← The TreppWire Podcast: A Commercial Real Estate Show
The TreppWire Podcast: A Commercial Real Estate Show
397. What the Fed Is Really Watching, CRE’s Consolidation Wave, Why Retail Is Winning, the LA Mansion Tax Backfire & AT&T's Move to Plano
00:56:14
Loading summary
Transcript57 lines
- [00:00]
A
Foreign.
- [00:06]
B
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 22, 2026. I'm Hayley Keene with Trep, a data modeling and analytics firm for the CMBS Commercial Real Estate and CLO Markets. I'm with Lonnie Hendry, Chief Product Officer, and Steven Bushbaum, head of Applied Research and Analytics. This week was a little lighter on major macro data, but definitely not light on market signals. We saw another jump in treasury yields, renewed debate around whether the 10 year above 4.5% changes, the CRE recovery story, and some interesting consumer warning signs coming out of Costco today. We'll also dig into a few major real estate and capital market stories, including Google and Blackstone's new AI cloud venture, the impact of Los Angeles mansion tax on multifamily development, and a major $910 million student housing portfolio sale involving Aries and the Scion Group. Then later in the episode, Stephen will walk us through this week's one on one segment on the Fed's hidden benchmarks, things like R usar Y star and why they matter for the rate outlook. And we'll also spend some time digging through the data on retail originations over the past year. So Stephen, why don't you start us off with the macro calendar a little quieter this week it feels like the market narrative was really driven by rates, consumer signals and a handful of big commercial real estate stories. Where do you want to start?
- [01:38]
C
Well, you're right, Hayley. This week was not big in terms of macro data, but how markets are processing the rate environment seems to be front and center because, well, the move we saw in Treasuries on Tuesday was wild move. We had a sharp move higher in yields after a wave of large selling hit the treasury futures market, especially in the five and ten year contracts. So the way I describe this is it's not just that we're in a slow, orderly drift higher in rates. This was a sharp repricing and part of it looked technical with some large block sales positioning and a bit of capitulation type move in bonds. So for Siri Lenny, I know you had talked with Biznow earlier this week about, you know, is there a critical threshold and what does this for cre? So you want to walk us through some of what you talked about in that interview?
- [02:29]
A
Yeah, I think it's interesting. Timing is everything in real estate. It's a combination of location and timing. And I think if you had asked this question or we had to answer these questions, call it 9, 10, 11 months ago, I probably would have been more direct in saying I think above 4.5, the market really feels the impact and slows down. But given what we saw 4Q25, with momentum, velocity, volume and picking up where we left off in first quarter of 2026, it feels like the market is brushing past 4.5 and even to 4.6 and continuing to maintain that pace that we've seen the first part of the year. I think the story is that if a deal penciled at a 4 and a half treasury 10 year, then it's not going to be significantly detrimentally impacted at 4.6%. I think my personal opinion is if you get to 5 or above 5, you might see some people making some different decisions. But I think if we stay range bound in that 4 and a half to 4.75, the markets are still going to plow through this just like they have with all the other geopolitical macro. You know, you could go down the list of things that has not slowed down the recovery.
- [03:38]
C
You know, to some degree. I got to say I'm not terribly surprised we've seen this move because the technical pressures were just too great. I mean, it was spring loaded. In fact, I think maybe the news just came out Thursday morning. I think it was that the bank of Turkey or the Central bank of Turkey liquidated almost all of their treasury holdings back in March. Now, in the scheme of the bond market, this wasn't a massive, it wasn't like a massive wave that was created. It's kind of a drop in the bucket. But this is some large numbers. They held about 16 billion in U.S. treasuries. I think they drew that down to like, or sold that down to 1.8 billion. Don't quote me on that. I'm not getting the numbers. Maybe perfect. But yeah, the market can absorb that. But it's just technical pressures from around the globe and different central banks trying to protect their currencies. Well, the way you do that is you sell your treasury holdings and go and buy your local currency. And so yeah, some of these technical pressures due to higher oil prices were just bound to rear their heads. Now, on the consumer side, the Costco story is an interesting one. Lonnie, I think maybe you or Haley were one of the ones that actually highlighted this, this X story.
- [04:43]
A
Yeah, it was on X and which I still have to say Twitter, because it's still always going to be Twitter. But pretty interesting story in the sense that, you know, Costco deals in such volume that they actually get flags from consumers based on their spending habits. And so in this particular write up, it was saying that one of the data points that really tells where we are in the market cycle from a consumer perspective is if they start shifting away, this is their shopper shifting away from beef towards more chicken and canned goods means, you know, that we're, we're maybe teetering on some sort of a pullback or recession. Obviously it's not official, but it does suggest that they're making decisions around price pressure. And so, you know, Costco's client base is pretty resilient on the whole. And so when you start seeing them make some pretty, you know, noticeable changes with how and what they're buying, it's a pretty good indication that the, the pressure is maybe starting to bubble up.
- [05:38]
C
I. I will say moving from, say, beef to chicken right now isn't all that surprising when it costs like $86 for four steaks at Costco. Granted. Cause, you know, Costco's cutting them inch, inch and a half thick, you know, one pound slices, and we're at 20 something a pound, easily on prime beef. But, yeah, going from beef to chicken, natural, natural pivot. When you go from chicken to, like, canned meat, I gotta say that's, that's a concerning warning sign. You know, even more concerning is when you go from canned chicken to, I don't know, canned dog food.
- [06:08]
A
Well, luckily there was no mention of the dog food index. You know, we're still a few steps away from the Dave Ramsey beans and rice, Rice and beans or whatever he says. So, you know, switching from steak to chicken, I think is still okay for consumers. In fact, I'm with you. Like, I, I bought some steaks a couple of weeks ago, and you're talking 100 bucks, man. I mean, and it's, it's just interesting how, you know, that used to be $40, $50 for, for enough steaks to feed a family of four or five, and now you're talking 100 plus, not counting any of the sides. I mean, it is, it's real. The pressure is real.
- [06:44]
C
Yeah, you got to surf the sales. You got to clip the coupons. I mean, earlier this week, I got a couple of T bones from Ingalls for $12.99 a pound. I got to say, that's good value. Plus, you're getting Ingalls fuel points. You know, on the other side of the real estate story, we had some news in the opposite direction, and this one is not surprising, especially given what we've talked about on the podcast in the past. The Los Angeles mansion tax is a perfect example of policy colliding with development economics. Lonnie, what happens when we introduce a tax into system? What happens with real estate usually?
- [07:18]
A
Well, I can tell you is the taxes that are implemented generally on the, the higher income earners, they figure out a way to avoid paying the tax full stop. And so, you know, the idea from the government side is, oh, we're going to all of their projections, all of their analyses, look at how much revenue is going to be generated because of these high income earners or high value property owners. And in reality, those same people are the ones that either hire the consultants, hire the attorneys, draft documents, so when they actually make a sale, circumvent the tax altogether and they never actually produce the type of revenue that they were estimated to. And in fact, if anything they just slow down the transaction market. And so you end up with a double whammy of inventory that doesn't move and tax that doesn't get generated.
- [08:05]
C
Yeah, and that's the amazing part to me that when these policies get drafted, the estimates that get used for transaction volume are so incredibly lofty. You know, on this Los Angeles mansion tax, it's, it's almost comical what they had been projecting. So the city initially projected the tax could raise 600 million to 1.1 billion annually. Instead they've collected about 1.19 billion over three years and only about 119 million of that had been paid out as of April 30th. And so, you know, basically what's happening is that the sales activity could offset about 80% of the transfer tax revenue that they had been projecting. So spoiler alert, it's basically like nothing changed. You didn't raise the revenue that you were talking about and now we've slowed down transactions, which is a kind of a, it's, it's a self perpetuating cycle. At some point, right when you have fewer comps, it makes it more difficult to price wider bid asks means that we have fewer transactions and they take longer to materialize.
- [09:07]
A
Yeah, you're, you're approaching us too much like a CRE professional, Stephen. From a political perspective, it achieved exactly what the politicians were hoping for. It's more tax the rich rhetoric. And you know, these people should pay more and more and more. And you know, that's why those numbers are lofty on the front end. And if it doesn't come to fruition, it doesn't matter because for their political base, they have provided the, you know, tax the rich agenda that they have, you know, most generally campaigned on. And so this is an interesting story because it's, it's becoming more and more apparent. We've talked about this at length on the podcast around the role regulation plays in the CRE market. And it's, it's becoming not just a commercial real estate, you know, issue. This is something now on residential, on the mansion tax. And it's not just in California, there's other states that are looking at similar regulation. And it's, I think for the markets to operate the most efficient way is to just let the market decide. And if you, if you need to generate additional revenue, figure it out. But it's not by, by crafting legislation like this. It singles out a certain arbitrary threshold of value to, to generate additional, you know, taxes, because those people inevitably just figure out a way to avoid paying the tax to the detriment of everyone else, you know, that this legislation was supposedly going to help. So, you know, L A, I think L A has other things they need to get focused on. I mean, they have a struggling office market still, they have a struggling hotel market. They, they're a softer market than, than what we've seen them be historically. You know, they need to focus things back to being vibrant in order for LA to return to its glory days.
- [10:50]
C
You know, I gotta say, there is one satisfying thing that I've seen come out of these policies over the last couple of years, and that's the dramatic U turns that happen. And you're seeing it from like Los Angeles, Seattle, New York City. It's so predictable. It's like, oh, wait, I've really angered my constituency and now it's going to flip next election cycle. I better do something quick. It's just comical to me.
- [11:13]
A
But, you know, at some level that's how the system is supposed to work, right? I mean, that's how you kind of keep things anchored in the center most of the time is they swing one direction too far, they go back the other direction too far. And people generally want to be somewhere in the middle, I think. And so we'll see how this plays out. It's, it's one of those things where they make such a huge deal of it on the front end that to your point, when the revenues don't meet the threshold that they said they would, it's, it's an obvious mess. They would be better served if they didn't make these such a huge, high priority, focused item. So that if they don't meet the revenue thresholds, then it just kind of gets brushed under the rug. But in these cases, there's no hiding from it. And all of the major news publications in those metros have been following this story, you know, since the beginning.
- [11:58]
C
Well, I got to say we do have some positive news here in the real estate sector. We have Google and Blackstone have created or are creating an AI cloud venture. Just another reminder that data centers remain one of the most active and capital hungry parts of the Siri universe. And the Aries science student housing deal is clearly showing that institutional capital is obviously still leaning into sectors where the demand story is more durable. So in this case it's large universities, strong enrollment and limited new supply because gotta say, you have to break the student housing market down very carefully because there are plenty of student housing markets out there that are not doing quite so well.
- [12:39]
A
Yeah, I'm still pretty bullish on student housing though, given what we saw through Covid. It is an interesting subsector in the sense that it's an amenities race. You're only the best and newest for a very short period of time because there's so much new construction that's been taking place in this sector and it's gotten very institutionalized. There's been some consolidation in this space. So it's certainly something to keep an eye on across, across certain universities where they've just overbuilt. But I think on the whole, if you look at enrollment in most of the major, you know, kind of a tier 1 universities, college enrollments are still growing. Despite some of the narrative that people are, you know, choosing for an alternate path of, of no college. It feels like there's still a pretty strong desire. But yeah, I'm with you. I mean we've seen it. There's been certain markets like in College Station here in Texas that overbuilt and then it's tough on everybody because everybody's occupancy goes down. I think that Google and Blackstone is interesting because you know, you're, you're starting to see these large scale mega companies join forces together for like industry initiatives to really pursue some advant advancement. I mean Blackstone and Anthropic I think also announced a pretty large one and a half billion dollar deal to create some very specific CRE type of workflows and agents. That bodes well I think for the industry as a whole. But it's definitely going to put some pressure on some of the smaller players.
- [14:01]
C
Yeah, this Google Blackstone one will be interesting. To watch because the goal here is to create a new cloud computing platform that can compete with companies like coreweavers, which rent out high powered computing capacity for AI companies. So the technical hook here is that the company will use Google's own AI chips called TPUs, or tensor processing Units. So in simple terms, these are Google's alternative to Nvidia's AI chips. And Nvidia, I mean, absolutely dominates the AI hardware market right now. The earnings came out this week and they absolutely crushed it. I mean, it's unbelievable insatiable demand for these AI chips. So this will be an interesting combination to watch to see exactly how quickly folks are willing to pivot to say, this alternative product. Because at least from what I've read over the last six to 12 months, the expectation is that the TPUs will be slower than Nvidia's chips, but on a cost per compute basis. Maybe there's some real economics to switching here, but it's too early to say because this new company is not yet up and running. They're going to bring 500 megawatts of capacity online in 2027. So that is, that's massive power equipment, roughly comparable to the electricity needs of a midsize city, but that still is a drop in the bucket for the aggregate compute demand nationwide. So it'll be curious to see like exactly how far they can scale, how quickly they can scale, and how willing are folks to switch from using the Nvidia chips to these TPUs.
- [15:37]
B
So one more headline we saw today was actually something we talked about a few weeks ago, but now looks like it was formally announced. And that is that Equity Residential and Avalon Bay have merged to form a $52 billion apartment REIT.
- [15:52]
C
Yes, this is going to create really one of the preeminent multifamily real estate companies with a pro forma equity market cap of approximately 52 billion and an enterprise value of approximately 69 billion. With more than, get this Lonnie, 180,000 rental apartments. 180,000. That scale is unfathomable.
- [16:14]
A
Well, and they have a, that's, that's not counting the 11,000 units that are under construction right now within those firms. And so, you know, when we talked about this the other day, this is what you frame as a paradigm shift. And this has the ability to, to reshape the market. And so it'll be interesting to see if they're able to get, you know, full on regulatory approval for this. If this, if this gets through the, the rigor that is large scale Acquisition and merger. But supposing it does, this shifts the landscape. I mean, this is something where we'll look back, you know, in 2026 and say equity and Avalon coming together shifted the dynamics in the multifamily space, in my opinion.
- [16:54]
C
Yeah, I mean, a combined 2 billion of annual cash flow and self funding capacity to deploy across multiple channels of growth, that's just absolutely unprecedented. And the kind of insight that they can get from a portfolio of this scale is invaluable. I mean, this is going to be hard to compete with.
- [17:13]
A
Yeah, I mean, if you're competing with them in any of the markets that they play at this point, and I think when we looked at this originally, their geographic overlay is not generally in the same markets. This actually just creates scale that doesn't exist for this sector. And, you know, we've seen multiple acquisitions or consolidations over the last couple of years in this space, but nothing with two preeminent companies with this type of exposure to the marketplace. I mean, it's usually one strong company buying an upstart or something that's, that's disrupting. In this instance, you have two titans of the space coming together.
- [17:50]
B
So let's close our big Headlines of the week segment here with another collaboration story. I mentioned this in the intro, but we saw Aries and the Scion Group launch a new student housing joint venture. And their first deal is a big one, a $910 million acquisition of a 12 property portfolio from Harrison Street. So talk to us about this deal and maybe a quick update on the student housing market.
- [18:14]
C
Sure. So this portfolio is just over 7,500 beds across 10 states. Now get this. Lonnie, let me know if this sounds like some powerhouse schools for you. You got University of Florida, Auburn, Notre Dame, Ohio State, James Madison and Arizona State. Now, if we're just picking schools, to me, that sounds like a proper right bunch to be picking from.
- [18:37]
A
Yeah, that's, that's what I was saying a moment ago. I mean, these are what I would call tier one universities where you're seeing super strong demand on the enrollment side. And, you know, it's, it's sad but exciting at the same time that schools that have really strong football programs right now are driving enrollment. And so for all of these schools, I mean, Florida was, you know, maybe a little disappointing this year, but, you know, same with Auburn, but both in very competitive conferences where they're, they're national brands. Notre Dame, incredibly strong. Ohio State, incredibly strong. James Madison was a surprise. And Arizona State with their new Coaching staff there over the last couple of years has really turned their program around. So, you know, I'm very bullish on each of those universities in particular and more broadly. I mean, if you're in the SEC or the Big Ten and you have a nationally ranked football program, odds are you're going to have strong student enrollment. And, you know, I think we underestimate how those schools getting national TV coverage for those athletic events drive out of state enrollment at those universities. Like, I know you, and I've seen it firsthand at Texas Tech, where, you know, when they first made the NCAA basketball tournament, Final Four back in, you know, before 2020 is 2017 or so, enrollment, I mean, jumped measurably because the university was on TV and people that normally wouldn't have seen or heard about Texas Tech saw and were drawn to it. So, yeah, I think this is a pretty bullish play.
- [20:03]
C
Yeah, I agree. I mean, the sales volume looks great in the sector, I mean, at least solid. So sales volume rose to 10.4 billion in 2025, up from 8 billion in 24 and 5.7 billion in 2023, which is, you know, really a sharp rebound from that 2023 slowdown. And like you said, Lonnie, stepping back from this, college athletics have become a major part of the student experience and your, your recruiting story. And so the, the programs, or I should say the markets that are doing well are the programs that are doing well. Outside of that. There's some real doom and gloom in the higher ed space as well. You have some small universities that have actually ended up shutting down, but that's created some really interesting opportunities from a CRE perspective, when you have, you know, this large, absolutely gorgeous swath of space that all of a sudden gets unlocked for development.
- [20:56]
A
Yeah. And look, I think it's just like everything else in the economy right now. You have the haves and the have nots, and I think it extends itself here to higher ed. I don't think people realize just how many academic, you know, higher education universities and colleges there are across the. But we probably could use a little consolidation there. And some of these private schools that have historically been able to charge inordinate amounts of tuition, people are starting to question that. But I think for these state schools that have strong athletics and provide that reasonably priced, awesome college experience for students are going to see strong demand into the future. And so this is a cool story. I actually think the 910 million seems like a pretty, pretty solid buy here. I mean, you're getting, you know, access to effectively 7,600 beds almost, and geographic diversity across 10 states. Everything we've seen recently has started with a billion. So for this to be less than a billion, I think is a pretty good, pretty good buy for the, the acquirer here.
- [21:55]
B
So let's move on to our one on one segment for the week. We wanted to take a step back here because there is an important concept behind almost every Fed decision that does not always get expl. Clearly, the Fed is not just reacting to economic data at face value. It is constantly trying to measure where the economy stands relative to a set of underlying benchmarks. So, Stephen, why don't you start us off here? We're calling this Dancing with the Stars, the Fed's Hidden benchmarks.
- [22:25]
C
Yeah, you might want to put on your, your waiters and some bug spray here because we're going to get into the weeds. So how the Fed makes its rate decision isn't just based on, say, the latest inflation print, the latest jobs report, or the latest GDP number in isolation. The Fed is comparing each of those data points against a set of its estimated benchmarks. And in economics, those benchmarks often get a star. So you'll hear, hear people talk about R star, U star, Y star, or PI star. So that sounds a little wonky, but the idea is pretty simple. The star or these star variables are the Fed's reference points for judging whether the economy is running too hot, too cold, or somewhere close to balance. Okay, so let's start with PI. This is the easiest one. This is the Fed's inflation target, say 2%. So unlike others, this one is not estimated by a model. This is really truly a chosen one by the Fed. So we've talked in the past about, like, why doesn't the Fed, you know, create a range, or why doesn't the Fed just bump it up to two and a half? So all of that discussion was revolving around this particular star, the PI. And next we have U star, which is the unemployment rate, which is consistent with stable inflation. So when the Fed talks about a, quote, tight labor market or slack or labor market rebalancing, it's implicitly asking, where is the actual unemployment rate relative to the level that would be sustainable without creating inflation pressure. Next up, we have Y star. Sometimes this is called G star. This is the economy's potential output or potential growth rate. This is basically the economy's speed limit. If actual GDP growth is faster than the economy's sustainable capacity, the Fed may read that as inflationary. Now, if growth is behind that speed limit, the economy may have slack. So this GDP growth is really a big one right now for a number of folks in particular. Myron, I think, has highlighted this a lot, that the new AI capacity that's coming online could actually mean that we could run at a higher growth rate without creating inflation. Now, the big one for rates is R. And I think this is probably the one that if you've heard of any of these star variables, this is most likely the one that you've heard about is R star. That's the neutral real interest rate. That's the rate that neither stimulates the economy nor restrains it. So when the Fed says policy is, quote, restrictive or neutral or accommodative, it is really comparing the current policy rate to R. And that distinction matters a lot. A 4.5% or 5% fed funds rate does not mean the same thing in every environment. If the neutral rate is very low, then 5% is extremely restrictive. On the other hand, if the neutral rate has moved higher, then that same 5% rate may be less restrictive than what Mark assumed. And this is where the rate decision gets tricky. The Fed has to decide not just where inflation growth and unemployment are today, but where those numbers sit relative to a moving benchmark. So take GDP growth. A 3% growth print can be interpreted very differently depending on the Fed's estimate of potential growth. So if potential growth is closer to 2%, then 3% may look like the economy is running hot. Now that could mean more inflation pressure and less urgency to cut rates. But if potential growth is closer to 4%, then 3% may look sustainable and less inflationary. So for Siri, that creates a familiar tension. Strong growth is good for leasing, occupancy, rents, household formation, consumer spending, and credit performance. But if the Fed interprets that growth as above the economy's speed limit, then stronger growth can actually push treasury yields higher and delay rate cuts and keep financing conditions tighter. Lonnie, does that sound kind of familiar to what's happening right now?
- [26:17]
A
I was about to say, when are we going to overlay this on what we're seeing play out right now? I mean, you know, look, it's, it's great to do these one on ones and we want to, we want to do these on the show to kind of give people a behind the scene look at certain concepts and certain constructs. And I think, you know, when it comes to the Fed, a lot of times people just only hear the press conference or they, they see the, the dot plot and there's really no context. There's nothing behind kind of what is driving some of that. And this is a great example of how, you know, the same print doesn't necessarily mean the same reading based on all these other factors. And so as you were talking through that, I thought, you know, I wonder if the Fed, this sounds kind of like a constellation. We need a Federal Reserve constellation, you know, so you can look in the sky and kind of know what they're, what they're reading. But you know, without the joking. I think this is important for people to understand and it just highlights where we are. In commercial real estate, headline numbers don't tell the full story. There's always more context behind the scenes, whether it be on cap rates, vacancy, expense growth, etc. And the same thing here plays out with the Fed. And right now you have a lot of moving parts where CPI comes in hot, you know, and people think that automatically means that there's going to be a certain reaction, there's going to be a certain interpretation. And the reality is there's more to the story.
- [27:39]
C
That's right. And how these stars fit together. Usually we talk about the Taylor Rule when we're talking about these stars. The Taylor Rule is a formula that translates all of these variables into effectively what the prescribed nominal policy interest rate should be, in other words, the Fed funds rate. So we take the stars that have been decided or picked out or decided what is appropriate for the current environment, then we take the actual readings and we plug them into the Taylor Rule formula and it spits out the answer. Right? That sounds pretty cute, pretty simple. But as I think we've highlighted in this 101, it's not quite that simple, especially not in the current environment. If we really do think that AI is going to be as transformative as all of the hype is kind of building it up to, well then that truly does affect our potential output, Right. Our speed limit, in other words, for the economy. So if we do raise productivity because of increased AI adoption, that means we can run the economy at a higher growth rate without being inflationary. And so ultimately that potentially could mean a higher R star or that we could, you know, essentially we could live with a higher Fed funds rate, I
- [28:53]
A
should say, as famous broadcaster Paul Harvey would say. And now you know the rest of the story.
- [29:01]
B
So we talked about how the Fed is thinking about the economy, but let's also look at what the lending environment actually looks like right now. We have a digging through the data segment today where we pulled retail originations and broke that down by retail subtype now, at trep, we have a lot of different ways to slice and dice the data. And we have a lot of metrics. So I know we looked at LTVs, cap rates, occupancy and so many other things. So why don't you walk us through what we're seeing in the retail origination part of the market, Stephen?
- [29:34]
C
Yes. So what we did here was we pulled the retail origination volume from April of 2025 through month end April 2026. Right. So we basically have the trailing 12 months here and broke it down by the retail subtype. So in total, across the trailing 12, total retail originations in CMBS were at 16.5 billion. Now, we've talked about what's been driving the retail delinquency rates a lot. And well, because it's a dollar weighted index that tends to mean that the larger properties of these larger loans are the ones driving the headline number. So it's probably no surprise here that the two largest subtypes feeding into overall originations are super regional and regional malls. Those are the big dollar properties. So we had about 5.16 billion in super regional mall originations in the trailing 12 months here. And for regional malls we had just over 3 billion. Now what's interesting here is the third largest property type is community shopping centers, right? That essential core retail shopping experience that most of us deal with on a day to day basis. We know that has been underbuilt massively and performing extremely well. So at least from, from my perspective, it's not too surprising to see that come in third place here, 2.67 billion over the trailing 12. Now what's even more interesting here is when you compare the leverage between the regional and super regional malls and the community shopping centers, the regional and super regional malls have gotten a lot of negative press because of that elevated delinquency rate. So LTVs are relatively conservative there you see just under 55% leverage. It's right about 54.2 or 0.3% LTV at origination for regional and super regional malls. For community shopping centers, we're almost at 67% original LTV. I mean, that is a dramatically different risk profile.
- [31:31]
A
It's interesting just seeing the numbers play out here, Stephen, with the regional and super regional malls. Just because of their scale and the size of those deals, the origination volume is tilted their way. But the community shopping center and the urban street retail and neighborhood centers, I mean, to me those are the core tenants of the retail comeback that we've seen. And I know, you've put together some data that we've shared on a couple of Market Pulse webinars that looks at delinquency across retail. And just like the origination is tilted towards the mall space, so has the delinquency. But for those other three, the community, you know, urban or street retail, and the neighborhood center performance is incredibly strong for them. And you know, I think the debt yields are attractive. Debt service coverage is very comfortable for the lenders and cap rates are generally at a place where I think the market feels they're where they need to be. And so you're seeing a lot of transaction activity there. So, you know, on the community shopping center front, a lot of these have, you know, a grocery anchor with some inline space or they may have some junior anchors, maybe like a Kohl's or something like that. And as we've covered in our story segment of the podcast, I mean, we've seen so many of those sales transactions in that, call it 300 to $360 square foot range, which is just mind blowing that they've been able to kind of withstand and produce those types of prices. And so this is a, this is a great chart and we can actually probably send this out. We didn't talk about that, but I'm assuming we can can share some of these stats with people if they want to email us@podcastrep.com I love that retail has come back the way that it has and that we can now look at some of these volumes and some of these underwriting metrics and say, wow, this sector is performing exceptionally well and lenders are happy and looking to do deals across the retail space.
- [33:14]
C
Yeah, what's wild is when you, you break out grocery anchored retail here just how bullish these metrics look. Now keep in mind, the subtype can mean a lot of different things in terms of the tenant mix. So grocery anchored retail could be a community shopping center, it could be a neighborhood center, it could even show up as unclassified for property subtype. So we have a flag for anchor type so that we could separately break out grocery anchored retail since as you mentioned, Lonnie, that's been one of the hottest plays in the last 18 to 24 months. So you have 2.8 billion in originations for that subtype. 66.3% weighted average LTV, the weighted average cap rate, 6.6%. And that seems like actually a pretty decent yield here. Now get this. The debt yield for grocery anchored retail is actually the lowest of any of the breakouts. That we did, the weighted average debt yields based on net cash flow was 9.6%. The next lowest was 9.7% debt yield. Something that tells you that originators are underwriting fairly bullish rent growth here for this subtype.
- [34:23]
A
Well, yeah, I mean look, they had almost 96% weighted average occupancy, which in those grocery anchors historically don't go out of business. And so you have that strong anchor that drives demand and foot traffic and all of the things that help support, support some of those smaller tenants in those centers. And so, and we've seen post Covid, I mean, grocery anchored retail has been the preferred investment. And so like I, like I said a moment ago, these numbers I'd love to do. We, we should probably do like a contrast of this to like 2018 because I can assure you these numbers are going to be so much stronger today. I mean, the occupancies alone across the spectrum is just incredible to see. You know, all retail originations have a weighted average occupancy of 94.6%. It's incredible. I know you did some same store analysis across multifamily and industrial looking at national occupancy and median average and median cap rate. And if you look at multifamily across the nation, I don't think that the weighted average occupancy was 95% for multifamily. It was in that, that lower tier 90 range. And so you'd be hard pressed to find people a few years ago saying that retail holistically was going to be outperforming multifamily from an occupancy perspective.
- [35:42]
C
Yeah, and it's truly largely a supply side story. We built so little of it post gfc and with the consumer being still steady on their feet, that essential retail sector, essential goods retail sector is going to perform very, very well.
- [36:01]
B
So let's get into our deals and data property type segment. We had a lot of trading alerts this week. So if you're a trip client, make sure you're checking your inbox and seeing all the alerts we have on different movements for loans according to our May data. So here's one that we'll share on the podcast. This week we saw that a Times Square ground lease loan has transferred to special servicing.
- [36:25]
C
Yes. According to May remit data, the $647.5 million 20 Times Square loan transferred to special servicing after failing to pay off at its maturity date earlier this month. Now, we highlighted this loan in our May 2026 upcoming Hard Maturities Report in which we noted that the borrower had not secured a refinancing ahead of maturity. The loan ultimately failed to pay off at its fully extended maturity date and is now reported as non performing matured balloons. Servicer commentary indicates that a pre negotiation agreement has been executed with the special servicer and borrower currently engaged in discussions, so I'm sure we'll have more on this loan as the negotiations proceed. As reported in an October 2023 edition of TruckWire, the loan was modified in late 2023 following an extended period in special servicing related to mechanics, liens, mezzanine lender enforcements and foreclosure of the hotel components of the non collateral improvements. So as part of that modification, the mezzanine lender assumed control, funded a $69.2 million guaranteed obligations reserve, made a $50 million principal curtailment and extended loan's maturity to May 2026, allowing it to return to Master Servicing where it remained until its most recent update. The loan is secured by a 99 year ground lease on a 16,000 square foot parcel located at 7th Avenue and West 47th street along Times Square within the New York City Borough of Manhattan. The loan collateral does not include the vertical improvements which consist of a 42 story building containing approximately almost 75,000 square feet of retail space, 18,000 square feet of digital signage and a 452 room luxury edition branded hotel. Over the first three quarters of 2025 the loan reported a DSCR based on net cash flow of 4.06 times and the property was valued at 1.64 billion at securitization in 2018.
- [38:22]
B
So let's turn our attention to another office headline that caught our eye this week. This came to us from Crain's New York and the headline stated that Brookfield and the Qatar Investment Authority are set to extract $273 million from a Midtown tower. And the story noted that this reflects a glaringly bifurcated market. So this is specifically the two Manhattan west refi which is going to be a CMBS single asset single borrower deal.
- [38:50]
C
So this particular story is a good reminder that the office story is just increasingly bifurcated. So Brookfield and the Qatar Investment Authority secured a $1.9 billion CMBS refinancing for 2 Manhattan west the 58 story Hudson Yards tower that opened in 2023. Wells Fargo led the refinancing and Newmark arranged the transaction. The deal comes right after the Soloviv group landed a $1.8 billion C refi for 9 West 57th Street. So we've now had nearly $2 billion CMBS office loans in Manhattan in fairly quick succession. So this is obviously not a broad offices backstory. It's much more specific than that. These are trophy assets in premier Manhattan locations with strong leasing and institutional sponsorship. In the case of 2 Manhattan west, the building is 96.3% leased with average gross rents of 100 per square foot. And major tenants include D.E. shaw, KPMG, Kravath, Clifford Chance and BBVA. The loan itself was priced at 107 basis points over the 10 year treasury with a 5.53% coupon. And it reportedly gives Brookfield and QIA a 273 million cash return. So the read through is that CMBS investors are clearly willing to finance high quality office again, especially in midtown Manhattan. But the market is highly selective. Legacy office assets are still really distressed. There's a lot of struggle in that space. And weaker buildings are not getting the kind of attention that we had hoped to see at this point in the recovery. We're not seeing the trickle down demand story, at least not yet.
- [40:32]
A
So I think that fits the narrative, Steven, that we've been saying that there's a flight to quality and we're seeing it every day with these transactions. I think the legacy stuff is going to have its day, but it's going to require a lot of them to have a reset in basis for that to actually happen. So we're going to transition here. Another interesting story, KDC gets a $400 million construction loan for AT&T's new Dallas area headquarters. So this is a story we covered probably two or three months ago where AT&T had announced that it was going to be vacating its downtown Dallas location, which has been a pretty stable tenant in the downtown metro. And they're going to move it to a suburban corporate headquarters out in Plano. So the development plans call for at least 2 million square feet of office space, a retail component and additional amenities. They're going to occupy the property at and t is for at least 25 years. The hope is that they start occupancy, at least per the plans here in 2028 and then it will accommodate up to 10,000 full time employees. As we mentioned and I highlighted just a moment ago, they currently have their operations in the 37 storey Whitaker Tower in downtown Dallas on a deal that runs through 2031. So even if there's some delays on the 2028 opening of the new building, they have, they have some Coverage there. The property at 28 S. Akerd St. Serves as collateral for the $131 million debt that's split into two CMBS deals. This is for the current headquarters. So this is, you know, this has been a hot topic in Dallas, Stephen, because there's been a lot of economic impact studies done on just how detrimental it's going to be to downtown, which already has a struggling office component. You go outside of downtown, if you go into uptown or you go into some of these suburbs, the office market's been really, really strong. But in downtown proper, you know, removing couple million square feet of tenancy with AT&T is a negative for the downtown markets. But this highlights 400 million construction loan. Everyone is very excited to see AT&T move into their new Plano headquarters.
- [42:33]
C
Yeah, AT&T had a lot of concerns that they voiced and I gotta say, city officials kind of dropped the ball. I mean, not a lot was done to address the concerns. And so AT&T spoke with their feet. They said, well, if you're, if you're not going to help us out here and address some of these issues that are, you know, real and impact our employees, we're going to have to move. And that's exactly what's happened.
- [42:53]
A
You know, we should probably do a 101 segment on this which is public private partnership abatements and other incentives to keep some of these large corporations where they are or lure them to a new location because it's a double edged sword. You know, I have a quick story about a large corporate tenant here in Fort Worth, Texas several years ago. Radio Shack. Back when they were in existence, you know, they were a pretty hot commodity and they wanted to keep their headquarters in Fort Worth, but they said if they didn't get tax incentives or abatements, they would not remain here. So the city of Fort Worth rolled out the red carpet, but abated a bunch of taxes I think for 10 years, helped them build a corporate campus right on the river. And then that 10 years or 15 year abatement was up. Radio Shack comes back and says, if you don't extend these, we're going to move. So the city rolls out the red carpet again and then Radio Shack ends up filing bankruptcy. And then this beautiful corporate campus, which had not generated tax revenue for the entirety of its life, was acquired by the community college, which now keeps it off the tax roll into perpetuity. So if you're a local citizen, you see this incredible office campus now turned college campus. That should be offsetting the amount of property tax you have to pay as an individual now being, you know, taken off of the tax roll forever. And Fort Worth has another building, the Pier 1 building which was built iconic building, Chicago architect, really, really great. Was built as a headquarters and it moved into a gas company's headquarters and then they went out, it was Chesapeake Energy and and now the City hall has acquired it and that the city has acquired it and they've moved that to be the City Hall. And so you know, I don't doubt or fault the folks at the Dallas Council per se of like not doing what was necessary to keep them if it involved some sort of additional abatements or incentives. But at the same time, good luck backfilling this space. I mean it's a double edged sword. I don't know what the right answer is. This is great for Plano and I think the economic impact will be felt in that broader suburban region. But, but tough story for the downtown folks.
- [44:55]
C
Pay to say for the suburban commuters. That's a real win.
- [44:58]
A
Yeah. And Listen Plano and McKinney, they have, Toyota has a huge facility there now you have AT&T, you have JP Morgan, you have a lot of really large scale top tier employers that are now on the fringe of Dallas. So to your point, if you're someone that lives in the suburbs, these are home run gets for you.
- [45:18]
B
So before we close, we have some programming notes. We've been mentioning our future commercial Real Estate Leaders program and we have so many applications in. So our team is going through those now. But if you're listening to this when the episode comes out around May 22, you still have time to submit an application. If you are a May 2026 graduate who has a particular focus on our commercial real estate and commercial real estate finance industry. So we'd love for you to submit your application and join a class of renowned leaders who have studied commercial real estate and are now doing really big things in the industry. So reach out to us@podcastrep.com we will get you all the application materials and make sure that you can submit it before the deadline. If you're listening to this as soon as it comes out. You also still have time to join us on our May Marketplace webinar. This month we'll be talking about CMBS distress across cohorts. We'll talk about a Real Estate Research Institute paper that is comparing underwriting trends, macro sensitivity and maturity outcomes across CMBS 1.0, 2.0 and 3.0. We'll give a bank CRE performance, check in and look at trends in non performing loans and charge offs by bank, bank size and loan type. And then we'll give a taller Deep Dive which is our anonymized loan level repository which provides a lot of insights into a traditionally opaque banking market. So that will give you some loan level details. So if you'd like to register that webinar is happening on Thursday, May 28th at 2pm Eastern. You can find the information on our website or our social media channels or reach out to us@podcastrep.com we also are gearing up for the CREF C the CRE Finance Council Conference here in New York City taking place in just a few short weeks in June. If you are going to be in New York around that time or attending the CREFC conference, reach out to us. We'd love to meet with you. We already have some of our long term clients and podcast listeners who have reached out to book time with our team, so give us a shout. At the same time we'll also be in Barcelona at the Global ABS Conference, so if you'll be in that part of the world, we will also have a team there that would love to meet with you. Turning to shout outs, Joe I emailed us to let us know he's been enjoying the podcast for quite some time now. He said it strikes a refreshing balance between facts, data and thoughtful commentary with a great dynamic among the hosts. So thank you guys. And he was really interested in understanding what TREP can offer for their workflows and modeling. So Joe, I know you're working with a member of our team now. We really appreciate your feedback and you reaching out to us and we hope to bring you on board as a client. JDJ emailed us and was very interested in a textbook that we mentioned a few weeks ago that outlined the acronym dust. And Lonnie, I know you sent him pictures of that textbook and if anyone else was wondering the same, the DUST acronym comes comes from the Fundamentals of Real Estate Appraisal textbook published by Dearborn Real Estate Education. Alex C. Of JLL let an old colleague of ours know that he is a huge fan of the podcast. Alexos H really enjoyed our recent conversation relating to regional banks and we sent him over more details on that. Mary B. Loves the show and said she listens every Friday morning. Stuart T. Was recommended to our show by a friend who has been listening for years and is excited to have so much to catch up on. Courtland B. Let us know they recently graduated from Texas A and M this past week and was interested in our TREP Future Leaders program. So we hope you apply and we'd love to highlight you. Mark s. Posted on LinkedIn with our latest Special Servicing report and said Office is continuing its main character moment in Special servicing. So I like the modern twist there. Larissa R. It's so great to hear from you. Larissa is a long time listener from way back to Covid and the early podcast days and she said, I have an observation about development in my metro area. I've noticed a lot of laundromats and car washes with dryers, vacuuming bays, etc. A disproportionate number given the size of the DSM market and submarkets. She was wondering, is this a power grab by these business owners masquerading near term as another use? Have you guys seen anything about this? Or maybe this is something we can talk about on a future episode.
- [50:03]
A
So yeah, we appreciate the the question, Larissa, and it's, it's interesting. I think on the laundromat and car wash you've seen a proliferation of these things and part of this I think is social media driven. And I don't want to slight anyone that's pushing these opportunities on social media as not having a strong CRE foundation. But you know, if you Google any type of CRE business owner opportunities, one of the first or second results will be car washes or laundromats. And the reality is these are, are potentially good, good CRE plays, but they're really just operating businesses. I mean, a laundromat, you're really in the service business of making sure that your machines are functioning and providing a service. And the real estate usually is a secondary concern. So I don't, I don't think that these are, you know, land grabs for future development potential. You have two groups. You have like regional players that have an established business plan for these types of businesses. There's a, there's a group here in the DFW market market that owns probably 40 or 50 of the car washes and they have a very strategic play. But the other end of the spectrum is you have these entry level CRE investors that are coming in and trying to get their, their feet wet with really no strategy outside of what they've read online. So maybe this has some sort of value down the road. I don't think it's going to be for AI because most of them don't have the necessary components or the size. But I do think that, that you're going to see a continuation here. As long as there's some influencers, you know, telling people that these are really great ways to get into.
- [51:36]
C
If you also see a corollary increase in vending machines, that is a good tip off that it is social media driven.
- [51:44]
B
And Michael C shared our reappraisal report which if you haven't downloaded that yet, reach out to us. We'd love to share a copy with you and said great color. What a typical CMBS borrower does not fully understand is how losses affect the bonds and the controlling class holder and the controlling class holder who makes the final decision on loan modifications. We also saw a few other people share some of their feedback and takeaways from our Trep Connect conference. So our friend Sovo, who we gave a long shout out to last week, shared a post that said the best never stop investing in themselves, refining their perspective and continuing to learn no matter how much experience they already have. That's one of the reasons why I make it a priority to attend the Trep Conference every year. So thank you Sovo. I think a lot of our listeners have that same mindset and that's why we really appreciate everyone tuning in every week. Despite where they are in their careers, they are still looking to educate themselves, learn and hear other people's perspectives. So we really appreciate that narrative. Ilona P. Said, attending last week's Trep Connect Conference was a great opportunity to engage with some of the brightest minds shaping the future of commercial real estate and capital markets. She said she was grateful for the opportunity to connect, collaborate and learn alongside so many respected professionals across the industry. So thank you so much for joining us. It was great to have you there as well. And I don't know about you guys, but it's about to be Memorial Day weekend and here in New York we're about to have 50 degree and rainy weather. So I hope you guys get to enjoy a barbecue or pool, but here on Long island, especially by the beach, we will probably not be going to the beach and enjoying the sun.
- [53:28]
A
I'm hoping to get some racing in this weekend so I've got the car in the trailer and we're ready to go. Supposing that we don't get rained out, but similar here a little bit warmer, but they're calling for intermittent rain throughout the weekend so hopefully it's not enough to cancel the races, but not going to be super sunny and awesome pool weather here either.
- [53:48]
C
No storms, storms, more storms.
- [53:51]
B
If you're new to this podcast and you don't know this About Lonnie, maybe Lonnie, you have to do a post on X or Twitter, as we were saying, to remind everyone about your side hobby as a race car driver and everything that you have there. So maybe you'll do some posts with all the cars and the. Cool.
- [54:08]
A
Yeah, I need to do that. I was up in Oklahoma last weekend and got second place in our event and and hopefully you get to go out again this weekend. It's a great fun, you know, hobby. Me and my dad have been doing it for a long time and so I did have a couple shout outs. Now. We're a little long on the shout outs today, but I wanted to give a shout out to Rick Canup from Coldwell Banker Commercial out in lck. He had invited me to keynote his annual CRE luncheon in conjunction with the folks at Texas Tech this week. So I made a trip up to lic. It was a really great opportunity to showcase what's happening in the market. It and Rick and his team are consistently ranked in the top five producers across the Coldwell Banker commercial ecosystem. So a really dominant group there in the Lubbock market. And so I really appreciate Rick including me in that and also to my friend and Steven's friend, Jared Harrell, who runs the the Bradley center for Real Estate there at Tech. Also got to do a presentation for the CBRE Valuation Advisory team last week. And it's amazing just to see the level of expertise that a lot of these large firms have and the technology and their office was incredible. They actually have a speakeasy built into their office and a spiral staircase right in the middle of their office. It's just unbelievable and great hospitality. I appreciate the invite there. And then my colleague, Sumit Grover got to do a presentation with our friends at BDO this week here in Dallas. And so we've been very busy. I know, Stephen, you guys had the RIRI conference and you had some stuff that you were going to present on. And so TRAP is out there. We're in the market, not just the podcast, but we're talking to people boots on the ground every single week across the country. And so we really appreciate the continued
- [55:46]
B
support and with that we'll close. Thanks to our producer who hosted last week. So thank you, Carly Sento. Join us next week as we look at what's happened during the week and how it may be impacting you. If you have a question or just a comment, send an email to podcast at trep. Com and subscribe to the trepwire podcast with your favorite provider thank you for listening. And stay well,
- [56:09]
C
all right.