417. Who Writes the Next Check? Fund Redemptions, Cash-Out Refinancing Trends, & CRE Workouts

0:05Welcome to the TREP Wire podcast, the show where commercial real estate needs data and insights. This is our Week in Review for the week ending August 28, 2026. I'm Haley Keen with TREP, a data, modeling, and analytics firm for the CMBS, commercial real estate, and CLO markets. I'm with Lonnie Hendry, Chief Product Officer, and Stephen Bushbaum, Head of Applied Research and Analytics. This week, we received another important inflation rating, with both Headline and Core PCE increasing a reported 0.2 % in July. Today, Stephen will unpack why the underlying numbers were somewhat less encouraging than what the headline suggests, as well as what the latest data mean for interest rates and commercial real estate.

0:47We'll also discuss the new 50 % Canadian tariffs and their potential impact on construction costs, the record sell-off in Dick's Sporting Goods following continued weakness at Foot Locker, and Google's unusual purchase of Spirit Airlines' internal corporate data. Then we'll turn to the$2.2 billion redemption queue facing Invesco's real estate fund and the incentives the firm is offering investors to stay put or contribute additional capital. Finally, in a digging through the data segment, we'll examine sources and uses information from conduit CMBS loans to see how cash-in and cash-out refinancing have changed through the cycle and what those trends tell us about the amount of equity owners are putting into or taking out of their properties.

1:30So Stephen, what did you make of this PCE report and how much did rounding affect the way markets interpreted the inflation data? Funny enough, I think rounding had a meaningful effect on the initial reaction because the reported 0.2 % increase looked more reassuring than the underlying number actually was. I mean, just the fact that we're talking about decimal place rounding here to the third place tells you how tenuous and tense this inflation debate is right now and how much fun they must be having in Jackson Hole this week. So both headline and core PCE reported as increasing 0.2 % month over month in July, but the unrounded core reading was 0.246, just four thousandths of a percentage point below the threshold that would have rounded the figure up to 0.3 % and likely caused treasury yields to increase by double the amount that they did on Wednesday morning.

2:30After the print, I think that the two-year and 10-year increased by anywhere between three and four basis points. And I could just imagine if that print had rounded up to 0.3, could have easily seen that to double that to like, say, a six basis points or even seven basis points sell off and yield. So that rounding, I think, was a meaningful nuance to this print. Now, that may sound like minor technical distinction, but keep in mind, when we're reporting these data, we're almost always reporting that rounded number. And there's a psychological effect there. And so I suspect with that 0.246 number, the debate that will be going on in Jackson Hole will be even more heated.

3:09And think back to the last FOMC meeting. Those three members that outright were saying that we need to hike, plus the folks that were kind of on the fence and maybe were eventually going to move into that hike camp if we saw a hotter print. I mean, it's going to be an interesting dynamic here. And there's a lot of Fed speak that I'm sure we'll be actively listening to over the next couple of days. So if we annualize that unrounded monthly increase, core inflation was running at approximately 3%. The year-over-year figures told a similar story. headline PCE remained at 3.7, while core PCE held at 3.7.

3:42So while the rounded monthly number may have looked encouraging at first glance, the underlying data did not provide a particularly strong signal that inflation is returning to the Federal Reserve's 2 % target. And the market is still providing a very clear signal to the Fed saying, look, you told us that we were going to get down to that target, but you didn't tell us how. The how matters a lot. We need more confidence. Now, the rest of Wednesday's data reinforced that mixed picture. Second quarter GDP remained at 1.5%. If you looked under the hood and stripped out some of those trade items, growth came in a lot stronger.

4:19I think it came in closer to like a 4 % or some crazy number. So the underlying consumer spending and underlying growth is there. Consumer spending was revised upwards to 3.4 % annualized rate. Durable goods orders increased to 1.1 % in July or 0.4 % excluding transportation. So taken together, these numbers point to relatively slow overall growth, but still resilient demand and persistent inflation. Commercial real estate, it makes the outlook for meaningful interest rate relief more complicated and frankly, in my opinion, highly unlikely over the next, say, three to four months. I mean, highly unlikely.

4:55And it provides a useful backdrop for today's conversations about higher construction costs, refinancing proceeds, investor liquidity, and who ultimately has to write the next check. Zalani, when you saw these inflation numbers on Wednesday, what was your initial reaction? Well, I think you hit it right on the head here. To use like a sports analogy, you sometimes hear baseball or football or some of these other sports referred to as a game of inches. And I think the overlay here is that these are numbers, you know, a game of decimal places. And it's really interesting how, you know, you've parsed this out and looked at it because the psychological stigma that is associated with these, if you make a different decision in the 1 ,000th place and how that affects the headline number is very real because it impacts behavior.

5:42And so it's a very interesting dynamic here that we're talking about macro trends that get very, very micro down to the thousandth place in a decimal reading. And at this point, when you talk about the Federal Reserve's target at 2%, it's like, are they even at the range? Are they seeing the target? Is it visible? Because it's like this mysterious, it's almost like they've hidden a target under the ivy at Wrigley Field. And they're like, oh, yeah, we have a 2 % target, but you couldn't find it if you were looking for it. And so, you know, I think the pressure is going to be on them. I mean, these numbers are not aligning with the messaging that we still have an impetus to get to a 2 % inflation target.

6:20And, you know, it's complicated. And as you mentioned, I mean, I think for the CRE investors, this hire for longer narrative is sure as heck the hire for longer reality now with no end in sight. and you have a growing number of people that were not happy with the Federal Reserve's actions at the last meeting, both internally and obviously the market reacted the way they did, I think we're in for just more complication, more uncertainty. And it's a really interesting dynamic where the macro headlines and the macro talk track are going to be so significantly impacted by these micro decisions, whether it be, you know, three members of the board or whether it be a decimal place or whatever the number is on consumer spending, et cetera.

7:00that's really going to drive the go-forward action. But at some point, they're going to have to take some action to try to get closer to that 2%, or it becomes the boy who cried wolf. Yeah, I like your sports mention there, Lonnie, because I'm imagining we're getting up on college football kickoff here. And you know when the ref is placing the ball, if his left foot is the one that's further away from the first down spot, you're getting a left foot spot right now with where PCE just landed. It's definitely a left foot spot. It's almost like deja vu. And I know some of these other talk tracks that we're going to have today around the tariffs and other things.

7:34I mean, we've seen this before. I mean, it feels like a lot of this stuff is just on repeat. I mean, it's, you know, guess what? We heard yesterday that the Strait of Hormuz may be opening back up and there may be a ceasefire in place. And it's like, OK, like this sounds like every other Tuesday for the last six months. It may be opening. Does anybody really believe it? But it moves the market. I mean, that's the reality. It just goes back to the psychological implications and how markets move and how people make decisions based on what they perceive to be reality. At this point in the world, like reality is what you believe it to be at some level.

8:11And, you know, people can really move things just by creating a sense of optimism or creating a sense of conclusion or a sense of closure, or in this case, a sense of opening up to straight. But it's really interesting. And I'm going to let you take the lead here on the Canadian tariffs. But I mean, haven't we seen this before? Oh, yeah. I mean, this is so timely, especially when you consider what you just said, the possibility of the straight opening back up, right? All right, we got some daylight at the end of the tunnel. That's fantastic, folks. Now, what can we do to counterbalance that? Lo and behold, the new Canadian tariffs add to construction cost pressures.

8:49So this past week, probably one of the bigger macro news items was the Trump administration imposed new 50 % tariffs on select Canadian imports, including cement, plywood, machinery and tools, after nearly a month of trade negotiations that ended without an agreement. The new measures compound existing tariffs of as much as 50 % on Canadian steel and aluminum, along with previously increased lumber duties. Construction material prices were already 7.4 % higher than a year earlier. Copper wire and cable prices increased almost 18%, and soft lumber climbed 15%. The Associated Builders and Contractors' Chief Economist warned that higher input costs could reduce construction starts.

9:33The overall construction activity is up. Much of that strength is coming from data centers, and those contractors averaged 11.4 months of backlog compared with 7.5 months for other contractors. Cement could have an outsized effect because higher Canadian import costs may give domestic producers greater pricing power. Canada and Mexico collectively supply 27 % of U.S. cement imports and nearly 7 % of total U.S. cement consumption. Developers may face an even larger problem from uncertainty. Projects such as build-to-rent communities are typically underwritten 18 to 36 months before completion, so abrupt tariff changes encourage contractors to add large contingencies to their bids, even when the ultimate cost increase remains unclear.

10:20Builders are now monitoring cement, glass, plywood, and other panel products and HVAC equipment. Canada also plans dollar-for-dollar retaliatory tariffs beginning in early September, potentially creating further supply chain disruption. The administration used Section 338 of a 1930 Tariff Act, a previously unused presidential tariff authority. Its application could face legal challenges. The direct tariffs are only part of the construction cost story. Inpart of materials became more expensive, domestic producers gained additional pricing power, and uncertainty gets embedded into project bids. Together, those forces could make already marginal developments harder to finance and further concentrate construction activity in well-capitalized sectors such as data centers.

11:03Doesn't that give you always a little bit of a chuckle, Stephen, when you start seeing them using Section 338 of the Smoot-Hawley Tariff Act of 1930 in 2026? And then I love it. It's like, its application may face legal challenges. Newsflash, it will face legal challenges. It's an interesting dynamic here. But look, when you see these price increases, these are not immaterial. I mean, like you mentioned, construction material prices already up 7.4%. Copper and cable is 17.9%. I mean, this is real trickle-down kind of cost increases that get passed down to the consumer. So, you know, I do think this has a much greater likelihood of getting resolved.

11:45And this, you know, like all the other tariffs that have been imposed, you know, may be great for headlines. In reality, you don't see it hold. But if it does, it just adds another wrinkle to this wonky economic story that we've been following. So let's talk about another headline this week that shows some more pressure on CRE. We saw that Dick's Sporting Goods shares fell as much as 28%, which was their biggest intraday drop since going public. But the interesting part is that the weakness wasn't really from Dick's Sporting Goods. It was Foot Locker. Yeah, Dix has had a pretty good run of it all in all.

12:25I mean, you think like the Dix House of Sport concept, right? They're really pushing hard into that experiential retail. And you'd think just by the growth that they've experienced that, well, generally things are going fairly well. But underneath the hood, that's not the case. The weakness here was concentrated at Foot Locker, which Dix acquired for$2.4 billion in 2025. Foot Locker's pro forma comparable sales declined 3.6 % last quarter, while comparable sales at the core Dick's business increased by nearly 5%. Dick's now expects fiscal year sales of$21.9 billion to$22.2 billion. Chairman Ed Stack warned that the Foot Locker turnaround would involve, quote, some pain, with elevated discounting expected to continue through the remainder of the year.

13:14The broader footwear market has become increasingly promotional as manufacturers discount merchandise through their own websites. Vicks also said traditional sneaker styles are losing momentum as consumers shift toward brands such as Ugg and Birkenstock. Management pointed to rising costs and increasingly selective consumers as additional pressures on profitability. This disappointing report also weighed on shares of Nike, Lululemon, Deckers, and other apparel and other footwear companies. For Siri, the central concern is Footlocker's large mall-based footprint. Results reinforce the divide between healthy retailers and weak chains exposed to enclosed malls, while raising the questions about whether Dix will eventually rationalize stores as it works through the acquisition.

13:58Dix itself is performing well, but its Footlocker acquisition has added exposure to two difficult trends, struggling mall locations and a sneaker market in which brands increasingly compete directly with their wholesale partners. Yeah, I mean, the tennis shoe business is a tough business. It's too many options at this point to have a clear winner or clear differentiation. And these like direct, you know, to seller type or direct to consumer type of sellers, the wholesale market has really picked up. I mean, this is one of those industries that I think e-commerce has really disrupted. Because at this point, you can get shoes online, deliver.

14:33You know what size shoe you need. as an adult, your shoe size isn't changing significantly, especially if you shop a particular brand. And so, you know, I remember as a kid, I'm kind of a shoe guy. You guys know, I have a whole bunch of shoes. I mean, like way too many shoes, like a whole, whole lot of too many shoes. And I used to love going to the mall and I would love going to the shoe stores. And at this point they were all running independently. So you actually had some optionality where you could see different options at each storefront. But now it's basically one big conglomerate. You go to a foot locker, Foot Action, Champions, Finish Line, any of these shoe places.

15:08And they all have the exact same inventory. And they're all the exact same price. And so I think this is going to be a challenge for them. Now, obviously, if they can maybe reposition some of these stores and add a little bit of that Dick's Sporting Good flair to it, maybe it helps. But I don't know that this is going to be a quick turn, as he mentioned. And I think that you're going to see it's almost a race to the bottom at some level. So we'll see how this plays itself out. I mean, we don't need any more bad news for mall-based retailers. But this is, to me, very similar to kind of the pharmacy disruption that we've seen on these, you know, Walgreens and CVS.

15:39Very similar overlays with the shoe industry, just kind of an antiquated system in a market that's much more dynamic today. So we have a completely different one here. We mentioned this in the intro. But I know when we first saw this headline, we all were saying, okay, there has to be more to this. Google is reportedly paying about$10 million for Spirit Airlines internal corporate data. And we're not talking about customer data. This includes something like 10 million emails, 500 million Teams messages, plus internal documents, spreadsheets, and calendars. So essentially, Google is buying a real company's operating history to help train AI.

16:18What do you guys make of this? This one caught my eye, Steven. Like, this is the new world that we live in where a couple of things. One, you know, Teams messages, emails for a company that was in business for many decades, going to be just sold to the highest bidder. And in this world of AI, like it changes the game here. I mean, effectively, Google gets, you know, Spirit Airlines, entire operating, you know, shell effectively of all their documentation, everything else to then for a very small figure, $10 million to them isn't even a rounding error. I mean, we're talking about pennies to train their AI models.

16:54I mean, this is, you know, going back to that psychological component on the rounding. Imagine having access to communications and operations data at an enterprise scale like this that you can train instead of having to use synthetic or, you know, AI-generated versions to try to build a model. I mean, this is incredible. Now, in order for them to be able to take this, you know, Haley mentioned this, they had to agree to remove the PII or personally identifiable information. but it is crazy that this data was contained in there. Nearly 100 million passenger profiles and approximately 50 million free spirit loyalty program records, which are excluded from the sale.

17:35So I don't know if you have any additional thoughts on this, but this one I think is just for me kind of twofold. One, this is the world we live in now. Everything becomes data. Data has value even when the company has no value. And two, there's no such thing as any type of privacy or security because the company that you work for, if it goes bankrupt, Your information, including your emails and everything else, effectively gets sold to the highest bidder if there's value. Well, first off, this is so googly. This is so googly. There's only one other reported bidder for it, which is a recruiting platform, which I'm curious, like, could a recruiting platform mine everything there is to mine out of this?

18:13No. Google's obviously going to get the most utility out of this data set. But also, if I was Microsoft in this situation, I'd be a little bit concerned. right? I mean, Microsoft has for a long time had a strong, very stubborn foothold in enterprise software. But to me, this reads a little bit like Google is potentially going to come after some of Microsoft's foothold. This would give them a real ability to do that in a meaningful way. So curious to see how long it takes them to turn this into some product, some output that's going to make waves. I'm guessing six, nine months, maybe? Yeah, I think it may be even faster than that, honestly.

18:52The last time I saw a bankruptcy story like this that caught my attention was when the 23andMe had gone under and saw all of that genetic data was going to be available on the market to the highest bidder. I think this is just the new world that we live in. And I agree with you. I mean, Google, this is a plug and play for them and they will extract maximum value. We'll see what comes of it. Spirit obviously is still trying to work through the sale of its other assets, I mean, they've got all their airplanes and stuff at the airline graveyard out in Arizona where they store all of the old airline planes.

19:23And so they're trying to get those, you know, divested. And just interesting, internal communications has real value in the marketplace. Proprietary, I mean, those are all proprietary data points. And in this new age of AI, that's where some of the hidden gems lie. Okay, let's go back to real estate here. And this next one basically asks investors, how badly do you want your money back? Invesco is offering fee cuts and discounted liquidity as Redemption Q grows. Yeah, I like this strategy. I think Invesco was very smart in how they crafted this offering package to try and deal with what reads like a fairly sizable Redemption Q.

20:03Invesco is offering new incentives to retain and attract investors in its$12.7 billion Invesco Core Real Estate USA Fund, or ICRE, which is facing a$2.2 billion Redemption queue. Existing investors without pending redemption requests receive a 20 % management fee reduction. Investors who contribute at least 10 million of new capital receive a one-year fee waiver. I love that. Investors seeking liquidity can participate in a tender offer that will purchase shares at 95 % of net asset value or NAV. In effect, investors willing to accept a 5 % discount can exit sooner rather than remain in the redemption queue.

20:43Again, I love that that feels like a very modest discount that clears part of that pipeline out. I think combined with the management fee that could actually attract some additional capital and backfill some of that redemption queue. I'm interested to see exactly how long it takes to clear this queue. Invesco and members of senior management are also committing as much as$150 million of their own capital, which the firm characterized as a way to strengthen alignment with investors. Redemption activity has been elevated since 2022, representing 5.3 % of net asset value above the fund's historical average, even though ICRE generated a 3.5 % total return during the first half of 2026.

21:23Invesco installed a new portfolio management team in 25 to reposition the funds. The firm argues that improving property fundamentals, easing credit conditions, and more attractive entry prices indicate the beginning of a new real estate cycle, something we've talked a lot about on the pod. Pressure is not unique to Invesco. DWS Group's RREF Property Trust was unable to satisfy more than 30 % of June redemption requests, while Starward halted redemptions at its$22 billion non-traded REITs in April to avoid selling properties into an unfavorable market. The 5 % tender discount provides a visible price for liquidity.

21:58Investors who want immediate cash must accept less than reported net asset value, while those willing to remain receive lower fees. So more broadly, the story highlights the structural mismatch between funds that offer periodic redemption rights and commercial real estate assets that cannot be sold quickly without potentially sacrificing value. Yeah, this is a very interesting story. It's an interesting strategy that they're employing. I'm in agreement with you, Stephen. I think a 5 % haircut here provides a viable option for people that want to get out. Taking lower on the fee side, working through that if you are willing to stay in and commit.

22:32I think the$150 million of their management capital, I think, is another positive sign. And it's like, look, these are not new challenges. The reality is, as you highlighted at the very end, I mean, these assets take time to sell. And generally, when there's a large redemption pool of people wanting their money back, it's because the broader market's not great. And so it's not the best time to sell. And so there's just an inherent mismatch there. And it is what it is. I mean, I think we've been talking about this at least for the last two and a half years or so. I'm hopeful that, you know, with these, you know, reset basis and some of the things that they mentioned, easing credit cycle and other things.

23:10I mean, I believe that to be true in a lot of these markets. Like we're starting to see a reset here where some of these funds may actually start to perform at a level that halts some of these redemptions organically. So we'll see if they can hold on. It's an interesting dynamic. This would be something I think there'll be a lot of research and reports written about just this entire business model and the mismatches that we've seen most glaringly over this last disruption. Quick break. There are a lot of AI tools entering the commercial real estate market, and Lev is one of the platforms taking a more practical approach to putting AI to work for CRE teams.

23:46It's not just financing software anymore. Lev gives you ready-to-use AI apps and agents for research, comps, deal materials, outreach, documents, pipeline, and team workflows. Go to lev.com, that's L-E-V dot com, create an account, get 2 ,000 free credits, and tell them Jake sent you for another$500 in credits. So let's move on here to our digging through the data section of this week's show. We're calling this Cash In, Cash Out and the Changing Refinance Market. And we're going to preview some research that we presented recently on our August edition of Treps Market Pulse webinar. So, Stephen, you've been digging into the sources and uses of capital behind conduit CMBS loans.

24:33What does that tell us about how borrowers are navigating today's refinancing market? Sure. This is really interesting data because it gives us a deeper look underneath just the broad categories of loan purpose. Was the loan refinance or was it acquisition? There's more to the story than that. And the sources and uses of capital gives you the ability to refine that story and see some, I think, rather logical, natural trends, but also size up the magnitude of them. So first, let me detail what exactly this data is. What we're looking at are the 15 largest loans in each conduit CMBS transaction.

25:10And the reason why we're doing that is the deal documents provide detailed information about the sources and uses of capital for these loans specifically. You don't get that detail on every single loan, but you do get it on the 15 largest loans. And those loans generally account for a sizable portion of the deal principle. So in other words, we're covering typically about 60 to 70 % of the aggregate principal balance of a conduit pool here. So this is an economically meaningful subset of loans, even though it's just the top 15 largest. So this allows us to separate loans into a few important categories.

25:47An acquisition loan is financing a property purchase. A cash-in refinance requires the borrower to contribute additional capital because the new financing is not sufficient to cover the existing debt and other transaction costs. And then a cash-out refinance generates proceeds that remain after the prior loan and transaction costs are paid, allowing the owner to extract equity. And we also separately identify cash-out recapitalizations, where the principal purpose is returning capital to the ownership group, but not just a cash-out refi. There's some more nuance there. So a good example of a recapitalization might be a new development that was really done primarily all cash.

26:24I wouldn't necessarily call that a cash out refi, right? You're kind of recapitalizing, or maybe you're bringing in some new ownership and you have to pay out one group and another group is contributing capital. So these things can get a little bit gray. It's not always quite so easy to just categorize them in one group or another, but we try to do that as best we can. And the results trace the changing commercial real estate financing environment surprisingly well. In 2021 and 2022, cash out refi was clearly dominant. Our sample included$7.1 billion of cash-out refinance volume in 2021 and$7.6 billion in 2022.

27:01Cash-in refinancing at the same time totaled only about$2.1 billion and$2.2 billion, respectively. So that makes intuitive sense. Property values were generally elevated, interest rates were still relatively low, and owners could often refinance their existing debt with a larger loan and pull some accumulated equity out of the property. Now, that pattern changed sharply in 2023. As interest rates increased and property values declined, cash and refinancing volume nearly tripled to$6.2 billion, surpassing the$5.2 billion of cash-out refinancing. The divergence became even more pronounced in 2024, when cash and refinancing volume reached$10.3 billion.

27:41borrowers increasingly had to contribute fresh capital to close refinancing gaps created by lower property values, more conservative loan-to-value ratios, and weaker property performance. But here's where the results become more nuanced. Cash-out refinancing did not disappear. Cash-out refinancing volume rebounded to$9.6 billion in 2024 and reached$10.4 billion in 2025, slightly exceeding the$9.4 billion of cash-in refinancing in that same year. Through July of 2026, our sample includes another$7 billion of cash-out refi compared with$4.2 billion of cash-in volume. So we do not have one singular refinancing market.

28:21We effectively have two. For properties facing valuation or operating pressure, refinancing often requires the injection of additional equity. But stronger properties still support cash-out refinancing, particularly as conduit CMBS issuance has recovered and lenders compete for financeable assets. Now, the second part of this analysis adds an important qualification. More cash-out loan volume does not necessarily mean that underwriting has returned to 2021 or 2022 levels. Among cash-out refinancing, the weighted average amount of equity extracted was approximately 23 % of the senior loan balance in 2021 and 25 % in 2022.

29:00That percentage fell to 16 % in 23 and 14 % in 24 before recovering modestly to approximately 16 % in both 25 and 26. So in other words, when values peaked and rates were at the lowest, we had healthy cash out refinancing volume, but also a sizable amount of equity extracted. When values declined and rates increased, we still have relatively sizable cash out refi volume, but the amount of equity extracted is still well below what it was during the peak of the prior credit cycle. Now, accounting for subordinate debt reduces the 21 and 22 figures to 21 and 22 % respectively, but doesn't change the overall pattern.

29:39And what's interesting about this is that owners were extracting substantially more equity relative to the size of their financing during that low rate period than they are today. But also part of that capital gap was subordinate debt. Today, you're not seeing nearly the same amount of subordinate debt used in the capital stack. So it can highlight some very interesting nuances to the credit cycle. Now, acquisition lending tells us a similar story about the broader transaction market. And we've talked about this before. Acquisition volume in our sample reached 4.5 billion 22 declined to 2.4 billion 23 and recovered only gradually to 3.2 billion 25.

30:16And then through July of 26, that total stands at 1.5 billion. So activity is coming back, but very, very slowly. And keep in mind, this is only the top 15 loans. It's also not covering SASB. So this is only covering a portion of the market, but it's allowing us to look at basically the full sources and uses of funds in a very granular way. And we'll get into more details on an upcoming report. We'll break it down by property sector and highlight some additional, very interesting, very relevant takeaways for our listeners and for our readers. Yeah, I mean, I think this at this level gives some really good trend information right at a macro level.

30:56But to your point, Stephen, we start drilling down. It'll be interesting to see if there's some nuance to property sector, geography, year built, vintage, etc. I think really this is a valuation challenge, right? When interest rates are zero, cap rates are historical lows and values are crazy high, cash out becomes much more appealing and much easier to execute. You know, capital stacks maybe get flooded with a little bit more creativity and you have subordinate debt and other things that are being offered at a level that you're not seeing in today's market. And what we're seeing today is if there's mezzanine debt or something else, it's usually in the form of rescue capital or, you know, people lending to own at some point if the operational execution doesn't meet its mark.

31:36mark. But this is a really interesting, again, I love us taking our data, putting some sort of a historical time series together and just seeing what the market has told us. Because as we know, history doesn't repeat itself, but it often rhymes. And this won't be the last time that we see volatile interest rate environments where valuations, you know, fluctuate coupled with some of the other macro backdrop challenges that we've seen. So I can't wait to see some of the more detailed reports that you're going to working on and putting out. I mean, it's really cool just to kind of see how the market, while we say and the data suggest, is not one unified market.

32:10There are some overarching themes that can be extrapolated from the data in terms of just how investors typically treat refinance, recapitalization, cash out, cash in, etc. Yeah, when you drill down to the property level, there's some really interesting macro or headline levels. When you drill down to the property level, there's some really interesting headline stats. But then when you dig deeper beneath the surface at the property level, I mean, it's just jaw dropping what some of the bars have achieved in some of these financing packages. I mean, it just speaks to their success when you look at it in the raw numbers.

32:41And some of my favorite ones that I've been reading through so far, self-storage. I mean, absolutely amazing. It's not a huge part of the market, but yeah, the relative amount of equity that's been able to be extracted through some of these properties speaks to how much of a cash cow some of these assets are. You know, on some of these deals too, Stephen, is just the structure going to much more of an IO composition over the last several years compared to what we've seen historically over our careers. I mean, it used to, you know, you used to have short-term IO or stump periods on the front end of a deal, as we've detailed across, you know, the landscape, even in the agency debt.

33:17IO is a much significant, much larger portion of the marketplace. And it really has just changed how people operate, navigate the financing side, the cashflow side of the business. And so cell storage is one of those, I think we'll see a plateau or a leveling off in some regard because that was one of the last bastions of kind of owner-operated mom and pop where there really was some arbitrage, but that's been institutionalized. You still have some mom and pops out in the country, but generally speaking, self-storage today looks much different than it did five years ago. And finally, for our last segment of the day, in our deals and data section, we pulled together their five stories about loans across different property types, but they all come back to a similar question.

34:01When an asset is under pressure, what does it take to keep the deal alive? So we've got borrowers injecting fresh equity to buy time, lenders negotiating modifications, sponsors who can't fund the shortfall, and at the far end of the spectrum, an asset where essentially nobody is willing to write the next check. So Stephen, let's start here in DC with 425 I Street, because this is actually one where the modification may have worked. Yes, this might be a very short stay in special servicing. According to August remit data, the$102.2 million 425 I Street loan transferred to special servicing for imminent monetary default.

34:43The loan is set to mature in January of 2029. Previous month's watchlist commentary reported significant rollover risk after the top tenant, the General Services Administration, or GSA, failed to renew its lease by the required deadline, prompting the borrower to provide a letter of credit in lieu of cash management. Special servicer commentary states that following the key tenant's departure, the borrower made a modification request. That modification has since closed and the loan is being prepared for return to the master servicer. So I mean, this is absolutely fantastic. Showcases a borrower who basically knew exactly what was Happenings property, what the documents said, what was needed, and clearly and quickly convey that information to the servicers.

35:26And this has to be a record short stay in special servicing. The loan is secured by a roughly 375 ,000 square foot urban office property in Washington, D.C. The building was constructed in 1973 and renovated in 2018. The top tenant is the GSA, a smaller remaining portion, though, followed by 4th Street Dining, doing business as Ottoman Simon Taverna and Ban Simon, whose leases account for 4%, 2%, and 1 % of rentable area and run through August of 37, July of 36, and July of 2030, respectively. In the first quarter of 26, the loan posted a DSCR based on net cash flow of 3.54 times with occupancy of 77%.

36:05The property was valued at$180 million at securitization in 2021. So special servicing is not always a one-way trip toward foreclosure. Properties with sufficient cash flow may still have enough flexibility to negotiate a workable modification. In this case, where the borrower was eyes wide open and actively engaged, it can be a very quick modification as well. I think this just highlights that the system works well when everyone's motivated to try to get the most productive outcome. Like you said, a very quick, hopefully, fix here. So let's talk about a story in multifamily. We saw a Houston area multifamily loan transfer to special servicing, and that was the Haven at Bel Air, which shows us that a new loan has defaulted because the sponsor cannot fund the shortfall.

36:50Yeah, this is an atypical one. So according to our August remit data, the$41.6 million Haven at Bel Air loan transferred to special servicing for payment default. The loan matures in October 2030 and is now 60 days delinquent as of August. Prior month's watchlist commentary highlighted issues, including an escrow shortage after the master servicer advanced funds for property taxes. The borrower requested to repay that shortfall over 12 months, citing insufficient sponsor liquidity, but the request was declined. The loan was also delinquent for hazard slash property and general liability insurance coverage.

37:25Special servicer commentary acknowledged the transfer. The loan collateral is a 297-unit multifamily property in Richmond, Texas than the Houston MSA. The property is built in 2020. The most recently posted financials are from the first quarter of 26, and the loan posted a DSCR based on net cash flow of 1.04 times coverage with occupancy at 91%. The property was appraised at 57.4 million at securitization in 2025. So this just shows us that a property can be substantially occupied and still default if cash flow provides no cushion and the sponsor lacks liquidity to cover taxes, insurance, or escrow requirements.

38:06Do you think we're going to see more of these stories in multifamily, Stephen? Like I have to reasonably suspect that there's more deals like this than on the underwriting, you know, in a best case scenario, concessions have taken over. The economics not great. Expenses have creeped. They don't provide enough cash flow to cover debt service and the sponsor. Guess what? Doesn't have money to fund the shortfall. Yes, 100%. I fully expect to see more of these stories. I was doing an analysis just earlier this week and playing around with some most recent financials and trailing two and three year and looking at some cases where, well, maybe, maybe we were a little bit too optimistic about the operating expense load and revenue growth.

38:50And the long and short of it is I fully expect to see more of these cases where the underwritten debt service coverage is probably too optimistic. And all it's going to take is a bit of expense creep and the cushion is evaporated. So combine that with low sponsor liquidity and it's highly likely we'll see more of these cases. So our next story here is an industrial. And I think it goes with the question of who's willing or able to put more money in. Here, the lender wants more equity, but is also preparing to foreclose. Lonnie, walk us through this South Carolina industrial story. I think it's important that you mention that.

39:26If you want more equity, you have to have, it's the carrot or the stick, right? So the prepare to foreclose is the stick to hopefully get that additional capital that you're looking for. So according to the August remittance data, which it's great to hear that, we haven't had a bunch of these stories in a while. So I'm glad that we're circling back on some of these. The collateral is a$40 million South Carolina industrial loan. Unfortunately, it was recently reappraised at a 35 % reduction. Now, we haven't had a lot of appraisal reductions in the industrial sector, so this one, you know, kind of rises to the top of the list.

39:57This property was appraised at$76.6 million back in 2024 when the loan was securitized. Most recent appraisal valued the collateral at$50.1 million, pretty significant haircut. We last mentioned this loan back in November of 2025 when this property initially transferred special servicing for imminent monetary default. Following the vacancy of the sole tenant, and this is why the dots will align here in a second, Micoworks had vacated. So this was a single tenant industrial property where the tenant left. Special service or commentary indicated the borrower had secured the site, pursuing claims against the tenant, and planned to engage in a specialty industrial broker to market the property for sale or lease.

40:36$5.8 million letter of credit was funded to a lender-controlled account following the lease termination. Forbearance and settlement discussions are underway and would require meaningful guarantor equity, as you mentioned, Haley, while the senior lender concurrently pursues foreclosure, receivership, and claims against the borrower and guarantors. It's a two-story building constructed in 2023. It was built specifically for MycoWorks, which makes leather-type product from a fungus-derived compound. So Stephen, I want to hear your thoughts on that. My Coworks occupied the facility under a triple net lease that ran through September of 2053, but unfortunately underwent a corporate restructuring that included shuttering the operations of this South Carolina plant.

41:15So just some specifics on the building is 135 ,900 square foot industrial manufacturing complex. It's actually in Union, South Carolina, which is within the Spartanburg, South Carolina MSA. At underwriting, the debt service coverage ratio is at 1.82x, but no financial statements have been posted yet. So in this example, Stephen, I mean, this has, on the front end of this, maybe all of the components to make you feel really great. Single tenant, long-term lease, strong DSCR, newly built facility, special purpose for this user, feeling pretty good about it. And just a couple of years into it, it's bad for all of the same reasons.

41:52It's a special purpose, single tenant facility, hard to release, the tenant shut it down and the owners having some real challenges here. Yeah, I'm interested to see how this one progresses because this is, at least the way I'm reading the news stories and sequence of events here, this feels like a bait and switch by the tenant. The tenant said, look, build us this nice facility. We're going to do some awesome things, create some amazing leather products. I don't know if this qualifies as vegan leather, which as far as I'm aware, that's just a rebranding of pleather. I don't know if that's exactly what's being made here, if this actually qualifies is vegan leather, but it's an interesting product.

42:29But what's happened here is that the company has basically said, we're going to move away from a biomanufacturing and transition to from cultivation to processing. And we're going to process a third party, this third party material. So basically, I'm guessing what they found out is it's really expensive for us to produce it. We can outsource the production and just use this other technology that we have for actually like processing it through. We don't have to cultivate ourselves, but we can process it still using our technology at a much more cost-effective point. And now the landlord is just getting stuck with the bill.

43:00So I'll be curious to see how this one works out in court, assuming the company is still profitable. Yeah, I mean, if you're the owner here, you're arguing exactly what you just said. I mean, this is a bait and switch by the tenant. But at some level, you have some culpability if you're the owner and you're basing this business model off of someone that's building fungus-derived fake leather. i mean i'm not an expert on this leather like you know like to your point the pleather of our day which is kind of plastic leather don't have a deep knowledge of all of that but anything that's that's fungus derived i'm not sure that i want to be sitting on sleeping on using in my house so i'm not surprised that this didn't make you know there's demand out there for it though if the cost if you can get the cost down to half as much as real leather people will buy it It is so crazy.

43:49Yeah, listen, it's not a viable product, but I'm with you. If it's cheap enough, people will just take it and for the last six months, they throw it away and get some more cheap stuff. So our next story here in lodging shows what can happen when the borrower does put the fresh equity in. It can buy time, but not necessarily fix the underlying problem. So let's talk about the Los Angeles lodging loan that transferred back to special servicing amid extension talks. Yes, the$37 million 60 Hotel Beverly Hills loan transferred back to special servicing. The loan previously transferred to special servicing in August of 23, which led to an August 24 modification that extended the maturity to February 26 with a six-month extension option, increased the interest rate, and required a$3 million principal paydown funded from new borrower equity.

44:38The loan then returned to the master, and the borrower subsequently exercised a six-month option to push that maturity to this previous month. Well, servicer watchlist commentary indicates that the borrower and special servicer are negotiating an additional extension with plans to close this month. The loan is secured by a 118-key full-service lodging property in Beverly Hills from the Los Angeles MSA. The building was constructed in 1963 and renovated in 2016. The hotel brand within the truck system is 60. Franchise flag is 60 hotels. For the trailing 12-month period ending in March 26, the loan posted a DSCR based on net cash flow of 1.06 times with occupancy of 73%.

45:18The property was valued at$85 million at securitization in 2018, which was most recently reduced to$59.5 million in March of 24. So this just shows us that a cash can bridge a refinancing gap, but it may only postpone the underlying decision if property performance does not improve sufficiently. Yeah, look, I mean, you got to perform. The property has to produce enough income to cover debt service, even after a capital infusion. I don't know if you saw this article in Wall Street Journal this week, Stephen, that said hotel sales have risen 28 % in the first half of the year. And they're citing a large reason for that is that the current ownership doesn't want to pay for the upgrades.

46:01And we've been harping on this for a while, that there's been delays in PIP plans. There's been delays in people doing wholesale renovations at these hotels. And I think current ownership is saying, look, I can cash out based on these higher REVPAR and ADR numbers, take a little bit less than I might get if I do a full renovation, but I don't have to do the renovation. It'll be interesting to see if these new owners, after paying significantly increased prices on some of these assets, are still able to contribute the capital necessary to do the upgrades and realize the upside on the backside of those.

46:32Our last story here in mixed use takes us to the other end of the spectrum. What happens when the asset becomes so impaired that nobody is willing to write the next check? Well, this one's rough. According to our August remit data, the collateral backing the$28.8 million Valencia Town Center loan was recently reappraised at a 98 % reduction. The collateral was appraised at a value of$82.1 million at securitization in 2017. The most recent appraisal valued the collateral at$1.4 million. We last mentioned this loan in a January 24 edition of Trepwire. The top tenant, Princess Cruises, offered almost 290 ,000 square feet of office space for sublease with the intention to downsize its space by April of 26.

47:19The loan transferred to special servicing in November 25, ahead of the top tenants downsizing to 138 ,000 square feet. Special servicer commentary indicates the property receives no purchase offers over the course of a year on the market and no agreement has been reached between the leasehold and the fee owners. Commentary further explains that the fee owner is pursuing remedies and the leasehold owner is preparing to abandon its interest. The loan collateral is the leasehold interest in a almost 400 ,000 square foot mixed use property in Santa Clarita, California, within the Los Angeles MSA. The property was constructed in 1995.

47:55The top tenants listed as Princess Cruises, whose several leases for 35, 23, and 15 % of rentable area run through a year-end, 2027, expired in June of 26, and then March 26, respectively. So a good, sizable chunk of that Princess Cruise Line space has already expired, and the last remaining bit is coming up on expiration. Most recently posted financials from the first quarter of 26 showed the loan posted a DSCR based on net cash flow of 1.51 times with occupancy at 85%, which is getting ready to decline. So leasehold interests can lose nearly all of their value when tenant demand weakens and the leasehold structure prevents the parties from reaching an economically viable solution.

48:39So taken together, these five credit stories show that special servicing often comes down to one question. Who is willing and able to write the next check? At 425 I Street, strong cash flow appears to have supported a workable modification. At the 60 Hotel, Fresh Borrow Equity bought additional time but did not provide a permanent solution. Haven at Bel Air shows how property can default despite relatively healthy occupancy when the sponsor lacks liquidity to cover a cash flow shortfall. The South Carolina Industrial Loan demonstrates how lenders can demand additional equity even as they prepare to foreclose.

49:15And then at Valencia Town Center, that leasehold interest lost nearly all of its value when that tenant downsized and we had an impasse between the fee and the leasehold owners. So collectively, the stories trace the spectrum from accessible workout to temporary relief, liquidity-driven defaults, foreclosure, and ultimately abandonment. so a lot to cover this week and of course those are just five quick stories from our newsletters that go out to our clients and we have even more that is released in the cre rundown newsletter as well so if you're not getting our emails send us a note to podcast at trep.com and we'll make sure you get signed up a few other programming notes here if you're listening to this you just missed our market pulse webinar for august but we'd love for you to still be able to see what was included in that webinar, send an email to podcasts at trep.com.

50:08We can share some of those details and then also make sure you're on the list to sign up for next month's webinar. Again, the Tripwire podcast team will be at the Western States Cref Conference coming up here September 9th through 11th in Vegas. We are so excited to attend that conference and also be doing a live special edition of the show. So again, if you're going to that conference, send a note to podcasts at trep.com or reach out to us on LinkedIn. We'd love to connect, book a meeting, have a coffee, a drink, or a dinner, and just see you at that show. Turning to shout outs, Andrew L asked for a link to our Trep MCP webinar.

50:47He wanted his whole team to join. So thank you to everyone who joined that webinar and have since been following up with us. We've been inundated with requests, but we're so happy to receive them. We've booked a lot of one-on-one meetings with people where We're walking them through exactly how they can use our TREP data within their workflow for their use case in commercial real estate or CMBS or anything to do with real estate finance. So if you missed that, reach out to us. We can still book a one-on-one call with you and just show you how we can improve your day and really make your teams more productive.

51:21Brian H. thanked us for the MarketPulse webinar and is really looking forward to joining. Rebelsie was interested in some previous recordings of our webinars. We do have those, so reach out to us and we can let you know if we're able to share. Lolly S. was sorry to miss the last month's webinar, but is really excited to join August and gave us a shout out for the podcast as well and said those are so awesome. James R. reached out about TREP MCP. Kelly T. asked for a copy of the latest special servicing report to share with her team. Patrick G. is a longtime listener and really enjoys the show.

51:57He said the combination of market news and individual loan stories every week is incredibly useful. Keep it up. Mike N. missed the MCP webinar but wants to meet, so we will book a time to get on the phone with you. And Robert F. heard the Back Leverage 101 discussion on the podcast and wanted to see the written blog that we produced for that as well. And he said thanks and loved the show. So that's it from the Tripwire podcast team this week. We hope everyone's having a great end of summer and gearing up for a busy fall and conference season and kicking back into gear. So with that, we'll close.

52:33Thanks to our producer, Mariana Sobrana. 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 trip.com and subscribe to the Tripwire podcast with your favorite provider. Thank you for listening and stay well. All right.

52:58We'll be right back.