← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
396. Inside Trepp Connect: Capital Deployment, the Lending Reset & CRE’s Emerging Divide Amid AI and Data Center Growth
01:13:43
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- [00:00]
Lonnie Hendry
Foreign
- [00:04]
Carly Sento
welcome to the TrapWire Podcast, the show where commercial real estate meets data and insights. This is our Week in review for the week ending May 15, 2026. I'm Carly Sento with Trep, a data modeling 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 still running on the high from Trep Connect. Hailey is on well deserved time off and while I might sound a bit under the weather, we're back with another episode to break things down. At Trep Connect, the conversation centered on capital deployment, the lending reset, property sector bifurcation, AI servicing, and data centers. We'll hit some of these key themes from the conference later in the show. But first, macro dominated the week. CPI came in hot with consumer prices up 3.8% year over year, the highest since May 2023. PPI followed with an even bigger warning sign, rising 6% annually with upstream costs suggesting more inflation pressure may still be coming. That raises the question CRE has been wrestling with all year. Does a rate relief story still hold or do higher inflation prints make refinancing math even harder? On today's show, we'll also cover CBRE's report showing CRE lending activity at a five year high, Blackstone's new Homebuilder lending platform, the political uncertainty around build to rent, and the Georgia Data center story that shows how infrastructure risk is becoming a bigger part of the data center conversation. So Stephen, hotter inflation, better lending activity, and a lot of cautious optimism coming out of Trep Connect. How are you connecting the dots this week?
- [01:45]
Steven Bushbaum
I think the cleanest way to frame this week is that Siri is a better capital markets story, but quite simply a worse macro story. There's just no other way to take these CPI and PPI reports. So on the CRE side, there are real signs of improvement. At TrepConnect, we had a much more constructive tone than we probably would have had a year ago. Capital is available, lenders are competing again, spreads are grinding tighter and right. I mean, we even have some hard data from CBRE this week showing exactly that. Lending activities at a five year high backs up the conversations we had, but the key phrase is still selective availability. Lenders are not throwing money at everything. They're focused on basis, sponsor quality, structure and debt yield. The problem is that the macro data moved in the other direction this week. CPI was hot. PPI was even more concerning because it showed upstream inflation pressure still building. That makes it harder for markets to price near term rate cuts. I mean, you just can't do it. And it pushes back against the idea that borrowers can simply extend long enough for rates to bail them out. Right. Longer. Just got even longer. So for Siri, that matters because refinancing assumptions are highly sensitive to where treasury yields and lender funding costs settle. If rates stay higher, more 2026 and 2027 maturities will need fresh equity loan modifications or asset sales to clear. Now the housing stories fit into that same private credit theme. Blackstone is positioning itself as a capital provider for new housing supply, while bill to rent operators are betting that proposed federal restrictions are going to get softened. And the data center story, a quick shout out to Joel R. Thank you for calling in this one. It was definitely on our radar, but we always love it when our listeners email us about the stories they're watching as well. So. So that data center story is a reminder that demand is not the whole story anymore. I mean, as we discussed in detail at TripConnect, power, water permitting and community trust are becoming real development constraints. The big theme is liquidity is improving, but it's not easy. Liquidity capital is moving again, but there's macro and policy backdrop that still matters a lot. So Lonnie, I'm curious, like how you felt this week with these. Well, they were interesting macro prints.
- [04:13]
Lonnie Hendry
Yeah. I think the CPI PPI numbers surprised and not in a good way. I think it's another update that we're getting that just shows this inflation is persistent. And I guess for me we had all of the fear and concerns around tariff driving persistent inflation and the tariffs really didn't drive inflation like we've seen with energy. I mean like you, you have this conflict in Iran, you shut down the strait that gets people nervous and oil prices go up and guess what happens? You see that almost near real time relative to what we thought would happen with the tariffs. And so from that perspective, it's a little bit cautionary. If you look at the raw data, you know, April CPI was 6/10 of a percent up month over month, 3.8% up year over year. And I think the takeaway here is the hottest headline since May of 2023. If you look at the core print, it was up 4/10 of a percent a month over month and 2.8% annually. And you know, if you start digging through some of this stuff, Shelter was up six tenths of a percent in April. You know, had been running effectively two to three tenths for months before. You know, you get too in the weeds on that. You know, we've talked at length about how some of the shelter stuff is a little bit misleading just based on the calculation and on the trailing nature of it. However, I think if you wanted to, you could make a pretty scary narrative out of these headline numbers. Now I think we're all fairly confident that if and when these attacks, conflicts, whatever war, whatever you want to call it, ends or subsides or they get to some sort of an agreement, that this probably comes down as precipitously as it's gone up. But I think for cre. I mean, we're very sensitive to this for the reasons you mentioned, Stephen. I mean, higher treasuries mean higher interest rates generally, which means math that doesn't work today certainly doesn't work in an even higher interest rate environment. And you know, we keep hearing the word recession pop up a lot more frequently over the last couple of months. And I think this just puts some additional pressure on the markets and it's, it'll be interesting to see just if this has staying power, if people take a more bearish approach given this reading over the next couple of weeks to month, if this is a blip on the radar and things get resolved and then we kind of get back to business as usual. But in light of the Trep Connect conference, kind of to your point, I think the overall sentiment there was significantly positive relative to availability of capital and deals getting done on the underlying fundamentals that you mentioned. It's actually refreshing to hear that people are wanting to underwrite deals with logical assumptions and rent growth that can be managed and cap rates that are palatable, you know, versus what we saw, you know, over the last five years or so. So, you know, I think for me this, this week probably provides a little more question than it does answer kind of how I would frame it.
- [07:11]
Steven Bushbaum
So Wednesday morning it was, it was too early for popcorn when the PPI report dropped. So instead I was just, you know, popping some, some Captain Crunch still corn based cereal. Right. So close enough. And I got to say it was really amusing to watch reaction of the people reading the PPI report. Like they, they, they literally had to pause on air and you saw them like staring at the numbers like thinking is this a misprint? Because the month over month numbers like some of these were larger than your annual changes. It was, it was comical. It's also really concerning as we, as we just mentioned. I mean when you have monthly changes running hotter than what you typically Expect to see for annual changes. That's, that's nerve wracking. And the two year, like the two year reaction, actually both the two and 10 didn't move as dramatically as I might have expected for this. Like the two year pushed through 4%. Now it ended up retrenching some of that and settled the day I think on Wednesday settled at about 397, 398. I think the 10 year initially in the morning pushed past 450 again, I think that settled at like 447, 448. And then get this Lonnie, the 30 year, I mean 30 year pushed above 5%. I think it settled the day right around like 5 spot 04 and they had a 30 year auction on Wednesday as well. It's the most the treasury has had to pay on a 30 year treasury since 2007.
- [08:37]
Lonnie Hendry
There's Stephen, I mean this guy digs through the data like nobody else. You know, you mentioned the build for rent and some of those other things. Like I think we were pretty optimistic over the last couple of weeks that you would probably see some adjustment to that that was favorable for these operators. But I think this week they, they had some headlines that are still troubling and worrisome for these, these operators. Like I think it's almost gotten new life breathed into it and you may see some legislation that is directly unfavorable for these, these builders and operators. And so no, the one good thing about this for us as podcast host is this last week certainly didn't disappoint in terms of headlines. I mean we've had, you know, a pretty good run for the last five plus years of never having to come up with weekly topics because the market has been so dynamic. And you know, it felt a little bit over the last maybe six or eight weeks that, and I mentioned this at the the Trap Connect conference. It was like the only thing we were certain of was that there was going to be uncertainty. And this week did not disappoint. I mean it, it came in with some headlines that I think grabbed everyone's attention and you know, for valid reasons. I, I, I think the CRE stuff though, if I've learned anything over this last disruption and the interest rate movement and everything else is just that that part of the economic engine is pretty strong and it's going to continue to just pump out. And you know, to your point, Stephen, it's really just the properties that were underwater or that were, you know, distressed having to come up with additional equity or try to get an extension and modification like this just, you know, potentially makes that a little bit tougher road for them. But on the flip side, and we heard this over and over again from the panelists at TripConnect that there's plenty of available dry powder still on the sidelines. There's incredible competition for deals. Spreads are getting compressed like crazy due to the competition. And so if you're a borrower that can underwrite to today's interest rates and have a good business plan, you shouldn't have any issues getting new mortgage origination financing in today's market.
- [10:39]
Carly Sento
All right, so you guys have mentioned Trep Connect a couple of times. I know it's something that we've been blasting out everywhere. We can't stop talking about it. But for those who couldn't attend, why don't you guys give the key takeaways, Best favorite moments, best food item you guys had. I heard the desserts are really good.
- [10:56]
Steven Bushbaum
You know, I gotta say that the desserts were spot on. I mean, gosh, I love like cookies, little finger foods. And I gotta say the spread was fantastic. This was a top notch conference. So kudos to the food spread first off. Now we kicked it off on Wednesday with an economic outlook from Victor Kalanog. I got to say for anybody out there that hasn't seen Victor speak and give one of these updates, you're missing out. So this is an absolute delight to get to see him in person and hear his take on the economy and what he expects. So you know, this year started off as very optimistic as he acknowledged. But as Victor was was careful to phrase it, the Middle east conflict, not the war. The conflict has to basically reprice our expectations. Now what I think was really fun to hear Victor talk through is what comprises a recession? How does a recession actually get defined? And what would it take for us to actually hit a recession? Because this is where the rubber meets the road. He called out that in their internal forecast, if oil prices were to Spike and Peak about 115 per barrel in the second quarter, they're expecting them to actually like repriced down to about 85 a barrel. But under a bear case scenario, if you saw oil hit 136 per barrel for 10 weeks or more, that's the breaking point. And I love it when folks can come up with exact numbers like this because it gives data watchers like me something to sit back and pop the Cap' n crunch on. It really makes it a straightforward data watch exercise. And I gotta say, just the long and Short of it was that really things are okay. We have a lot of anxiety down at the surface level. Certainly if you're going and hunting for gas, trying to find gas that's below 450 a gallon right now, it's really, really painful. But the consumer has been amazingly resilient. So if that oil forecast proves true, and I think we're in excellent territory. And so Victor did a great job kind of calming the anxieties down. Lenny, how did you feel about that intro?
- [13:09]
Lonnie Hendry
Well, I mean, we have Victor speak first at the conference every year for a reason. He definitely gets the crowd fired up. And he has a really great way of combining funny commentary and jokes with actual hard data. And I think, you know, you hit on the part that, you know, what is the inflection point for oil and when do things get scary. And, you know, the $136 a barrel for 10 weeks I think is some pretty sound kind of perspective and gives us something to kind of anchor to. And so I definitely, when he, he got a couple of questions about that in particular and kind of talk through it, I think people started to realize, you know, why and how he, he got there and what that actually means for the economy. And so he fell in line with most of the other panelists in terms of just saying it's not as bad as the as the headlines would suggest. Certainly there are some things that could take things south quickly, but the reality is the economy is strong. I do like that he kind of piggybacked on our American consumer is undefeated mindset. So we'll see what plays itself out. But I think the takeaway here is just that there are some storm clouds, but it doesn't mean by definition that you're going to have storms.
- [14:23]
Steven Bushbaum
So the next panel we had was Dislocation to Deployment, talking about where capital is moving. Now, the speakers we had on that panel were Nishant Nadella at Derby Lane, Stuart Baldwin at Hodes, Weil and Associates, Samir Tishpal at Madison Realty Capital, and Lindsay Stevenson at Prime Finance. This was an absolutely stellar lineup of folks that are incredibly active in both public private markets and lent a lot of perspective. So the opening sentiment was that there is a lot of capital, a lot of lenders looking to make deals. But again, those deals have to make sense. And what was interesting here is that some of the panelists, lenders, they mentioned that they're not willing to budge on their structures when it comes to competing for these deals. So they're sticking to their guns. They're staying tight, they're staying disciplined when it comes to whatever the metric is debt yields, LTV loan to cost. The only place where you're seeing give right now is spread. And from what we heard throughout the conference, it's brutal out there per spread. I mean you think like, okay, we've leveled off, we can't possibly grind tighter. This feels too rich. But yet we continue to grind tighter and it doesn't feel like that's going to abate anytime soon. We still have more road to run. Now, some of the best opportunities highlighted in this panel, BP has been very steady. SASB has the potential to explode as more investors get involved. Beyond just like your Blackstone and Brookfield preference for more stable core plus properties instead of value add, basically they're looking at cash flow and yield day one. Now across property types, there is lots of resounding interest in retail. High end hotels shoot the cash cows like mobile home parks and self storage as well as other types of storage selectively. So like industrial outdoor storage or iOS. What you heard from someone during the conference was that right, you're not underwriting iOS like 15 miles outside of the core. You're looking for dense infill opportunities that make a lot of sense. Places where land is incredibly expensive and logistical tie in is critically important. Healthcare, healthcare, adjacent real estate, drive to markets for hospitality, some very specific property segment calls. Now, of course we got the property types we love. Let's talk about some of the ones that still are not getting as much love. Surprisingly, two panelists actually mentioned data centers because leases and other structures involving these projects make them incredibly complicated and really too idiosyncratic. And on the tenant side, it's really a matter of waiting to see what plays out at companies like say Meta when they have a lease expire and whether or not they're actually going to move out of these centers. We'll talk about this later on, but in our data center specific panel there's a comment about, you know, potentially less concern about this because while switching costs are very expensive for data centers, so interesting to see how this space continues to play out.
- [17:15]
Lonnie Hendry
Yeah, this panel was really, really informative because, you know, it was made up of people that were doing deals every day, you know, whether it be on the debt side or the equity side. And I really liked what Samir brought to the table. I mean he obviously said due to the spread compression, you got to look for some outsized opportunities with operators that can execute and have a business plan and maybe even in some property sectors or geographies that may at some level feel a little bit contrarian. And I tend to agree with him. I think if you're looking for opportunity, you're going to have to make some bets that might feel a little bit outside your comfort zone. And you highlighted some of those property sectors. But lenders now look for opportunities outside of some of these core markets and core property types and outside of your traditional A to B type of financing because the spreads are just not there for them. And you know, obviously that creates some inherent risk for some of these folks that maybe are a little less well versed or don't have a full understanding of how to truly underwrite some of these deals in these markets that they're maybe less familiar with. But on the whole you're going to be forced to find yield somewhere because the competition is pretty fierce. And as you mentioned, Steven, that was something that was repeated throughout the conference, was just how competitive the lending market was for good deals. I think that's an important caveat that this is not across the spectrum for every property that has a potential sponsor trying to take out a loan, but for the markets where activity is up and for property sectors where there's increased interest. There's a lot of people bidding on those loans because there's, there's plenty of capital available. So it'll be something we definitely keep an eye on in terms of is when and if there's a pivot into what at scale. You know, data centers I think has filled the void for a lot of these folks. But we'll talk a little bit about that later because that was, I think probably the hot button topic of the conference was data centers and AI. Generally everyone has a unique interest in kind of what is a data center, how's it being financed, what's the perspective. And we've got some great insight on that as well that we'll share.
- [19:26]
Steven Bushbaum
Not to toot my own horn here, but maybe just a little. If we think back to one of the Trep talk pieces I put out, I think it was early 2025, I did a cost of capital analysis and the basic takeaway was like, look, even though it feels like we're getting expensive for how much we've run, spreads are actually still pretty juicy and have a lot more room to tighten relative to historic levels, historic floors and certainly compared to other asset classes. And that's played out in spade. So feel pretty good about that historic perspective right now. And just one of the reasons why if you are not signed up to really receive our trepidation Talk content. You should sign up because we have a lot of great pieces that will, you know, at least hopefully every so often put you on the front edge of these trends.
- [20:14]
Lonnie Hendry
I think you should have a celebratory bowl of Captain Crunch, Stephen, since you're. You're right on it.
- [20:21]
Steven Bushbaum
I think I will. I might even top it off with chocolate milk.
- [20:24]
Lonnie Hendry
Let's not get crazy.
- [20:26]
Steven Bushbaum
So the next panel we had was Bifurcation Recovery CRE Property Sector realities. Speakers here were Seth Glacier at Marcus and Milltrap, Dan Thorman at Ambridge Hospitality, Justin Stein at Tanger, Sam Tenenbaum at Cushman Wakefield, Stephanie Stewart at Voya, and Doug Larson at Newmark. So for multifamily, the last two years have been the second and third best demand for apartments that we've seen in the last 25 years. Investors are primarily interested in the newer product while the vintage like say 70s 80s properties are still struggling. Those older assets require a lot of capex and that's one of the things we've talked about numerous times is just how brutal the expense growth and margin compression has been on a number of these assets. For hotels, suburban full service hotels that are sitting in an office park no longer make sense. Those assets are the most distressed for luxury like four season type properties. Those are being built as the product that has proven itself for success and then kind of that middle tier. I don't know how much talk time this got in the panel, but that limited service sector still deserves some attention, right? Certainly market specific or geographic specific context needs to be added here because in that limited service travel or hotel, some markets have actually seen kind of a much stronger switch over to the extended stay and you've had a lot of pricing competition there. So again, as we've talked about on the podcast numerous times, the Capex delay for some of these properties has been a doom loop. Now for office, this is probably the most bifurcated property sector of any, unlike anything the panel has ever seen. Vacancy is dramatically different between the classes. Tenant demand is back, but only for that class A amenity rich space. And the need for class A space has made leasing very costly for owners. And when it comes to retail, Justin Stein mentioned that leasing has and will continue to involve both high end and discount stores to attract both types of shoppers. During this time of bifurcation, the lack of retail supply and construction has been helping the industry immensely.
- [22:43]
Lonnie Hendry
I thought Justin's commentary on some of the outlet mall strategy and some of the way stores utilize a traditional retail footprint in Addition to having a made for outlet only was really remarkable. I think all of us have a little bit of a legacy mindset relative to what an outlet center is is like in. If you ask most people, they would probably say, oh, the outlet stores are just markdowns from the traditional stores and they're just being sold at a price that's more palatable and margins are probably getting squeezed for those storefronts. In reality, he was saying that it's actually the quite the opposite. A lot of people actually have storefronts in traditional malls really as a way to drive traffic to the outlet center where they build inventory that is made for outlet only. And the margins are actually healthier at those stores and the total sales volumes are significantly higher at those stores. So it was, it was very interesting to hear his perspective on that. And I we're definitely going to have him on the podcast because I think he can dive deep into that part of the retail sector which we, we have data on but we don't talk about. You know, when we talk about large scale retail, it's usually just the legacy mall, super regional mall type of format, not these open air outlet centers. So it was really interesting to hear from him. Our friend Sam Tenenbaum from Cushman and Wakeville, we jokingly call him a walking encyclopedia. He certainly didn't disappoint this year as well. I mean he lives in the data like we do and we've had him on the show and his insights were really great. And I want to give a shout out to our friend Seth Glasser that moderated this panel. He did a great job because we gave him a tough role of effectively talking to experts across different respective property types. And so he was trying to bring in retail, multifamily, hotel, office, all in one panel. And he did a masterful job of keeping everyone engaged and giving us as audience members a really great perspective on just the holistic health of the marketplace. And you know, you hit on some of the takeaways, Stephen. I don't think any of them were really a surprise for me. The 70s and 80s vintage multifamily properties, those are the ones that are still having to get reset basis because they were purchased at crazy low cap rates with value added rent growth that just wasn't going to be achievable. And then on the hotel side, it was interesting to hear them talk about some of these suburban old school style full service hotels that have just kind of become zombies. I mean it makes sense. We see them every day and in Fact, if you go to any major metro, you'll pass. You know, when you land at the airport and you drive into the city, you're going to pass 10 or 12 of those hotels and you're just like, who stays there? And the answer was not very many people.
- [25:32]
Steven Bushbaum
I got to say, Lonnie, it is truly amazing just how dramatic of a demand destroyer for certain asset types, for certain products. Zoom has been. And the COVID pandemic really kind of accelerated. That was not on people's bingo card for these assets eight years ago, but it's been a dramatic shift.
- [25:52]
Lonnie Hendry
You know, I want to get your thought on this, Steven. Like, I agree with you and the proof is in the pudding here. I mean, like, there's no disputing it at this point, but maybe I'm just like that old school get off my lawn guy at this point. But it's like, I think business is conducted better face to face. Like if you're, if you're trying to consummate a deal and get something across the finish line, sure, Zoom is an option. Zoom's a viable option. It's not the best option. The best option is to sit across the table from someone, is to eat lunch with them, is to talk through what you're trying to get resolved. There's just no replacing that. So I'm hopeful that at some point, you know, look, I think Zoom is, it's changed the way we work and I would say inherently mostly to the positive, but it, it doesn't replace, to me, the handshake and kind of face to face component of getting deals across the finish line.
- [26:42]
Steven Bushbaum
It doesn't. It doesn't. Unfortunately, in our industry, I mean, you can't do a property inspection over Zoom. You have to physically go there and kick the sticks and bricks. So to a certain extent, I mean, we are durable for the future of face to face. But I'm with you. There's just something that is irreplaceable about face to face contact and collaboration. And I'm still waiting for this research to get done, but I fully expect it to show up in patent creation and patent filings. I think that will be like the very obvious data point that will highlight the drop in productivity as a result of remote work.
- [27:21]
Lonnie Hendry
You know what'll be interesting is I'm sure there's some startup founders who will probably get some emails on this topic because we definitely sound like the get off my lawn guy here, because they're going to tell us that they have studies and statistics that show productivity increases and number of calls and all these other metrics are positive. But, you know, are we going to get to a point where zoom has the ability to effectively read the room, quote unquote? So you're getting some sort of sentiment score or you're getting some sort of meter reading for the participants that are either in a room together and you're the one remote, or if everyone's remote, it quantifies kind of the feel of the meeting to replicate what you would as a human feel if you were sitting in the same room.
- [28:07]
Steven Bushbaum
Oh, I think you would definitely do an engagement score. I think that would be, I think that would be a fairly straightforward algorithm to write because we've, I believe we've trained visual analytics on this already in terms of, you know, body language, posture, eye contact, related cue movements, things like that. So I feel like it'd almost be easier to execute because you have the recordings to use. You're not actually having to like set up the technology to execute this research. You're just leveraging existing cloud recordings. Now, speaking of AI and tech, the next panel was beyond the buzzwords, AI, technology and data in Siri decision making speakers we had here were Daniel Fenton at JLL, Ryan McAndrew at RSM and Timothy Savage at NYU. So the quote here we have is commercial real estate is first and foremost a relationship business. But if you don't start enhancing you book with some of these AI tools, but if you don't start enhancing you book with some of these AI tools, you're going to be left behind. So in other words, if you're not using the technology, you're going to be left behind. Right. We can't dig our heels in and do what the industry has done at least a little bit in the past, which is kind of say, no, we're going to keep doing things the old fashioned way. No, no, no, we have to adopt. So, Lonnie, I'll turn this one over to you because this was, this was your panel here. I know.
- [29:31]
Lonnie Hendry
Yeah. So this was an enjoyable panel to moderate. And I think the example I gave in the presentation was that you've seen those videos of people setting up their cameras to record the bullet trains that come by. And before they can even hit record or they can even see the train with their own eyes, it passes them by. And I feel like that's where we're at here. And even in the keynote with Scott Rechler, it seemed like everyone that was asked directly about AI had similar sentiment. They're probably not using it enough. They need to be using it more. They need to find ways to create opportunity. I think on this panel it was really interesting and I thought it was very insightful that rather than trying to maybe hit a home run with AI today, it's how can you refine and improve your internal processes so that that efficiency gain leads to more business or leads to better business or higher margin or whatever the case may be. And so, you know, everyone was consistent that there's still human components throughout the workflow with AI. Like, I don't think any of us were suggesting otherwise. In fact, people were saying, you know, human in the loop was the term that came out of the concept from the panel, which I agree with at this point. And so it's really interesting to hear real estate people embracing at a level that they've never had before this disruptive technology and advancement in technology. I don't think that we're going to be the laggard that we traditionally have been. Still probably slower obviously than some of the more inherently like tech enabled in industries. But for the most part, even after the panel, I had multiple people come up and say, here's how we're using it, or here are some things that we're going to start using it for. Or we're so thankful that you talked about this because this is a topic at all of our board meetings. And so for me, the main takeaway here was just the stuff we've been talking about on our show, which at some level feels like we mentioned AI data centers and this stuff almost every week. But it has to be mentioned at that consistency because it really is the topic that everyone is trying to grapple with. How do you implement this? What is the solution? What is the answer? What are the questions we should be asking? And so this one definitely generated a bunch of buzz and dialogue amongst the audience, even beyond what was described on the panel.
- [31:53]
Steven Bushbaum
One of my favorite phrases that came out of these AI discussions is that really the AI tools we have today are a force multiplier.
- [32:03]
Lonnie Hendry
Right?
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Steven Bushbaum
What you can do, it's really dependent on the context, how much you're committed to the technology and its capabilities. But I mean, you can easily 10x productivity in certain settings, but it's not 10x across every single thing you do every single day. It's very selective. And what's awesome is that frees you up to spend your time doing other things that maybe you would have neglected during your day. So it's, it's going to be interesting to see how all of us as workers evolve and what our attention pivots to during the day because of, well, the freedom we gain from using these tools.
- [32:39]
Lonnie Hendry
I think for some of these roles though, they just do more of what they do. So, like if you're underwriting deals, this allows you that force multiplier that you mentioned. I mean, it's effectively a compounding effect. Like if you were underwriting 10 properties a day, now you do 15 significant uptick in deals that you've screened, which in theory should lead to more closed deals. I mean, at that point you're. And because you're underwriting more deals, that feeds the model and it feeds the tool more information and insights. So like in the next couple of months, you're not underwriting 15 deals, you're underwriting 20 deals. And so it was pretty much universal that people were not saying that this was going to be a staff reducer. It was really more the opposite. I think you've been saying this for a while, Stephen. Like this is just going to make people more productive and do more business, which actually on some level may increase the number of headcount because you're more profitable and doing more business, not the opposite.
- [33:40]
Steven Bushbaum
That's right. I think over the near term, say three to seven years at least, this probably makes our economy run a little bit harder and allows for that wage inflation without having broader based inflation take hold.
- [33:55]
Lonnie Hendry
Right.
- [33:55]
Steven Bushbaum
If you can do more, if you have more output, you can justify higher wages, but prices can actually come down because of that productivity. So AI can actually be a deflationary force in the economy if the conditions are right. And at least as of right now, that's my hope. That's definitely the trajectory we're on.
- [34:14]
Lonnie Hendry
I wanted to just ask one more question. I know we got to get through the other panels here, but I've seen a couple of posts online about people surveying market participants or surveying people in the industry, and they're trying to suggest that it's still hype, that there's no quantifiable evidence that people are actually using AI or that it's having an impact on their business. And I just want to say to that notion, right, like maybe that's true within the survey respondents or within the people that you've spoken with, but from the people that I'm talking to, I mean, I got a phone call today from someone that is very senior at a very reputable and very well known CRE shop. And the questions they were asking would lead me to believe the complete opposite. Like, this is not some phantom endeavor. This is Something that significant financial commitments are being made to. And so it's interesting. Let me get to my question here. I think for people saying that this isn't impactful, I think they're just talking to the wrong people. Like as an end user, let's just say you're a producer, you're a broker. You may say, I don't use AI at all. AI is not changing my job. Not knowing that the way your firm sources ownership information or the way your firm underwrites the deal or the way your Firm populates your CRM is 100% or 70% or 60% being powered by AI on the back end.
- [35:46]
Steven Bushbaum
That's right, yeah. And you know about the not using it again in certain settings. That is patently false. I have a friend that works in. This is terrible. I can't remember if it's product management or project management. Anyway, he deals with a lot of code and within the last week or two was literally told, we are tracking your usage of these tools. If you're not using it, you will be fired. Right. Because they're expecting it to be a force multiplier in those settings and they're trying to figure out exactly how thin or how slim they can run the organization, how much output they can get out of folks through using these tools and integrating them very, very heavily, like Claude Cowork and Claude code.
- [36:27]
Lonnie Hendry
There's no avoiding it at this point. I would just caution. Listen, I'm not refuting the results of someone else's survey or anything like that. I'm just saying from my experience and we talk to a lot of people, a large portion of my job is being face to face with end users, people that are building things for their end users to use, etc. Etc. And universally, AI is the topic that everyone. If you don't know what an MCP server is right now, you need to get online and you need to watch some videos or you need to come to our Trip website and you need to see how those things are being implemented in our sphere because that's the future Agentic AI Agents workflow, complete seamless integration. It's going to be like, like I said in the panel, it's going to be like putting 20 years ago proficiency in Microsoft Office. You better start being able to put proficiency in cloud code or cloud cowork or these others, because those are the skills that are required in order for you to find job opportunity and growth in today's marketplace.
- [37:33]
Steven Bushbaum
And if you haven't heard of those terms, don't feel Bad, don't feel bad at all. I don't think prior to 2026 I knew what the heck an MCP server was. And a lot of these terms, concepts, workflows, very foreign. But the truth of the matter is we have to get comfortable with the uncomfortable if we want to run at the same speed. A lot of folks are running these days.
- [37:57]
Lonnie Hendry
Yeah. And the good thing is this is all brand new. So to your point, Stephen, the thing I think is, was is great about this is you can be someone that's 30 years in the industry or you could be someone that's 20 years old. You're starting at the same place as it pertains to these tools. So you can reinvent yourself. If you're a 30 year veteran and your knowledge of the market, your knowledge of the industry, you want to talk about force multiplier, take 30 years of experience and feed it into some of these tools. It's going to be almost impossible for people to replicate what you can do.
- [38:29]
Steven Bushbaum
That's right. And some of these tools train themselves on what you know. So the more you use them, the heavier of a user you become, the better your AI companion gets along with you and other people can't replicate that. So you're actually developing your own competitive advantage by using this tool so heavily. So our last panel of the day on Wednesday was the Lending Reset Banks, Private Credits. And the new Capital Stack speakers we had were John Barkidgia at Byline Bank, Fraser Gisselman at Stifel, Catherine Sierakowski at BMO Capital Markets and Danielle Marka at blackrock. So once again, so much competition for a lot of the same deals and the offers all kind of look the same. And so relationships have become very, very important in the lending spher as they really always have been. And private credit has been coming in and really has added to the competition in some way, shape or form. So large sponsors are thought of holistically, so a lender might defend the customer relationship if one loan goes bad. So it was a really interesting insight out of this panel is that, you know, three, four years back the panel highlighted you might have done like a 50, 50 senior Mez deal. Now it's more like 80 20. And somebody else out there mentioned that. Honestly, mez is dead right now, right? Mezz just does not make sense. And I've heard this from a lot of folks that really you have not seen mez enter the landscape in any meaningful way. Across deals, there's been very, very little mez debt underwritten out there. And in its place, you've really seen a lot more preferred equity enter the stack. Now, part of the reason for that lack of mes, the banks need roe, not just roa. And so if we're going to have lower leverage, we're going to have lower and lower spreads. And those spreads are already so low that the ROA just is not going to look great from the bank's perspective. Now we've talked about this in various settings here at trep, but one of the really dramatic shifts you've seen over, gosh, the last few years is that banks have been lowering their direct exposure to real estate but then ramping up their warehouse exposure. So they're getting really that indirect real estate exposure in a much, much cheaper fashion. Much cheaper in terms of risk capital or how those warehouse lines get accounted for their risk weighted asset calculations. So in other words, it's much more capital efficient as a bank. If you're going to go out there and do a warehouse line that's going to be used to originate commercial real estate loans, it's going to be much more capital efficient than if you go out just lend directly against that same commercial real estate. Now, of the areas that the lenders were looking to get involved in, data centers was a really, really interesting discussion. Retail came up again. New York office specifically was highlighted. Self storage, iOS, again, some of the very same property types that have been talked about in other panels. The data center one was really interesting. One of the panelists noted that they do play fairly heavily in data centers, but they are very, very specific about what exactly they're willing to finance. And their concentration is very closely monitored here. Concentration both for the deal sponsors as well as for the tenants. So that could be something that you see come to be a more common theme you hear out there is that for the active players in data center financing space, the concentrations are becoming saturated and that those data center debt deals are going to have to go elsewhere and it might become more difficult on the margin to find financing.
- [42:07]
Lonnie Hendry
Now they highlighted just the size of these deals, Stephen. Like one deal can take up total allocation to a particular, you know, sponsor, tenant, etc. I mean the numbers on these things are huge and we've been covering them for a while. It's, it's, it's unique and in approach. Everyone has their own, you know, what they think is definitive moat. The interesting takeaway here for me was that on the data center side, everyone wants to be a construction lender. They just want to do the construction loan and then have someone else Take them out on the permanent financing. And it was interesting to hear how the corporate debt markets were actually being tapped for some of these larger deals due to the size and due to the availability of capital for those participants. The question I had this was one where I felt like we could have taken another 45 minutes. And it was drilled into the questions here, but. But we'll wait till we get to the last. The last panel, which was. Was the data center centric. But I just have questions relative to, like, the whole real estate hybrid discussion infrastructure. If everyone is just a first lien senior mortgage lender during construction and then they're out of the business and there's really no takeout. We'll talk about it.
- [43:22]
Steven Bushbaum
Where'd we go?
- [43:23]
Lonnie Hendry
We'll talk about it.
- [43:25]
Carly Sento
That was a great recap of day one. That was a great recap of day one. Lonnie and Steven. And I think one of my biggest takeaways was AI Really Domina, the dialogue across every corner of the event. But outside of the panels and insights and expertise, I do think one of my favorite parts of the whole conference was Casino Night, which was following the last panel on day one. We held it at Butter Midtown, and it was really such an amazing evening of connecting. Poker, roulette, blackjack games, drinks, such a great time. I think everyone really loved it. And shout out to our friend Sovo for winning the grand prize. We need to get a roulette 101 from you next time, Sovo. So turning to day two, Lonnie, you kicked this day off for us. Can you start to recap everything that went?
- [44:04]
Lonnie Hendry
Yeah. So before I do that, shout out to Sovo. She's a friend of the. Of the firm. I did a presentation for her with CCIM out in San Jose last year, and she actually told us before the. The Casino Night, she's like, I'm gonna win this. I'm super competitive. And we gave everyone a thousand dollars of fake money to start. She ended up tonight with 34,000. The second place person had 29,000. Like, she was not messing around and she was not shocked to win. Like, when I said on day two, here's our winner, she was just kind of like, I know, I know. I told you I was going to win. And so it's really refreshing to see. In fact, I said in my introduction, like, maybe we should be putting a little bit of capital with Sovo and letting her work some magic on that. She was getting some pretty good returns at the casino. And I'll echo your sentiment. The Casino Night. And one, we've had multiple events at Butter in Midtown there. Great venue, good food, great setup. But the Casino Night really made for some awesome networking, and feedback was overwhelmingly positive on that. And so, as you mentioned, Carly, I got to be the host for the entire conference, which was really fun for me playing the part of mc. And so on the second day, we kicked off with a close to the media panel, so we can't really get into the details there, but really what we talked about was just banks and how they're allocating and treating risk today. And so if you were there, kudos to you, getting to hear from the insiders that play in that space and kind of what they were highlighting relative to that question. For those of us that, you know, are talking about it now, we can't really comment on that, but. But it's okay, because as soon as we finished that, we transitioned right into our keynote, which we announced a few months ago. That was Scott Rechler from rxr, which was a huge get for us. And he did not disappoint and was very friendly and very accommodating and was a really great keynote. I mean, he was very gracious with his time. He made time to talk with a few of us before the event on day of, and then stayed around after and hung out with us for a while and was very complimentary of the conference itself. So, you know, I think, you know, when. When he came in, he was interviewed by Anne Marie DiCola, our CEO, which, you know, was a great. It was pretty much a power pairing on the panel. And Anne Marie, as nervous as she was, she had interviewed Derek Jeter a few years ago at CREF C. So I was telling her, I was like, anne Marie, you've interviewed Derek Jeter. You can interview anyone. And she did not disappoint with her questions of Scott, and he did not disappoint with his answers. I think. I think a couple of the key takeaways here were, you know, he said, you have to get comfortable with being uncomfortable. And I think this fits into that, you know, the uncertainty narrative that we've been repeating over and over the last couple of months, that you got to think long term, evaluate the landscape, identify your strategy. Sometimes it takes two or three years, you know, where the conviction that his firm, RXR has actually lines up with opportunity, you know, but being clear about what you're aiming for. And he said, and I thought this was a really candid response, he said, there are worse decisions on acquisition or on certain buildings. Or whatever, whatever was when they stretched a little bit and they did things that were not consistent with their strategy. And I think, you know, to me we've seen that play out. I mean, like when you get FOMO and you see a bunch of people doing a certain thing or underwriting deals a little more aggressively or stretching outside of the markets they're comfortable with, that's when trouble happens. And even at a firm his size, he said, listen, some of the worst decisions we made or when we just weren't consistent with the strategy. It was really refreshing to hear him say that. You know, I think for those that don't know, I mean, he used to run the Port Authority on the real estate side and has a lot of experience and connections there and so spent quite a bit of time talking about public private partnership. And it was really fascinating to just hear how that's such a huge component of their business and how he's really figured out a way to craft opportunity out of these public private partnership and how that's made an impact for their, their business. Not just in New York. I mean, he talked about several developments they're doing in North Carolina and some other states leveraging some of that public private partnership framework. And then of course he mentioned the, the project Kodak Steven and I both like to reference or they. He had a portfolio of buildings that were, you know, Kodak in a digital world, you know, effectively just said, you know, they're very much in favor of AI. They're using drones to fly over construction projects and keep up to date with what's happening day over day, week over week, month over month. They have developed internal tools that will scan every market for news headlines, commentary and other things and actually use that as a, a way to, to check their asset management strategy and performance at a building or market level. Really great insights. Lastly, I want to get your comments on this, Stephen. You know, I think when we all hear or think of rxr, we think of New York. I mean, obviously that's where their bread and butter is. But he said, you know, they are interested in like markets Phoenix, Charlotte, Tampa, Orlando and anywhere from Philly to New York, you know, but he, he was pretty definitive in saying they've intentionally avoided markets like Austin, Nashville and San Francisco for reasons that I think we could all support San Francisco. Maybe it's iffy now because it's on the comeback, but it's such an up and down market. But it was interesting to hear him talk through some of these markets where I probably wouldn't have Assumed before the panel that they would play in any of those markets. And he, he seemed pretty bullish and said they have a lot of projects across those, those states and, and, and regions.
- [49:15]
Steven Bushbaum
Yeah, I mean, definitely the timing matters a lot for these markets, depending on whether you're entering them now or you were entering them, you know, back 2122 or even before that. You know, the Charlotte one I like a lot and think that makes a ton of sense given what Scott talked about and what they really excel at, those publications, public private partnerships, transit oriented developments, and a lot of the growth features that, you know, Charlotte has to offer. I love that play and I'll have to do some, some more digging myself to like fully understand what they're doing within Phoenix, Tampa, Orlando. But yeah, I mean you can kind of see the patterns there for durability for the long run, diversification across the economy and the growth engines. Yeah. It was interesting though to hear that Nashville was, was not one of those cities that they were really all that interested in.
- [50:01]
Lonnie Hendry
Well, you know, it makes sense. I mean, Austin became, you know, asleep, went from a sleepy college town to kind of a boom town. And you've seen all of the supply and everything that's been created in that market and how it's negatively impacting operations. Although listen, I personally still think in the medium to long term, I'm bullish on Austin. It has all the underlying demand drivers and everything that you want to see. But Nashville was almost Austin 2.0. It was like maybe five to 10 years behind Austin, but the trajectory was very similar. I mean, you had a college with Vanderbilt, you had the music scene, you have all the stuff that Austin has. You have bad traffic, you have high priced housing, you have all the stuff. And I think for them it felt like maybe those markets just didn't provide enough upside for the downside risk. Some of these other ones, you know, you look at Tampa, Orlando, Charlotte, I think the downside for them in those markets were significantly less. And they still have really strong upside trajectories in play for them. And the, the demographic shift and the supply shift and those things in those markets, while positive, were not exponentially positive like you saw in Austin and Nashville. Like those, those two jumped off the page when you look at new construction starts for the last five years. So it actually shows some restraint. I think it kind of goes back to his, his talk track of stick with the strategy. Like they clearly identified those were not markets for them early on. And when everyone else moved into those territories, they, you remained pretty Steadfast and said, those are not the markets we want to be in. So, you know, he talked a lot about his tenure and some of the airport projects they did with the new terminal and how even that timing matters. You know, the original airline that thought they needed 11 gates, by the time it actually got approved and started working, they only needed like two gates and they had to backfill some of the other stuff. And so really great insight. He's definitely a titan of real estate in the New York market. He was very insightful, very witty. He knew the numbers like the back of his hand. He's definitely plugged into the day to day operations there. And it was really refreshing to see someone with his stature who we've all seen on CNBC and Bloomberg and other shows. He definitely wasn't needing any sort of help with notes or anything else. He was just rattling the numbers off, just off, off the top of his head. It was very impressive. And then after we finished that, I actually got the opportunity to do a fireside chat with Bill Sexton, who's the CEO of Trimont, which is now the servicer. And we had Bill on our podcast about a year ago, just over a year ago, when they announced the acquisition of the Wells Fargo multifamily servicing book. And so Bill was a great interview on the podcast. He's very charismatic and dynamic and he was even better, I think, on the, on the fireside chat. I mean, super candid, you know, he was really positive. Said he's more optimistic today than he was 12 or 18 months ago. And he has a frontline view. I mean, I think, I think the one thing for me was after talking with him is people probably underestimate just how much data they now collect real time. I mean, they're getting monthly statements, they're getting direct access to the borrowers as a servicer. And it was really refreshing to hear from someone that has access to that type of data real time have such a positive sentiment on just where things are. I mean, he clearly said there's still some problems that have to be worked through. Obviously we know that special servicing was up last month. Month delinquencies kind of bounced up and down. But he was similar to Victor and similar to us. Don't bet against the American consumer or their appetite for debt, which I think we've talked about as well. So he said clearly, and this is something I think I'd like to get your thoughts on. Steven. He wasn't shy about this. He said there's always going to be assets that just don't make the journey. So at some level it was almost like a reset where we all expect because interest rates went from 0 to 5% overnight affecting effectively 18 months, whatever, that by itself caused all this disruption. And what he was implying was that in every part of the cycle there are certain deals, for whatever reason, whether it be sponsor execution, changing dynamic in the market, whatever, certain deals just don't make.
- [54:05]
Steven Bushbaum
That's right. But for one reason or another, they got done. The really concerning part is when you start seeing those in, you know, really increased number, that's when you know, all right, something's going to break soon, soon or at least in the near term.
- [54:18]
Lonnie Hendry
Well, you know, the lenders were saying how they all love their borrower at the beginning of the deal. They all love the business plan, they all love the strategy. It's the execution part where things start to break down. Bill did comment and I thought this was right in line with what we've said for a while. He's like, CRE is not a 3% cap rate asset. So higher for longer is just normal. And that's where we're at today.
- [54:43]
Steven Bushbaum
That's right, yeah. I mean you're not getting paid for the risk. I mean the liquidity premium at a bare minimum is not a 3% yield or like 99% of assets. 99.9. Right. At least on a count basis. So yeah, good to hear that quiet part said out loud.
- [55:00]
Lonnie Hendry
You know, he was a little, a little feisty around SASB's. He certainly, you know, is a fan of SASB, but he feels like it's been overused over the last couple of years and had the numbers again. Bill was impressive. He knew the numbers numbers. He knew the percentage of SASB issuance as a percentage of overall total issuance. And he actually told a story about how he saw $120 million loan being floated around out there as a SASB offering potential. And he's like, that's not what this was made for. And I have to agree with him. And so it will be something that we're keeping an eye on. Do we see the pendulum swing back in favor of more geographic diversification? Some of the things that conduit has been known to provide the market, the risk concentration in SASB's, even these top tier assets or top tier operators. I think people, rightly so, as pointed out by, by Bill, are underestimating some of that risk concentration.
- [55:55]
Steven Bushbaum
Yeah, it's, it's funny when you go through and look at issuance, there's there's actually a couple deals, SASB deals this year below that 120 million threshold. Won't, won't, won't highlight who brought those deals to market. But I can't help but laugh. I'm like man, we've bought bonds. Just one, one slice of a deal, deal. It was more than 120 million.
- [56:14]
Lonnie Hendry
It's funny, listen, if the market will, will allow it, then people will do it. I mean that's just how life works, right? And this is no exception. But it is interesting how I don't think that's what the intention was when those were set up. I do think that he has a point though in some of the concentration risk on some of these, you know, 72% of issuance to SASB. It can create some challenges and it gets away from some of the principles of a diversified geographic, non concentrated property typ type of bond, which is what conduit was set up for. And so it's a double edged sword. We've been saying and we've seen firsthand the flight to quality and everything else that lends itself towards some of these SASB deals. But at the same time it creates some, some unintended consequences. So you know, he, he echoed the sentiment of the other panels. The multi family is increasingly bifurcated. And he did say that the, the Fannie Mae team at Trimont is actually growing, growing. So even though there's some potential challenges in some of the multi space that's been highlighted, their Fannie Mae team is actually growing.
- [57:19]
Steven Bushbaum
Now the last panel of the conference was Digital Infrastructure and Data Centers, the New Real Estate Frontier. Our speakers in that panel were Henry Fox at Newmark, Stav Ghosn at Academy Securities, Barbara Denham at Oxford Economics and Prashant Kamath at Houlihan location. I kick this panel off with the obvious question, are these traditional CRE assets, Are they infrastructure? Are they hybrid? And really the general consensus is that really these are hybrid assets. They have elements of both. I mean in heck, shoot, they have elements of just pure tech commodity at some level. Now one of the biggest issues that's come to dominate the space has been community opposition. I mean it has become a major hurdle for data centers. And we even mentioned it in our intro. You had this Georgia data center that pulled down a massive amount of water during its construction phase and just outraged residents. And on the heels of that, basically data center development got red lines. It's now prohibited in that county. And you have over 50 municipalities nationwide that have prohibited data center development because of Whether that's water issues, electricity costs, just noise, congestion, there's all sorts of negative externalities that get thrown off of these data centers that have just outraged residents. So the communities are the ones who are bearing those literal and figurative costs without reaping the long term benefits. So yes, while on paper it might look really good for the amount of property tax revenue that development is going to bring in, it's not bringing in the jobs like your traditional real estate development would have done in the past. So like say the Stargate data center in Abilene, Texas, it took 9,000 people to build that one, but only created 50 permanent jobs. So it's going to be really interesting to see here over the next five, ten years you have this sine wave effect in employment where you have a massive influx of people to build this major development. But that's a temporary flash in the pan and there's questions about really what does that mean for the community and are they bearing these temporary costs to house the construction employees. And then all of a sudden we're face, say excess housing supply, excess retail space, any of the excesses that come along with that really rapid, really quick employment growth behind the meter. Power sources are thought to be a solution and we've talked about this on the podcast recently about the natural gas turbines. That seems like a great, great solution. But one of our panelists, I believe it was Henry Fox, highlighted that, you know, those are really not well suited, suited for long term power supply. So it's a great idea for bridging the gap. But at the end of the day, you need something like small modular nuclear to really be the dominant long term source of energy. If tapping into the grid is not going to be an option, we still have a lot of ground left to plow on the power supply side of the equation. So it'll be exciting to see, you know, given how much demand we have for power, what kind of innovation this is going to lead to to.
- [60:27]
Lonnie Hendry
That's the part, Stephen. Innovation is what's going to happen here. I mean, we're going to see it, it's going to be forced innovation. We've talked about the municipalities and others pushing back. I think we're going to hit a tipping point pretty soon where you're going to get federal support for some of these things like the AI data center infrastructure is so important to competitive advantage across the US that they're not going to allow these local control markets to not build data centers. Maybe it's a couple years away, it maybe isn't like tomorrow. But I think this is one of those things where you're going to see enough local municipalities, counties, cities, et cetera, say we're not allowing data center development. And if it negatively impacts the supply side, I think you'll see federal government intervention where they actually say we're going to mandate data center development or they'll dedicate natural, you know, federally owned land and other things for these developments because it's, it's too vital for our. I mean, like you look at Trump and the administration going over to China this week, who do they take with them? All these tech founders and CEOs and other things. I mean, like, it's a currency. The AI trade in the US is a currency that's, that's got global, global value.
- [61:37]
Steven Bushbaum
Yeah. It's a critical infrastructure, national priority. That has to happen. There's no question about if or when it has to happen, and it has to happen soon. So how we get there? There still a lot of questions to answer. But fortunately for most of these projects, you do have the. Typically what you're seeing is phase development. So if it's a gigawatt center, you're not turning on all full 1 gigawatt of power supply day one. You might be turning on 50 to 150 megawatts day one, and you ramp to that 1 gigawatt capacity over three years. And so that buys you a little bit of time to solve some of these problems.
- [62:13]
Lonnie Hendry
And we should have one of these panelists on the pod, or all of them on the pod to talk through some of the things that we don't, that you and I, Stephen, like, we're not privy to. Henry was talking about the behind the meter stuff. I mean, he, he was using terminology around letter of commitment or other things where you're like, you're getting that phased, you know, power availability and the timing of those things relative to breaking ground in the development, like the, the sequence of these is much more robust than what we hear in the headlines. I mean, there are a lot of people working behind the scenes to make sure these things have all the boxes to checked. It was kind of eye opening that for those of us that just see the headlines of the news stories. Yeah, that, that's, that's newsworthy. But the stuff that's happening behind the scenes to get these things off the ground is pretty, like in and of itself is pretty incredible.
- [63:02]
Steven Bushbaum
Yeah. And I think one of the things, I mean, shoot, Lonnie, you've underwritten plenty of real estate in your lifetime. Underwriting a Data center is a completely different ball game.
- [63:11]
Lonnie Hendry
Right.
- [63:11]
Steven Bushbaum
If you had to value one of these suckers, this is, this is new territory. Right. It's, it'd be like if I asked you to go execute a corporate valuation, be like, I mean, I can, I can try, but I'm going to have to learn a few things along the way.
- [63:24]
Lonnie Hendry
And that was one of the points that the panelists made was, you know, their defense of this not being real estate comes down to just a fundamental concept that it's not price per foot, it's not measuring risk from a tenant perspective like you would a traditional CRE tenant. It's conceptually the same. But the terminology, the risk, the underwriting, to your point, is even all substantially different. And it is really interesting to see how the markets are going to react to this because I was already on the fence. Like I was saying, these are hybrid. I don't think they're real estate. And I think the financing of these, the fact, going back to my earlier question of when the lenders only want to do the construction financing, traditional bank lenders only want to do construction financing, or if they're going to do some, you know, long term financing on these, they actually have full term amortization effectively down to zero over the term of the loan. So there's no residual left because they just don't know that there's going to be residual value in the real estate beyond the term of the lease, notwithstanding them replacing the chip, doing all the stuff that they're going to do that they have to, to keep the building viable in the short term. These are just envelopes. The building, the real estate, it's, it's power. The power is where the value is. Connectivity. Obviously tenants drive some of it, but I, after, after this week, I would be hard pressed. Someone would have to convince me at this point that this is a pure real estate plan play.
- [64:44]
Steven Bushbaum
Yeah, I'm having to forecast electricity and power costs over a five year horizon. That's not part of my, you know, daily mindset. Completely new territory. Nothing like forecasting, you know, space, demand and rents. So it's, it's a different ball game there. All right, so that wrapped up the conference. Now I've just got a couple quick hit stories that I want to touch on because I'd be remiss if I didn't. We talked about them in our intro and I feel like these are really three really good nuggets that we want to touch on for this week's. So first up, CBRE has an index that quantifies lending momentum. This index reached a five year high. Index rose to 1.5 in Q1, up from 1.2 in the fourth quarter and just 0.3% a year ago. So the direction is very, very clear.
- [65:31]
Lonnie Hendry
Right.
- [65:32]
Steven Bushbaum
We are back. All engines go. Lending market is hitting on all cylinders, but the nuance is obviously important. This is not a full blown lending boom. CBRE described the market is more disciplined but increasingly healthy. So you had an increase in average loan sizes. Spreads were generally stable to modestly tighter. LTVs moved up a bit and then there were some very good stats on the allocation across capital sources. Really the big thing was alternative lenders had ramped up substantially. They accounted for 53% of CBRE's non agency loan closings in that quarter up from just 19% a year ago. Now next up, we, we mentioned this a little bit in our intro that Blackstone is offering to help build 50,000 homes a year. I mean it just speaks to the amount of undersupply we've had on the single family side. The platform is backed by Brio Home Builder Solutions, a Blackstone affiliate comes at a time when housing affordability remains still a major political issue. Now what's interesting here is is that Blackstone has been under scrutiny. It's one of the largest institutional owners of single family home, especially after the restrictions were floated on corporate home buying earlier this year. So this is Blackstone saying look, we know this space, we know it well and we're going to take steps to stay engaged and continue making money where we can. So on the heels of that also the build rent firms are really acting like the Senate passed housing bill won't stick. That's been a major change over the last month. Here, here. Invitation Homes and AMH are signaling confidence through major stock buybacks. Companies have spent a combined 554 million on stock buybacks in Q1 and have authorization for another 1.2 billion combined. So I mean some, some cash being spent here basically throwing their weight behind the idea that look, this is not going to stick the way this was floated. And from what we've seen on Capitol Hill, there's a strong chance that the BTR our stoppage will ease up and we'll continue being able to stay active in this space. And then finally, a data center development drained 30 million gallons of water unnoticed. Well, almost unnoticed until residents complained about low water pressure. So as I mentioned, thank you Joel R. For highlighting this story for us. This was a major data center campus in Fayetteville, Georgia that used nearly 30 million gallons of water. Water. After two industrial scale water hookups were discovered, one installed without the utility's knowledge and another wasn't linked to the company's billing account. QTS owed roughly 147,000 retroactive water charges, which it paid promptly. Disputed water usage was equivalent to about 44 Olympic size swimming pools and reportedly exceeded the peak limit agreed to during the planning process. Now, I feel like it's an important caveat here. This is not part of your active data center workload. This is still to do with the construction phase. Once these data centers are up and running, they're going to use a closed loop water system, which basically means like the only thing that'll be consuming water will be your typical like, you know, kitchen and bathroom type utilities. So it's not like the data center itself is just flushing water down the drain because that closed loops system is very, very efficient on water. Yes, you have to get it primed, but once it's up and running, you don't have leakage. At least you should, shouldn't.
- [68:57]
Lonnie Hendry
I think the Blackstone story is pretty interesting. I don't think this is the issue. I love that Blackstone's offering to help, you know, with loans to build 50,000 homes. I think it's a good kind of posturing, you know, for, you know, where we're at with the political mess of needing more housing, but then also trying to pass build to rent laws that restrict development of new housing, etc. Etc. But I don't know, like, I don't think that's the issue. I don't think it's that funding isn't available. It's just you can't get these, these elected officials out of their own way. And that fundamental challenge isn't going to be solved by making more loans available for people when that's not the real issue here. And so this will be one of those things, Stephen, as you and I enter into this next phase of our careers now is having worked in the space for 20 plus years. I think we're going to look back at this and just say how did we get to a point where we allowed local control to effectively prohibit people from being able to buy homes. I'm not suggesting we go back to the GFC days of subprime lending and fog the mirror loans and all the stuff, but companies like Blackstone and others are effectively saying, like, we're removing the barriers, funding won't be an issue, we can underwrite these. There are people that can afford to buy reasonably priced homes. There's land available for development. There are office buildings sitting vacant that can be converted. There are all these opportunities to actually, actually meaningfully impact the supply side of the market. And city councils across the US comprised of members 4, 6, 8, 12, 20 people, et cetera, single handedly can prevent that development from ever taking place. Like I think we're going to look back and just, that'll be one of those just mysteries for us of how and why this is an issue that could be solved and has not been solved. I understand why. But it's, it's, it's, it's a travesty at some level that, that we're not going to get the type of construction that the market itself would normally and naturally produce if allowed to.
- [70:52]
Steven Bushbaum
That's right. Because it didn't produce that housing for a long, long time. So it seems like a lot of housing to be built, but it needs to because we had such a massive backlog that went unbuilt.
- [71:03]
Lonnie Hendry
Yeah, horse multiplier. Just like we're talking with AI, we have this compounding effect if equilibrium is six months of home inventory on the market for sale and you have 10 years of one month or vice versa on the, on the supply side, those, those shortfalls compound over time and it's very hard to get caught up. And so, so, you know, it was interesting to hear Scott Rechler talk a little bit about how New York has been pretty proactive with the conversion process and the private, public, private partnerships to try to get some of these offices converted to housing. But it can't just be one city and it can't just be conversions.
- [71:35]
Carly Sento
So I'll close here with some programming notes this week. We just released our April special servicing report which found that the overall rate rose in April mainly driven by office. So the truck's CMBS special servicing rate increased by 38 basis points in April to 11.38%, driven primarily by a heavy concentration of new office loan transfers. Those office transfers outweigh the slate of sizable office, retail and mixed use loans returned from special servicing, pushing the overall rate higher month over month. The report also found that special servicing rates rose across all but one property type in April, which was retail. If you'd like to see a copy of the report, if you have not already, send us a Note to podcast trap.com or check out our website or LinkedIn page. And one last call for future CRE leaders. If you are a May 2026 graduate with the major or minor in commercial real estate, you can apply to be a future CRE leader. This is trip's award program as designed to recognize outstanding and innovative individuals who, upon graduating from their studies, want to make an impact in the Siri finance sector. Applications end May 25, 2026 so you still have some time to get in your application. If you have any questions, feel free to reach out to PodcastRep do and we'll get you in touch with our team member Julia S. And moving to Shout Outs, I wanted to of course give one last shout out to TrapConnect. Huge thank you to everyone who made the conference such a success this year. Attendees, Speakers, Sponsors, TREP teams across the firm. We couldn't have done it without you. And while I'm here, I'll give a special shout out to the marketing team at Trep. Haley K. Julia S. Mariana S. Riley C N.S. callie A. It was such a pleasure to see what we were able to build together. 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 podcastrep.com subscribe to the Tripwire podcast with your favorite provider. Thank you for listening and stay well. All right.