interesting, I think is that the company will be led by Adam Solipsky, the former CEO of Amazon Web Services, who is now a KKR senior advisor. Call me crazy. I think you have probably one of the best of the best in the industry at the helm here. So KKR's global head of digital infrastructure will serve as the chief investment officer. So I like this combo. I really, really like it. Helix plans to work with large scale cloud providers to design, own and operate data centers. But the broader ambition also includes power generation and transmission. What we've talked about in the past podcast is critically important for these, these projects to succeed. So that power angle is particularly important because, well, as we've mentioned on numerous podcasts now and various settings, the power is generally issue number one. As you're seeing states like Maine just prohibit outrights and other states having multi year queues to get in the development pipeline. Now here's where it gets, I think interesting is when we zoom out and look at the relative scale this industry has grown into. Private equity reportedly invested more than 108 billion in data center deals in 2024, with investment potentially reaching 635 billion by 2028. The scale of this is exponential. It's vertical. It's insane. KK already has exposure through Cyrus One, which it co owns with Global Investment Partners, and they're reportedly in talks with the US army to build a data center in Utah. Blackstone is making a similar push. It already acquired QTS realty trust in 2021 and has grown that platform significantly while also planning a new public company focused on acquiring data centers.
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Yeah, I mean, when you start putting those numbers together, you know, 108 billion in 2024 and estimates at 635 billion by 2028. I mean, this is incredible. I mean, it's unlike anything we've seen before. I agree with you. I think the combination here is solid. You know, obviously Solipsky, with his background at Amazon with AWS and KKR, with our already exposure through Cyrus One, like this is a good combination. And there's this insatiable appetite for this property sector right now. I think where I could add some value here is I want to get on the naming committees of some of these funds. So, you know, when they say Helix Digital Infrastructure sounds so. Helix Digital Infrastructure, I looked up what the meaning of Helix is. So if you didn't know, Stephen, Helix means a three dimensional spiral or coil shape that winds around a central axis at a constant distance. Sounds kind of like a data center has a data center vibe to it. We'll see what happens. Look, KKR is another one of these firms. They're across the spectrum. They know what they're doing, they're professionals. 10 billion for them, it's a big number. But in light of the investment last year in 2024 and what we project, this is just another drop in the bucket, man. I mean, it's just my brain is still having just a hard time understanding how every single transaction is, you know, multibillion dollar type of deal. It's just really remarkable.
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All right, Steven, so let's get into the meat of our show here today. We wanted to talk about a specific topic around malls and retail. And this is really about why the mall owner often does not own the whole mall. So when people often Think of a mall, they picture one owner controlling the entire property. The Macy's, the JCPenney, the food, the inline shops, the parking lots, everything. But structurally, many traditional regional malls are more complicated than that. So can you walk us through the different ownership interests that may be tied together and how this all works?
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Yeah, this is, you know, really interesting because certainly as a kid growing up, when you go to the mall, like if somebody asked you, you know, what does the person that owns the mall own? You would just naturally think all of it. But the traditional structure of an enclosed mall typically has three components. There's the anchor stores, the inline space and the common areas and the parking lot. Now with the anchor stores, that's your Macy's, JCPenney, Dillard's, Nordstrom, Belk, Sears, all of those big household names that sit on the corner ends of the mall that bring the foot traffic, the inline space are all of those tenants on the interior part of the mall. The apparel, jewelry, shoes, beauty, quick service, food, specialty retail, all of those fun, fun retail tenants. And that's really where the mall owner, believe it or not, that's where they make most of their rent. And then you have all of the common areas and the parking. So the corridors, entrances, the loading areas, the shared parking fields, signage, utilities, all of that infrastructure that ends up getting actually pretty complicated and is typically governed through shared agreements. Anchors, typically in your traditional mall structure, own their own real estate. And this gets down to the economics of mall development. So let's think about when this land is acquired. When many of these malls were built, the department stores were the traffic generators. So the whole pitch was, okay, if we get a Macy's, JCPenney's, Sears or Dillard's to commit, then the developer can lease out those smaller stores around those larger tenants, but they're leasing out those smaller stores at a higher rent. So the anchor was the magnet and the inline tenants were the monetization strategy. So because that anchor was so important, the developers typically give them very favorable real estate terms, which could mean selling them the anchor parcel outright. That's very, very common. Oftentimes you'll see that also structured as a long term ground lease. So yeah, the owner still might have the land underneath the big box anchor, and they're leasing it out to the tenant that actually owns their phys real estate. Often if they are paying rent, it's typically a very, very low rent. And this is really important here. Often the anchor tenants have very strong control rights over changes to the mall. This includes allowing them to Approve redevelopment, new uses, parking changes, or exterior modifications. So at the time a lot of these malls were developed. Think like going back from the 50s through the 90s, you had a lot of malls developed, like 60s, 70s, 80s. That made a lot of sense for that retail environment at that point in time.
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Right.
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The department store's presence was the critical mass that made the project feasible and financeable and help attract the foot traffic for those inline tenants. But things have changed, right? The old narrative used to be, all right, the anchor tenant, we're bringing everything, so we get control. We want to pay a lower rent, right? We want to have very, very strong involvement here. And the mall owner said, fine, we'll let you control a lot of these aspects. And we're going to charge really attractive rents to those inline tenants. But with the growth in E commerce, this relationship and the economics have well been tested when it comes to like the rents. I mean, I've seen the anchor box rents, if they are paying for the space, I mean, as low as like $4 a square foot, we're talking like almost warehouse type level rents. And then the inline space could be like 20 to $50 a square foot. Like 20 would be cheap. It's really common to see some of those smaller tenants, like especially 3 to 5,000 square feet. You could see those rents hit 40, 50 bucks a square foot. And so you're monetizing that in line space to a massive degree. So, Lonnie, why don't you walk us through like the ground lease versus owned anchor box structure here?
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Yeah, happy to. But I think on the inline space in some of these malls, if it's a class A mall with like an Apple store, you're seeing those inline rents even higher than that. I mean, you can see triple digit rents for sure. And some of them are structured where, you know, they have a base rent plus a percentage of sales. And I've seen some of those large, big boxes as low as $2.50 a square foot. They used to have all of the power. So, you know, you brought up a common framework of ground leases versus owned anchor boxes. And so typical commercial real estate fashion. You have a couple of different flavors of this, right? So in one, the anchor owns the building and the land beneath it. So like, that would just be the anchor owned box and they would own the land. And they like that because it gives them control. It gives them control of their property taxes, it gives them control of their insurance, it gives them control of generally parking, signage, all of those things. It gives them a lot More autonomy. And to bring this to like the CMBS world, you'll actually see a lot of those as non collateral components to the loan. Right. So when you go through the prospectus document, you see like what is actually serving as collateral for a mall loan. Those owned anchor tenants are not part of the collateral, even though physically they're part of the mall. You know, another version, the mall owner owns the land. This is where you get to the ground lease. But the anchor has a very long term, you know, ground lease in place that allows them to build the building. The ground rent is paid to the building owner. The anchor would still actually own the physical building itself, but it would be subject to the ground lease. And I think, you know, we've seen this predominantly in the mall space and in urban downtown office where the economics make sense. I don't think this is necessarily as common as it maybe once was in the mall space. Sometimes the mall owner will own the box and lease it to the anchor. And then as you outlined, Stephen, when that's the case, it's usually at a very favorable rent because it's benefiting the mall entirely by having a big box anchor. One thing just to talk through this is regardless of structure, I think we've seen a shift in the type of anchor that people are trying to procure for their mall spaces now. So it used to be just the retailers, so the Dillard's, the Macy's, the Sears, et cetera. And now you're starting to see some of these experiential things brought into the mall where it's not just a retail component, or you're seeing something like Dick's Sporting Goods, which is retail, but it's not typical for like a traditional mall over the last 20 or 30 years. Like it's a dedicated sporting goods store. And so it's, it's an interesting construct. You, you mentioned the E Commerce. It has implications for these owners. And I think that having these multiple structures gives flexibility, but I don't think any one of them necessarily has prevailed as a predominant, best, highest and best use, you know, of, of owner tenant relations. I mean, depending on the market, depending on what the demographic is, depending on the foot traffic, you kind of go market by market, mall by mall to see which ones of these works best.
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C
Exactly. That's the beauty of real estate and commercial real estate specifically that I love so much is creativity is rewarded.
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Right.
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And that's how deals get done. So depending on what the hurdles are or what the underlying land and market economics look like, you get to structure around it for whatever makes sense for that specific tenant. High or low end of the economic spectrum or higher, low barrier to entry market.
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A
One thing I wanted to comment too, Steve, and I'll get your thoughts on this. You've actually seen one thing to just put it out there. We're not seeing new mall development anywhere close to the scale we saw in the previous decades for obvious reasons. Right. So we haven't seen like maybe what would be best today at scale because there's not a lot of mall development going on in the U.S. all right. Beyond that, what we have seen recently though is like remember when Zara and Forever 21 and a few of these, you know, they're not truly inline spaces, but they're not anchors. They might be like a, like an, a junior anchor, but in an inside the mall, you know, like Simon Property Group, they actually took an ownership stake in some of those tenants because they maybe had stores across 100 malls across the US and if they filed bankruptcy, that was not going to create a vacancy in one mall. It was going to create a vacancy in every mall. And then that was going to generate clause triggers and other things for dark space and everything else. And so you've actually seen some of these mall owners get much more aggressive and actually sometimes taken an interest or a stake in some of these retailers because the covenants, the terms, and I know we're going to talk a little bit about these reciprocal easements, but it also goes with co tenancy clauses and all of these other things go dark clauses that can get triggered. Malls are very complex even though they're somewhat archaic relative to today's development cycle.
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C
Yeah, who needs percentage rent when you just take an equity interest in the tenant? So you mentioned reciprocal easement agreements. Sometimes you'll hear them called reas. Now this is the legal agreement that governs how the separately owned pieces of the mall work together. So it can cover things like shared parking rights, access across the property, maintenance obligation signage, operating hours, use restrictions, approval rights for redevelopment, or what happens if an anchor closes or changes use. So that REA is one reason why mall redevelopment can be so slow and so complicated. Even if the mall owner wants to demolish part of the property at apartments, convert to an old apartment store to another use, or change the parking field, it may consent from other parties. So I just wanted to give a shout out back to one of our past episodes, episode 251 navigating the evolving mall space with Oscar Parra from Pacific Retail Capital Partners. Oscar talked specifically about some of these issues with the strategies they're taking to redevelop and densify some of the malls that they own. So if you haven't listened to that episode, it's a really good one that deals with a lot of these topics. That's episode two, 251.
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You know, it's, it's actually an interesting concept of these redevelopments Stephen, because if you look at every single mall in America on an aerial image, the first thing you noticed is they are grossly over parked. I mean by some multiple, every single one of these sites has the ability to generate density add pad sites, create new value combat some of the E commerce, et cetera, et cetera. But they just can't for the reasons that you just outlined. And it's, you know, that's one of the, it's, it's just this weird chicken and egg in the sense that you had to these in place back then when these were developed in order to get all of the anchors and inline and everyone to play nice and it all to work the way it needed to work in that structure. But it is a huge handicap for you as a developer today where you have sites that by definition have good visibility, access, parking, signage, all the stuff that's needed to drive retail development. But you can't actually develop it because you have these legacy reciprocal easement agreements and other things that effectively make it very, very challenging to navigate.
- [33:37]
C
Well and in fairness, if we think Back to like 15 years ago, right, when E Commerce wasn't taking as big of a bite out of some of these properties, the mall anchor would say look, we need every last one of these parking spaces just for these like you know, one week out of the year periods where we will be fully parked. Right. And if this location comes off as, you know, having an insufficient number of parking spaces, we're going to lose out on a massive amount of our annual business during this really short period. And it's, it's really only been, it's crazy to think about it, but it hasn't been that long where the dynamic has evolved that dramatically.
- [34:17]
A
Yeah, it's fair. And I mean listen like to your point, a lot of these storefronts make a disproportionate amount of their revenue in like a 60 day window around the holidays. And you need those parking spaces. And listen, it's frustrating. We've all been to the mall where there's no parking available and that's not a place where you want to be. However, if you own them all, you would Gladly exchange some of that rent that you might have to forego for those, those anchors in exchange for executing a ground lease with an apartment complex or a medical office facility or a bunch of restaurants or selling off some pad sites like it's an interesting dynamic. I think someone will come in and kind of figure out how to navigate that for some of these really poor performing malls. The last thing you want to be is a tenant in a mall that has some protections in place but no traffic. Yeah.
- [35:06]
C
So the really interesting angle for where we're at today because of how just dramatically the landscape has shifted over the last 15, 20 years is it's not just about like who the anchors are, but it's also who owns that anchor space, who controls the land and what rights do they have. So some of the most successful retail players out there that are focused on malls and specifically mall redevelopment or mall repositioning are wizards experts at asking the right questions here and navigating the challenges. And you know, honestly, during the due diligence problem, if they see that they won't be able to work around some of these issues. The deal is a non starter. It doesn't pencil. But yeah, you, you kind of have to cut your teeth very thoroughly in this space to see kind of enough, enough of the examples, the commonalities across these deals to fully appreciate complicated these deals can get.
- [36:07]
B
So I think that was great coverage of how malls are often more complicated than they look from the outside. Stephen, we have a really good case study here actually. And that's the North Shore mall in Peabody, Massachusetts. It showed up as the third largest loan in BMARC 2026 V20. But it also has this long CMBS history going back to the 2004 vintage. Can you walk us through why this mall is such a good example of how regional mall ownership actually works?
- [36:38]
C
Sure. I love this example because of how old the property is and how many times the property's had to reinvent itself over time. So this is a legacy department store structure. And the current push has been to reposition the mall into more of that experiential, mixed use, dining, fitness, entertainment type structure. So the North Shore Mall was developed in 1958 as an open air shopping center in Peabody, which is about 18 miles north of Boston and was originally anchored by names like Jordan Marsh, Filene's, Sears, RH Stearns and Stop and Shop. The mall was later enclosed in the mid-1970s and then expanded in the 1990s. And Simon became involved in 1999 when a Simon led joint Venture acquired the mall and Simon took over management. So that history matters, because malls from this era were not always built as one clean single owner box. Right? They were built around the anchors. And this one specifically wasn't even developed as an open air mall to begin with. So I mean, talk about a major redevelopment right there. But the anchor stores were obviously the traffic engines and that inline mall space was the economic engine for the owner. So the full North Shore mall development totals about 1.59 million square feet, but the 2026 CMBS collateral is 1.14 million square feet. The JC penny box, the main Macy's box, and Macy's men's and furniture box total more than 450,000 square feet combined and are specifically listed as not part of the CMBS collateral. Now, obviously from the shopper's perspective, it feels all like one mall, but as I just mentioned, it's technically not. So this loan was a great example of a loan that was too large to put in one single CMBS deal and it had to be split up, up. It's been put now in five different conduit CMBS mortgage pools. So part of the most recent redevelopment of this mall started back in 2017 around the Route 114 side of the property, which created the Promenade with outdoor dining, patio seating, restaurants and a community stage. Simon later added a Lifetime Fitness, a Tesla, a Golf Lounge, an L.L. bean, Sweetgreen and other experiential and service oriented uses. So, I mean, this new experiential push we say is new. It's really been going on for quite a while and Simon has done an excellent job at staying on kind of the leading edge of some of these trends. Now, we mentioned this mall has some roots in CMBS 1.0. This loan specifically was put in Elbub's 2004 C6. So I mean, this predates even some of the 2005 vintage stuff. This was vintage, vintage CMBS. And it accounted for roughly 195, sorry, 196 million, or almost 25% of that deal. So it's kind of cool to see it exit. CMBS 1.0 got refinanced out. Simon worked on redeveloping the mall, repositioning it, and then it got put back in CMBS back in 2026. So just to give you a sense of what the sales for something like this look like, I pulled out some of the operating history here. So if we look at the gross property sales on a per square foot basis, the trailing 12 months through September 2025 gross property sales were about $382 a square foot with an occupancy cost of 13.5%. Now, the inline sales for tenants less than 10,000 square feet were $484, almost $485 a square foot, with an operating cost just north of 16%. If you're looking at the inline space greater than 10,000 square feet, those sales dropped to $340 a square foot. The freestanding tenants were at $344 a square foot, and the major tenants are at $58 a square foot or an operating cost of 10%. So you can see just how, you know, dramatic the spectrum is in sales per square foot, depending on the tenant size and how that occupancy cost varies with square footage. Now, in terms of the rents here, if you're looking at some of those larger box tenants, like say the Shaw's supermarket or the DSW shoes, their rents are standing right around that five to seven dollars per square foot. Those are boxes, 40 to 50,000 square feet. Feet. The PGA superstore. This one stands out to me. It's on the low end. It's 45,000 square feet listed at only $2.50 a square foot. So I'm guessing I'm probably missing a little bit of the story there. Barnes and Noble, that's 26,000 square foot box. They're at $21 a square foot. And then if you look at kind of the remaining weighted average, the 563,000 of core inline space, the weighted average rents on that space are right under $35 a square foot. So to your point, Lonnie, you know, those rents can vary dramatically depending on the box size.
- [41:37]
A
Yeah, I mean, that PGA Tour Superstore there, there's no way they're paying 250 all in. That has to be some sort of a ground rent or some sort of a ramp up early, you know, first year lease, something, because that's so far below all of the other. It's half of the other boxes. But it highlights your point of that five to seven dollar range. It's kind of the going rate for these things. And I, I just wanted to. My great grandmother lived up in Massachusetts, so it's going to sound funny coming from a guy with a slow Texas accent, but I don't think it's Peabody. I think it's Peabody. Ah, Peabody.
- [42:12]
C
Yes.
- [42:13]
A
So we need our friend. We need our friend Scott B. To educate us on this or if we have any other listener friends in the Northeast that can tell us what. I'm pretty sure it's Peabody. So if it is or isn't, we just wanted to make sure we didn't sound too outside of the local norm there. But we would love an email or something to tell us exactly how to save. Say it correctly.
- [42:35]
C
Now there's one other tenant I don't think I mentioned here, Lonnie, that's coming to this property. It's the Dick's House of Sport. So it's Dick's Sporting Goods, but this is a new format form 138,000 square feet. It's more of like experiential retail. I think they have like batting cages, golf simulator, like rock climbing, some really cool stuff coming into this space, which I mean, I love. Right. Anybody with kids that needs to get them out and have them do something on the weekend, take them to Dick's House of Sports.
- [43:02]
A
Yeah, it's. It's a cool concept, you know, but I don't know, I don't know how well this plays because I think this is almost a retread at some level because I remember as a kid some of these sporting goods stores had the same batting cages. They had like a golf simulator, they had archery lanes, they had things where you could do that. And what's difficult in that situation is you have to have staff to, to manage that part of the business. And a lot of times people do exactly what you said on a weekend. They take their kids to go do the rock climbing for an hour, but they're not buying anything. So it's, it's a fine line. Like you want it to be experience experiential, but you don't want it to be a destination without sales. Yeah.
- [43:37]
C
Operating cost starts creeping.
- [43:39]
A
Yeah.
- [43:41]
B
So even on an off week, guys, we still have a lot to cover and we wanted to do a digging through the data segment and a few others, but we don't have time today. So we'll save those for an upcoming episode. But before we move on, I wanted to add in our programming notes that we did just release our Trep CMBS delinquency report for April 2026 and the headline is only that the rate decreased 1 basis point to 7.54%. But maybe you guys can just do a quick run through of the headline numbers and any of the details that stand out to you.
- [44:14]
C
Well, the headline rate was super boring. In fact, we wanted to make that the title for it, but I think we'll put that on LinkedIn. So the headline rate decreased by 1 basis point to 7.54% but the underneath was a little bit more interesting. Specifically we didn't see as much of the wave of non performing forming matured balloon loans taking over the newly delinquent share. In fact 40% of the newly delinquent loans were actually 30 day delinquent loans. So this could be just you know, a temporary blip short lived. But to see those term defaults or non maturity defaults take over the newly delinquent share was interesting to see. And then the property types we did have a fair amount of movement. Industrial increased by 31 basis points, lodging decreased by 79 basis points, multifamily increased by 56, office was almost unchanged and retail increased by 31 basis points. So right now industrial sitting right under 1%, lodging is about 6.5%, multifamily almost 7.7, office around 11.7 and retail at about 6.3%.
- [45:22]
B
So if you want access to the delinquency report or any of our other research, reach out to us@podcastrepp.com you can also find a lot of our content, news product updates on Tripp's LinkedIn page. Please give us a follow there and check out our website where you can find the blogs, research and podcasts as well a few other programming notes. If you're listening to this, we have just finished our Trep Connect conference so we will give you updates on how it went next week because we're recording a little bit early again, but we have so much great content that we're planning to record at that conference. We are speaking to experts from across the industry, so stay tuned for all of that coverage on future podcasts. This week TRAPP also announced a partnership with Bluma. So Bluma is an AI powered commercial real estate intelligence platform and we're partnering with them to really bring our trusted commercial real estate data into CRE lending workflow flows. We are going to be serving as Bluma's exclusive CMBS data provider, integrating our trusted loan level data and more specifically our income and expense comps into Bluma's underwriting and portfolio monitoring workflows. So this is a really exciting announcement. You can see more about that on our website or our LinkedIn with our press release. But if you're a lender and you're looking to find out how this partnership could support you, reach out to us@podcastrupp.com and and we'd be happy to walk you through it. And one other plug I wanted to make here and Lonnie, maybe you can help Me with this. As our Chief Product Officer here at Trep, we've been talking a lot about AI. We've mentioned several times what TREP has done in the world of AI, what we've been building to really support our clients and their workflows. But something we haven't really gotten into is details about how we are now supporting agent optimized model context protocol servers, MCP servers that are all powered by Trepp AI. So maybe walk us through what that means and how it can really elevate and support our clients.
- [47:20]
A
Yeah, so one thing that we know and we've talked a lot about on the podcast is just how AI gets thrown around out there. And you know, there's not one definition of AI that's sufficient for how people are using it. Same thing's happening with some of this mcp or as you, as you described it, but Trep is cutting edge on both. We've been really pushing the envelope. We first rolled out our natural language text search features using AI and LLMs where you could basically just type in a free form, search into our tool and get results back real time. And now we've released these MCP apps where effectively it's, you know, for those that don't know. And I mean, there's a lot of us that are learning this real time. But MCP is effectively just an AI native equivalent of an API. So just like APIs deliver trip data into applications, now MCP delivers trip data into AI agents. So if you need a complete underwriting credit or investment workflows, our Trip MCP enables all of that. Your agents can securely call for trip data at a property level, at a loan level, historical financials, noi, net cash flow, revenue expenses, modeled comps, pro formas, all of that can be done using our mcp. You can also combine that with web and market context, so you can actually fulfill and create credit memos, investment committee write ups, investment and debt placement analysis. And these are all, all calculated, computed, created in seconds, not hours. And so if you are using cloud code, if you're trying to automate, you know, underwriting or credit workflows, and you're trying to leverage AI to do that, you need to give us a call because what we've built out is really incredible. And you know, it's driven by our industry standard golden set of data, but just leveraging modern technology and tools in a way that creates enormous efficiency and upside for people across the CRE landscape. So, so we're super excited about this and this is obviously going to be one of the nice takeaways from the Trep Connect Conference when people hear and see what we're doing, but it's not limited to just those attendees. Reach out podcastrep.com and we'll get you on with somebody that can walk you through how this can be leveraged on your teams.
- [49:28]
B
And a few quick shout outs here on our shortened week. Our friend Tony J, who we actually have a really cool relationship with, Tony was one of our Future leaders who then turned into a client and is now taking part in our Trip Connect event. He gave us a nice comment on LinkedIn and said looking forward to joining the trip CRE conference in New York City next week. For us, traps, data and market commentary continue to be a valuable lens for understanding where CRE credit and capital markets are headed. I'm grateful to be in a space to connect with thoughtful operators, investors, lenders and advisors that are as enthusiastic as about CRE as we are. So Tony, thank you so much for the kind words and it's been great working with you throughout your career. And I'll give another plug here for our Future Leaders program. As a reminder, if you are graduating in May 2026 or someone on your team is your intern, your child, reach out to us. We would love to have them apply to become a Trep Future Commercial Real Estate Leader which really will elevate them as they go and they enter the commercial real estate workforce. It's allowed us to really build partnerships with students who then turn into long term clients or friends or have even come on the podcast. So reach out to us if you know of anyone that might be a fit for this program. Slater L emailed us. He said he's a longtime fan of the podcast and let us know he's looking forward to attending Trep Connect next week. Nichols R Also let us know he's looking forward to the conference including our networking reception, our Casino Night networking reception. So as you're listening to this, it would have already passed, but we have some really cool events that we put on and we're always willing to host other events or come see you if you're at a conference and do a pop up with you. Derek V and Guns K are attending Trep Connect and are looking forward to seeing us there. John B, aka Dr. Jet Yield is looking forward to the conference and all the fun events. We were so excited to have him back on a panel at the conference this year. Our colleague Susie S, who is also a longtime fan and listener, always lets us know when her clients are actively listening to the podcast. So she sent us an email this week that her client Connor C. Has been a fan of the Tripwire podcast for a while now and really enjoys it. So thank you Susie for letting us know and thanks Connor for the shout out. And our friend Chad G on X posted a thread about podcasts and he said here are some great podcasts and creators and mentioned the Tripwire podcast in his list of the good ones so you don't have to get stuck in the muck with all the other ones. So thank you everyone who always reaches out. If you've been a long time listener and you haven't reached out to us yet, send us a note. Or if you've sent us a note and Lonnie or Steven has not gotten back to you yet, I will yell at them and make sure they do. They have a lot of emails and they don't have any assistance.
- [52:18]
A
We're working on it. We're trying to get back to as many people as we can. We read everything that comes in, I can assure you of that. And Haley is going to make sure that we get back to you. In fact, as soon as we get done recording this, I have a couple that I'm going to be sending immediately after the show.
- [52:30]
C
Yes, I just got one today from David O. Who said he appreciates the podcast. He loves it, listens to it all the time. So thank you David for reaching out
- [52:38]
B
and connecting and another plug. Rate us, comment on Apple Podcasts or Spotify. Give us five stars or leave a review. It always helps and counts. So thank you for listening. We'll be back with our regularly scheduled programming next week. Week with that we'll close. Thanks to our producer Mariana Sabrana. 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 trip.com and subscribe to the Tripwire podcast with your favorite provider. Thank you for listening and stay well.
- [53:13]
C
All right.