419. Back to School, Back to Price Discovery: The 5% Treasury Test, College Football’s $6.1B Student Housing Connection

0:05Welcome to the TREP Wire podcast, the show where commercial real estate meets data and insights. This is our Week in Review for the week ending September 4th, 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. Last week, we discussed what Kevin Warsh might say during his first Jackson Hole address as Fed Chair. He delivered a firmly hawkish message, and markets responded by sharply increasing the odds of a September rate hike.

0:42Since then, oil prices and global bond yields have climbed, while the latest employment data have pointed to slower hiring. That leaves investors weighing softer labor conditions against persistent inflation risks. On today's episode, we'll also dig into student housing as college football returns, including a$435 million portfolio acquisition, before carrying that same theme into some of our property-type stories. Capital is still moving across commercial real estate, but only for the right assets, markets, and business plans. So Stephen, let's start at the top here. Are higher rates shutting down capital or simply making it much more selective?

1:22I think selective is exactly the right word. The bond market is repricing risk, but the series stories this week suggest that capital markets have not simply closed. I think all dealmakers know this at this point. I mean, higher rates have not shut down things, they've just had us sharpen our pencils and recalibrate. So we have some really interesting stories this week. We have a$340 million Chicago office refinancing supported by recent leasing momentum and nearly 500 million of acquisition financing for an industrial portfolio. So clearly big deals still getting done, able to be underwritten at, well, fairly higher rates.

2:00I mean, the 10-year yield has pushed up to, gosh, we're touching 4.8 % recently, and it looks like 5 % is yet again within reach. At the same time, we had an office loan that already received an extension, but it's back in special servicing. We have a Houston multifamily loan that transferred despite reporting 93 % occupancy and above breakeven debt service coverage. And then we have one of my favorites this week, a surprise mall payoff that a lot of folks thought was going to take a loss. So we have a lot of good property type stories highlighting the through line for this week. Higher rates just make us sharp on our pencils, be a little bit more selective, but the deal volume should persist absent any major macro shocks.

2:46And that's the big question here. So let's turn back the clock to Jackson Hole last week. Warsh's central message was that the Federal Reserve's 2 % inflation target is firm, inflation is still too high, and policymakers have more work that they can do unless they become confident price growth is moving toward that target at sufficient speed. So in other words, it was a hawkish tilt that was designed to say, we're prepared to do something this year, specifically at the September meeting, if nothing changes our view. He also made a broader point about Fed communications. Warsh wants to rely less heavily on forward guidance.

3:24We've talked about that and give investors fewer clues about the likely path of interest rates. But I'll be curious to see what happens with other Fed speakers. We have some big names out this week. I think even Chris Waller was on the agenda. So I'll be curious to see how much that holds for other Fed speakers or if that's primarily a Warsh rule. His argument is that markets should process the economic data independently instead of looking to the Fed for their trade. So the immediate market reaction last week was fairly dramatic. The two-year Treasury yields, which is sensitive Fed policy, jumped about 13 basis points on Friday.

3:58The implied probability of a quarter-point rate hike in September increased from roughly 35 % before the speech to 60 % by the end of the day. So in other words, markets are pricing in a Fed hike. but the pressure subsequently spread beyond the short end of the curve. The 10-year treasury pushed 4.8%. The 30-year approached 5.3%. So I mean, across the curve, this wasn't just a twist. This is a full-on shift, even though the curve is a little bit flatter than it was a month ago. So I mean, clearly inflation pressures are hurting and bond investors are really concerned. And it's not just a domestic story.

4:39There's some international spend that we can get into in just a little bit as well. So Lonnie, it's all about the September meeting. I mean, we still have CPI, we still have labor data to get. There's a lot between now and then. But how are you feeling? Are you thinking the Fed is still going to hike into some supply concerns? Or are they going to blink? I'm not willing to put money on either scenario. Because I think there's too much time left for things to play out. And I think what we've learned to this point is we're basically in a day-to-day, hour-by-hour, minute-by-minute business at this point for some of these things.

5:17I think they set themselves up, as you mentioned, kind of cautiously hawkish, but I'm not confident that they're going to do anything at this point. I don't think we have any evidence that says a rate hike for sure is on the table and going to happen. I think it's certainly being considered. I think that we'll see an increase in, you know, the CME FedWatch tool probability of a hike. But I wouldn't be shocked if they hold rates the same. I mean, you know, I think what you talked about just a moment ago was the transitory inflation, right, of a few years ago has now become the persistent inflation.

5:50And it's not just, you know, the Treasury yields, et cetera. I mean, we're talking about look at oil, look at the labor markets. I mean, all of these things are converging at once. and I don't know that Warsh and the committee really have it all under control at this point. I mean, every time they think they have some certainty around the U.S.-Iran conflict, it flips the script and we start attacking them and they start attacking us. And with that, you know, this last week, if you look at West Texas Intermediate, back above$90 a barrel, Brent crude in the mid-90s, you know, so this higher energy cost, we've seen that show up very quickly in the inflation numbers.

6:27once those oil and gas prices start to increase. The labor data, you know, you've been saying this for a while, Stephen, slow hire, slow fire market. If you look at ADP, they reported only 38 ,000 new private sector jobs in August, which for those keeping track is the weakest gain since January. If you look at the JOLTS report, it showed the job openings remained relatively stable, but hiring declined, which, you know, reinforced that mantra that you put out there of slow hire, slow fire. People aren't getting laid off in mass, but there are certainly, when people leave, employers are not bringing people on board at any rapid pace.

7:07And if you look at the payroll benchmark, and this is the one I think is interesting and get a little laugh out of. Remember last year at this time, March employment estimate was reduced by 911 ,000 jobs. This year was only 79 ,000, so significantly better, but still not great. It just confirmed that employment growth was already weak before this week's report. So I think Jackson Hole provided what people were looking for. I think kind of on the 10-year, you know, as we approach 5%, that's been, in my mind, kind of the push-pull for the market. At 4.8, it's getting very close to 5, and I think the market will react negatively if and when it does get to that 5 % threshold.

7:47I think at 4.8, you know, not a huge delta between 4.6 that we've been kind of hovering at. but I'm not confident that the story's going away. I mean, I think it's going to be here. I think at some point there's an opportunity for us to cross the 5 % threshold on the 10-year. And I think if and when that happens, you're going to see a pretty significant psychological shift across the CRE landscape. I mean, Besant was trying his best at the G20 to message and say, look, I get it. Bond investors are not happy with where the debt to GDP is at. I mean, we have like 40 trillion. It's painful. The amount of interest payments are going to surpass defense spending.

8:30And the only path I think that's viably a way forward is for us to grow our way out of this. AI is going to save all. We're going to become so productive. We're going to grow our way out. Don't worry. I know that your concerns, but we will be back in the golden age of production. And I love that line. But I do get worried when I see some of the research that's been produced on this that says, yeah, I mean, it'll help. It'll help, but it's not going to eliminate the problem. We can't grow our way out of this from the calculations we've run. We will do better. We'll stem the bleeding, but we're not going to reverse the course.

9:09We're not going to start reducing the amount of debt outstanding through fantastic growth. So the sad part of this is that it's going to take political action and some pretty uncomfortable belt tightening, reduction of entitlements to actually bring down deficits and bring down debt. And it's a global problem, right? U.S.-Canada relations have deteriorated significantly. European officials are facing a difficult situation as well. Across the board, debt costs are high. I mean, Japan has been the one that's been particularly concerning because of how much U.S. debt they hold. When their interest rates start rising significantly, the concern that you'll start seeing U.S.

9:49Treasury debt sold off to try and protect the Japanese yen, and that's going to have negative knock-on effects for U.S. Treasury yields. So we're in a precarious spot right now, it feels like to me, and I don't see a great way out of this other than necessary political action that I don't feel like we have the stomach to take right now. Yeah, I mean, certainly there's no candidate that we have in office or that's running for office currently that wants to be the one to take a stand here and say, you know, be the adult in the room and highlight what you just walked us through, Stephen. Like, we're not growing our way out of this.

10:24We'll stop. Anyone that thinks that that's the case or the option that's going to play itself out is just fooling themselves. We're 40 trillion into this. You're not growing your way out of this. There has to be some major cuts. And when we say major cuts, I mean like deep, major cuts. And nobody's going to, nobody wants that. Nobody is going to vote for that. Nobody's going to support that at a scale that's required for us to actually see the political action taking place. I mean, we saw the pushback with Doge, which theoretically was supposed to be a catalyst for this type of change. And it got frozen out, run off from both sides of the aisle, because nobody wants anyone peaking under the hood.

11:11And with these higher costs of capital, higher yields that are required in the bond market, it costs a lot more to pay those debts. And so it makes me nervous. As someone with relatively young children, this is a pretty significant predicament. I don't think it was that long ago we were at 30 trillion and the path from 30 to 40 was very short and it's pretty scary at how bad this could get very quickly. So in this environment, the best thing you can do is just focus on your asset allocation, asset selection, and pick the stuff that you feel, well, most confident about, regardless of the environment.

11:47Because if things go downhill, well, at least you've made the best bets you possibly could. If we break to the upside, well, you should still probably outperform. Maybe you won't outperform some of the riskier bets, but you will still do very, very well and will feel comfortable. So I feel like that will end up being our through line through today's episode. It's just continued selectivity and where you're putting your capital, what you feel most confident about today. Yeah, and like you said on the intro, and we're seeing this across the CRE landscape, it doesn't mean the capital is unavailable.

12:23It is for the right deals and the right markets to the right sponsors. It's selective, and that's where we're at. And that risk premium just kind of weeds out some of those, you know, the cuspy deals. And it's not just in CRE, but it's just broadly as you're talking about with some of these investments. So, you know, listen, I'm 100 % USA, best country in the world, even with all of our faults. But this head in the sand approach to this deficit and the spending is just really, really problematic for us. and I hope puts themselves in a position to be a champion of common sense and logic that can actually turn some of this stuff around.

13:00All right, guys. So it's officially September, and some people would say almost fall. Others would say almost football season. So in our Digging Through the Data segment today, we wanted to kind of lean into the theme of football and week one of college football and talk about student housing. So I know, Stephen, that you and the research team were trying to find a way to connect the AP Top 25 with the student housing market. So what does college football tell us about where securitized student housing debt is concentrated? Well, this might be a surprise to some and definitely not a surprise to others.

13:41But the AP Top 25 does actually prove out to be a fairly useful map of securitized student housing exposure. And believe it or not, it's actually a better map than, say, the U.S. news ranking of the country's top universities from an academic standpoint. But football drives the landscape. That is the moneymaker. So TREP analyzed approximately$29.3 billion of outstanding securitized student housing debt and measured how much sits within a five-mile radius of schools within that AP Top 25 college football list. The 25 ranked football programs collectively had$6.1 billion of student housing, representing about 21 % of the entire securitized student housing market.

14:34So it is a strong, strong overlap. I mean, five miles is a very tight radius if you're dropping a pinpoint down on the college campus. So this is an impressive stat, 21 % exposure overlap. And what's even more interesting is that every single one of the AP top 25 campuses had at least a handful of securitized housing properties within five miles. I mean, it was a sizable count and sizable dollar volume here. By comparison, the U.S. News top 25 universities had 3.4 billion nearby, or only about 12 % of the overall market. And seven of those campuses had no exposure whatsoever. So the point is not that successful football programs cause student housing development.

15:23The AP poll is acting like a rough proxy for the types of universities that tend to support purpose-built student housing. Large undergraduate populations, limited on-campus capacity, and surrounding markets with room to develop. Looking to the individual football markets, you'll like this, Lonnie. University of Texas led with approximately$941 million across 29 properties. Those properties had a balanced weighted average occupancy of 90.2 % and a median debt service coverage ratio, or DSCR, of 1.79 times based on net cash flow. I mean, that's strong occupancy and strong cash flow. Number two on the list was Penn State with$716 million and had some of the strongest operating results with occupancy of 94.3 % and 1.94 times DSCR.

16:18Texas A &M ranked third,$633 million, but its occupancy had slipped down to 85.1%, which was the lowest among the top 10 largest markets. Texas Tech actually ranked fifth with 380 million. And as a former Texas Tech professor, I'm happy to highlight the top five finish here. But we do have some work to do on occupancy and DSCR. It's 88.4 % on occupancy, 1.13 times DSCR. So that does make it a noteworthy market to watch. So Lonnie, do you want to walk us through the next five we have on the list? Yeah, happy to. And before I jump into that, I wanted to just give you a quick quiz on which of these programs do you think generate the most revenue?

17:06Not a CRE revenue, but just general college football revenue, because a lot of the colleges on our list are pretty high on the revenue list as well. Wow. So total revenue? Yes. These are top college football programs and the revenue associated with them. Part of me just wants to say Alabama because of how outlandish they've been for so long, but I'm not confident. I think Georgia fits up there. I think Penn State fits up there. And I never want to rule out Texas. So Texas is the clear number one,$298 million. This was last year's revenue. $298 million. Their total athletic revenue across all sports was$343 million.

17:48so when people start complaining about these public university coaches making outlandish salaries it's because their programs generate outlandish revenue a &m was number two at 218 million wow lsu number three at 213 million nebraska corn huskers number four at 197 million going old school there and then the colleges you mentioned follow up uh round out the rest you have Georgia at$195 million, Penn State at$193 million, Alabama at$192 million, and then the last on the list is Ohio State at$185 million. But some real revenue attribution for these programs based on their football prowess. And so to look at the next five on our list here in the CRE student housing top 10, we have Michigan, which recorded the highest occupancy among the top 10 at 96%.

18:45BYU had the strongest median DSCR at 2.06 times. Southern Cal illustrates why both metrics matter because its occupancy was really strong at 95.7, but the median DSCR was only 1.35 times. So high occupancy doesn't necessarily mean a property is producing enough cash flow to comfortably cover its debt payments, which we've talked about in detail with concessions and free rent and high expenses and other things. So if you look across all top 25 football campuses, occupancy was 91.5 % and median DSCR was a healthy 1.68 times. Those results were slightly stronger, Stephen, than the U.S. News Group, which had 89.9 % occupancy and 1.61 times DSCR.

19:32If you look at both subsets, non-performing rates were really low at 0.6 % and 0.9 % respectively. You know, when I see this U.S. news comparison, Stephen, I'm reminded of a football game between TCU and SMU, where the SMU fans, after getting killed by the TCU football team, were in the stands cheering, it's all right, it's okay, you're going to work for us someday. I think that is very applicable here with the U.S. news. They'll take a little lower occupancy because they're probably going to be owning a larger portfolio once they graduate. If you look at the difference in collateral basis, the securitized balance averaged about$70 ,000 per unit for the football schools, which is nearly identical to overall student housing if you include everything.

20:20But the U.S. new schools, it was much higher at approximately$121 ,000 per unit, which just highlights the density and the more expensive properties in high-cost markets, which I think all of us would have assumed to be the case. So one important caveat is just that the five-mile radius is only a proximity screen. So it doesn't prove that property housing students from the university or that football success drove the actual financing, right? So I think you highlighted this on the front end. But it's very interesting. I mean, I don't know what your conclusions or takeaways from this, Stephen, but I think if you want to understand where securitized student housing debt's concentrated, as you mentioned before, the college football rankings are a pretty good proxy.

21:04and maybe even more so than some of the academic rigor that goes into some of those rankings. Well, I think we have some stories here that we'll follow up with shortly. I think we'll highlight some of the really important top-down themes that folks that are watching the sector investing in want to hear about because we've reached an important demographic cliff here. This 2025 cohort is supposedly the largest enrollment cohort we're going to see for, gosh, the coming years. The birth rates drop off and we start kind of taking this gradual slide down in enrollment projections. So the concern for me is this year might look as good as it's going to get for some of these schools for quite a while.

21:53Others will be able to persist and will do quite well because their enrollment stats are going to have some durability. Folks want to go to programs where a lot of folks care about football, but more generally, you want to have the college experience. And if you're not delivering the quintessential college experience and certainly not delivering at an affordable price point or an acceptable price point, things could get pretty ugly for some of these student housing properties. I think one of the biggest benefits for like the SEC schools, obviously football is the primary driver. But I think the advent of social media where people can actually showcase that college experience that you spoke about, like if you were someone that grew up, you know, in the Sunbelt region or whatever, and so you had family or friends that went to Ole Miss or Alabama or Florida or Tennessee or Texas, you had a pretty good purview of kind of what that experience meant.

22:48But if you lived on the East Coast or the West Coast, you didn't really understand that college life in those locations. But now you see all these fraternities and sororities posting videos and all this stuff. And it really has opened up, I think, a whole new appetite for people to kind of come and experience that. And, you know, we saw this firsthand at Texas Tech, Stephen, when you were there and I was there. It was like before the men's basketball team made the Final Four, nobody really put Texas Tech on the map. and student enrollment was good, but it wasn't great. But you make an NCAA Final Four in basketball, you follow that up with some College World Series and deep runs in baseball and softball, and you have your football team start consistently being ranked in the top 25 and making the college football playoff last year.

23:39I mean, the amount of free exposure and advertising and just awareness that that created in the market, you couldn't have purchased. And it's amazing to see the corresponding direct increase in enrollment. So I agree with you, like on the broad spectrum, maybe this is the best it gets for universities in terms of enrollment. But I think for some of these powerhouse collegiate sports schools, that free advertising is going to be a nice little way for them to continue to see expansive growth. Yeah, and I think for Texas Tech, because it's a really interesting one here, What helped them out was they were batting above their weight class and academics, job placements, and importantly, alumni base giving.

24:21So the alumni base was there, ready to give back at exactly the right moment. And you don't have that with a ton of schools and that similar profile is Texas Tech. I mean, a lot of wealth has been created for a lot of that generation, but the loyalty to Texas Tech's program was unlike anything I had seen for schools of that similar profile. It's an awesome success story. Well, look, they have a chip on their shoulder because they're not Texas. They're not A &M. They're not LSU. They're kind of their own thing. And it doesn't hurt when Cody Campbell goes out there and hits pay dirt a couple times and comes back and starts, you know, contributing money at the scale.

25:02And with his network, to your point, we've seen it even at the real estate school. Our friend John B. that made a nice contribution to the real estate center. So now it's named after him. I mean, it's awesome to see the loyalty, as you mentioned, in Texas Tech. And I think if we had insight into these other programs, we would be saying the same thing about them as well. I mean, it's not just the football, although football is an incredible catalyst for success, growth, and continued investment. So apparently we're not the only ones paying attention to student housing this week. We saw a lot of money moving around in that sector.

25:38So in our deals and data segment today, let's talk about some property type stories. And I want us to start here in student housing. We saw Harrison Street's Mike Gordon on CNBC talking about why they remain bullish on student housing, but also why they aren't bullish on every university market. And at the same time, Aries and Scion just spent$435 million on four student housing properties. So walk us through these stories and if it lines up with what you're seeing in our data. Yes. So Aries and Scion Group acquired a four-property, over 2 ,300-bed student housing portfolio for$435 million, or approximately$187 ,800 per bed.

26:22The communities are located near the University of Georgia, University of Tennessee, and Texas State University. Schneck Plus, which developed three of the properties, was the seller. This is the joint venture's second major acquisition this year. In May, Aries and Scion paid$910 million for 12 properties and over 7 ,500 beds from Harrison Street Asset Management. Scion is expanding separately as well, agreeing to acquire student quarters for approximately$1.5 billion. The pending transaction would add 13 ,000 beds and bring Scion's portfolio to nearly 118 ,000 beds. This article also notes that Hawkins Way Capital and Vardy Capital's$51.5 million acquisition of the new school's 286-bed Loeb Hall in Manhattan, which is slated for renovation under Hawkins Way's found study strategy.

27:17To summarize, Aries and Scion are rapidly building scale in student housing through large portfolio acquisitions, demonstrating continued institutional demand for that sector. The$435 million acquisition carried a substantially higher per-bed valuation than the partnership's May deal at about$187 ,800 versus May's$120 ,000, underscoring how university location, asset quality, and portfolio composition can produce very different pricing. Now, we have a follow-up story here that's very closely related. I mentioned Harrison Street Asset Management in the last story, and they show up again in this next piece from CNBC.

27:59Harrison Street Asset Management's Mike Gordon was giving an interview here, and he remains highly confident in student housing, but emphasized that the firm does not have equal conviction in every university market, highlighting the highly selective nature of student housing and some of the nuanced risks that are presenting themselves right now and will continue to evolve over the next coming years. Gordon said performance is becoming increasingly market-specific as funding cuts, enrollment patterns and student preferences widen the differences among schools. Enrollment, applications, research funding, and student outcomes are becoming more concentrated at prominent institutions, including major public universities and power four schools.

28:45Students are placing greater value on graduation outcomes, alumni earnings, and research capabilities. Many markets targeted by Harrison Street are consequently operating at or above 95 % occupancy. Gordon specifically identified Virginia Tech, Auburn, and Penn State as markets where housing construction has failed to keep pace with enrollment growth. He compared the strongest university towns to factory towns where the factory never closes. Universities continually produce intellectual capital and attract students, professors, researchers, entrepreneurs, and businesses, all of whom require housing.

29:21Harrison Street invests independently and through public-private partnerships with state universities. It is also taking advantage of strong buyer demand by selectively selling assets, including the$910 million portfolio purchased by Aries and Scion earlier this year. Student housing remains attractive, but Gordon's thesis is highly selective. The best opportunities are concentrated around growing, well-funded universities with strong student outcomes and insufficient housing supply. So these two stories show both sides of the same institutional trade. Harrison Street is recycling capital by selling mature portfolios into strong demand, while areas in Scion are aggressively acquiring scale.

30:01The common message is that enthusiasm for student housing remains high, but property selection and university-level fundamentals matter enormously. So I think the last part of that, Stephen, you know, So university-level fundamentals matter, property selection. I mean, that applies universally, don't you think? I mean, I think this is not a student housing-specific requirement. I mean, if you're an office building, you need to have the underlying fundamentals of the office market. If you're a traditional conventional multifamily, you need to have the underlying fundamentals that support that. I think, you know, student housing has proven its resiliency.

30:35I mean, even during COVID, it didn't really see any type of major downturn. I agree. What I would say this is highlighting those that the margin of error or the penalty is maybe disproportionate to the invested capital. Because when I was going back through looking at some of the troubled student housing deals over the last couple of years, because we did have a pretty sizable wave that hit between 2017 and 2019. when I was looking at some of the going in metrics, while some of these deals, I might've like scrunched my eyebrows at and said, eh, I don't love them, but I don't necessarily think upfront they're gonna take a huge loss.

31:12They ended up taking sizable losses, right? The penalty can be massive if you just are really a passive investor in the sector or a pedestrian in the sector. Yeah, I think that's fair. I wonder though, in a lot of those instances, if it's not just a supply and demand imbalance, because I think a lot of these distressed student housing deals are, you know, this is an amenities race. This subsector of multifamily is very amenity-driven, and you're only the best on the block until the next new construction project breaks ground. And if you were a 1980s student housing provider, 1990s student housing provider, and all these new developments came in, it's really challenging to compete with them.

31:56and the only way to really do it is to lower your rents. But even on the new high-end stuff, I mean, you underwrite these at extremely high rents, and, you know, it's great when you're the new kid on the block, but as these new developments get put on campus, it's very interesting how you can have a newer-ish property five years post-construction that feels old relative to some of the new supply that's online. And, you know, we've seen, as we talked about, some of these universities' enrollment spiking. I mean, that just, you know, created an opportunity for a lot of new developments. And I think in some instances, there was just more housing available than there was demand.

32:31I mean, for a lot of students, you know, they want to make sure that they're in a place that their family can afford to live and it meets their needs. But for a lot of others, they're borrowing student loan money and using that to pay for their housing. So price really wasn't an object. It was just kind of like they wanted to be where the coolest, best place was. And so I wanted to ask your question on this, Stephen. And we've heard a lot about the silver tsunami in senior housing. And people are continuing to place their bets on senior housing. And we haven't necessarily seen the demographic shift and kind of the huge opportunity that people have been pontificating about for the last decade.

33:08If you had to pick between senior housing and student housing, which sector do you think is best positioned as we head into the next five or 10 years? I would probably still pick select senior housing over student housing if I'm throwing darts. I'm not going to do my deepest dive, which is kind of silly because, of course, I'm going to do the deep dive. And just from personal bias, I would probably have a little bit more preference for student housing. But yeah, I think for longevity and returns, to me, senior housing feels like a better play. And to get to your point about, you know, is it a supply issue with student housing?

33:46Yes, it's a supply and amenities arm race, but also with a stronger binary tendency, right? If you missed the lease up in spring and you had supply coming online, you are hosed. There's no coming back. And you're just gone. You're dead. You're dead in the water. And you're going to be dead for a while. So there's really no coming back from that. I agree. I mean, that's a very valid point. I mean, they have a very tight window to hit the mark. I'd have to do a little research to even answer my own question here because I think I kind of lean more towards student than senior. just because the regulatory, the licensing, the requirements on a lot of these senior and assisted living and skilled nursing and all of these things, like that adds an additional risk component, just like student has a very tight window for lease up.

34:35Very interesting, unique challenges to either, but it seems like both of them have gotten a lot of, you know, good publicity lately. And so I just kind of wanted to see your take on it because I think both have, I could be convinced that either of them is the best choice, I think. Yes, exactly. But both are very operational and capital intense. 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. It'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.

35:22Go to lev.com, that's L-E-V.com, create an account, get$2 ,000 of free credits, and tell them Jake sent you for another$500 in credits. Now, we have another multifamily story here that we're going to rope in if we can include student housing under the broader multifamily umbrella. We have a 2025 Houston multifamily loan that transferred to special servicing here. Our August remit data showed the$50.5 million Providence at Heights and Legacy at West Chase loan transferred to special servicing for imminent monetary default. The loan is set to mature in June of 2030. Previous month's watchlist commentary reported sub-breakeven DSCR at one of the collateral properties at year-end 2025.

36:09Special servicer commentary subsequently states that the loan transferred after the borrower failed to secure a Chapter 394 tax exemption and could not make a required payment or deposit. The lender denied the borrower's request for relief and issued a demand, and counsel will be engaged as the borrower discussions began. The loan is secured by two multifamily properties in Houston with a combined 520 units. The properties were constructed in 1973 and 1977 and renovated in 2017 and 2021, respectively. For the trailing 12-month period ending in March of 26, the loan posted a DSCR based on net cash flow of 1.14 times with occupancy at 93%.

36:51The collateral was valued at$74 million at securitization in 2025. Yeah, Stephen, for our listeners that maybe don't know, in Texas, there's quite a bit of legislative action around Chapter 394 tax exemptions. these exemptions pretty much dealt with the Texas Housing Finance Corporations. So they were allowing for full property tax exemptions. There was this whole concept of a traveling HFC. Do some research online, you can find some pretty fascinating stories, but there were a lot of properties that were underwritten, financed, and built, secured, bought, purchased, whatever you want to call it, with this expectation that the ownership was going to be exempt from taxation.

37:32and with some new legislation that was passed during this last legislative session, it put a wrinkle into that process. And a lot of people, as evidenced here, are not able to actually secure the exemption that they thought. In Texas, which mandates an annual reassessment at 100 % market value, property taxes are the largest single line item of expense. And if you underwrote a project and financed it under the assumption that you were paying zero property tax and now you're paying full freight, those deals are not going to pencil. And so this is maybe one of some other stories that will be coming over the next year or two as this kind of plays itself out.

38:13And I'm going to maybe bastardize the concept here, but was one of the biggest issues that they basically just nixed the traveling aspect of it? Yeah. So they still have a 394 exemption, And then properties that would have historically qualified would potentially still qualify. It's just concept of them finding developers, finding a loophole and exploiting it through the traveling HFCs, which really created a bunch of waves. Because of the property tax system in Texas, where taxes are such a huge component, because Texas has a constitutional prohibition against state income tax, meaning that they'll never have a state income tax.

38:55They're heavily reliant on sales tax and property tax. They have a two-legged stool instead of a three-legged stool. And so there's a disproportionate amount of emphasis placed on property tax revenue, which means assessments are aggressively pursued, et cetera. And so what you end up having is it's a competitive disadvantage to multifamily owners that didn't use this kind of loophole. And when that happens, they're not going to let it stand. So obviously, the lobbyist got in front of the legislature and said, listen, you have to fix this. Everyone's all for proper exemption application. But when things get abused and it makes for a competitive disadvantage for those that are playing by the rules, it has to be fixed.

39:39And so the legislature stepped up and fixed it. So let's move over to office because we had two stories this week that show just how bifurcated the market continues to be. First, on the positive side, Tishman Spire secured$340 million of new CMBS financing for the Franklin in Chicago. Yes, this was a sizable loan. So Tishman Spire secured a$340 million loan against the 2.5 million square foot Franklin office complex in Chicago's West Loop. J.P. Morgan, Bank of America, and Deutsche Bank provided the financing. The loan has an initial two-year term with up to three one-year extension options and carries a floating rate pegged to SOFR plus 346 basis points.

40:25The financing allowed Tishman Spire to retire a$300 million piece of a larger$832 million debt package that MassMutual provided in 2013. Their broader loan package was extended at its initial maturity and reached its final maturity last month. The property is 79.1 % leased, and some of the new financing will be used to support additional leasing efforts. Leasing momentum has been strong recently. Since June 2025, Tishman has signed 460 ,000 square feet of new leases and extensions. Major tenants include Options Clearing Corp., Robert W. Baird, Amazon Web Services, Guggenheim Partners, and Trade Desk.

41:05The Franklin consists of two connected office towers totaling 2.5 million square feet. The 60-story building at 227 West Monroe Street and the 34-story building at 222 West Adams Street, connected by an atrium that was recently renovated. The property generated$46.98 million of net cash flow during the 12 months through June, according to KBRA. The bigger takeaway is that the deal shows the CMBS market remains open for large, well-located office properties with strong leasing momentum. The new loan also gives Tishman Spire fresh capital for leasing while resolving a portion of the debt that came due from the property's original$832 million financing package.

41:48Yeah, so Stephen, Tishman has found this groove with CMBS. I mean, over the last couple of years, it started with Rock Center, then the Spiral, and now with this Franklin office property. They've found a really nice vein here that they've been able to tap into. And I think, as you mentioned at the tail end of that story, giving them additional capital for leasing, which has been robust, we know how much more expensive it is for TI to finish out and other costs. So hopefully this sets them up to, you know, continue to push the occupancy at this property. But it's interesting. It's great to see such a well-run company like Tishman tap into the CMBS market and continue to, you know, have outperforming properties in a market that, you know, continues to set the precedent for what, you know, office post-COVID looks like.

42:39Now, if that was our green shoots, we obviously will be countering with some crabgrass because, well, it's the office sector and there's plenty of crab to go around. We had a suburban Washington, D.C. office loan transfer back to special servicing. This is the$35 million Silver Spring Plaza loan that returned to the special for balloon payment slash maturity default. The loan first transferred to special servicing at its original maturity in July 2023 and returned to master servicing in March of 24 after a modification extended the maturity to July 2026. Prior month's watchlist commentary highlighted declining occupancy.

43:20An updated special servicing commentary acknowledged that the transfer was due to maturity default, obviously in part because of operational issues. The loan is secured by a almost 243 ,000 square foot suburban office property in Silver Spring, Maryland within the Washington, D.C. metro. The property was built in 1970 and renovated in 2001. Top tenants include DLH Corp. And if you like acronyms, don't know what this one stands for. C-O-G-N-X-R-A-I. I don't know if I'm supposed to pronounce it or spell it out. And then the National Children's Center, whose leases account for 28%, 9%, and 6 % of rentable area, respectively, and run through March 2031, September 2030, and year-end 2027, respectively.

44:07For the first quarter, 2026, the loan posted a DSCR based on net cash flow of 1.04 times, with occupancy of 58%. The property is valued at$56.9 million at securitization in 2018. Stephen I gotta say when you say suburban DC office my mind kind of shifts to crabgrass without even knowing anything about it. Yeah and this is one of those ones that when it extended we were asking at the time is this still going to be able to find its way home after this extension or is it going to come back home to roost again? So our next story here is industrial. And I think this one gives us a pretty good example of where investors are willing to put serious money to work.

44:53We saw a headline that TPG and Redfern are acquiring a$628 million industrial portfolio. Yes, TPG and Redfern have made a major bet on Shallow Bay Industrial acquiring a 53 building portfolio for$628 million. The deal includes 5.4 million square feet of distribution, logistics, and manufacturing space across seven states. The portfolio is heavily concentrated in the Southeast, where roughly 75 % of the assets are located. Key markets include Tampa and Lakeland, Florida, Atlanta, Raleigh, and Charlotte, and Memphis. The properties were 87 % occupied at the time of sale, meaning the buyers are acquiring a portfolio with solid existing cash flow, but also room to improve occupancy on the margin.

45:38The strategy is focused on shallow bay industrial rather than massive distribution warehouses that dominated the industrial boom. These smaller multi-tenant buildings are often located closer to population centers and serve a broad range of local tenants. The buyer group sees an opportunity to create value through active management. TPG plans to invest capital selectively, address deferred maintenance, and focus on retaining tenants across the portfolio. The deal was also structured around local operating expertise. Redfern Capital, Atlanta Property Group, and Matterhorn Venture Partners will jointly manage the portfolio, with each taking responsibility for properties and markets where they already have a presence.

46:16The acquisition was financed with a significant amount of debt. BDT and MSD Partners provided a$479 million acquisition loan, meaning financing covered roughly three quarters of the$628 million purchase price. Overall, the transaction is a strong sign that institutional investors still have conviction in industrial real estate, particularly smaller infill properties, even as the broader industrial market has normalized. And TPG and its partners are betting that high barrier to entry markets and diversified tenant demand will support the longer term performance of shallow bay assets. I tend to agree with them.

46:52We've seen it across all property sectors. High barrier to entry markets generally act as a nice protection layer for valuation. And with the shallow bay industrial, we've seen a continued push for a need for them. And so I think this is a nice story. It is interesting. And we've done some discussing of this on the show, Stephen. Maybe we do a deep dive of just how these industrial deals almost exclusively trade in portfolios. I think because the individual property values are not significant enough to hit critical mass. But you see these now half a billion dollar transactions all the time, you know, with a large 50, 60, 100 building portfolio trading.

47:33And finally, we have a retail story here. And this is a CMBS story that actually has a pretty good ending, despite looking pretty ugly at one point. Lonnie, can you walk us through what's happened at the Westfield Montgomery Mall? Yeah, this is one that Stephen referenced on the lead-in that we thought was maybe going to have a bleak outcome. So for those that maybe haven't been listening to the show or reading the TREP wire, just for some context, this is a$328.7 million CMBS loan. It's Westfield Montgomery Mall in Bethesda, Maryland. It has been paid off in full. You heard that right, paid off in full, which marks a successful exit for a loan that had faced significant valuation pressure.

48:17This was a 2014 deal that had been modified and extended after the mall's owner, Unibel Rodamco Westfield, paid down the balance from roughly$350 million. So the payoff came at par, which is really surprising given where we thought this might end up for the most senior CMBS bonds, which had originally carried the highest possible rating, but were later downgraded amid concerns about the property. The mall's valuation, as we mentioned, had taken a major hit. Its appraised value was cut from$353 million back in 2024 from the original$680 million in 2014, so nearly a 50 % decline. But despite the valuation drop, if you look at the mall itself, it had remained operationally healthy.

49:011.33 million square foot property is 87 % occupied, and the portion securing the loan, so the collateral, was about 835 ,000 square feet. So, Stephen, this property generated$6.54 million of cash flow in the first quarter, putting it on pace for about$26.2 million for the year, although that's still below the$33.6 million it generated in 2019. So I know you might want to jump in here and give us some of the details around the anchors and some of the other tenants that are driving some of the value here. But I think for us generally, I'm pretty surprised at the outcome. Yeah, this one surprised a number of folks.

49:39The anchors are interesting here. I mean, you have your typical ones. You have Macy's, Nordstrom. You also have an Apple store. But get this. One of the ones I did not expect to see, a Dream Aero Flight Simulator. That's right up my alley. Those things are cool. One of my dream toys, just to not go too far off the beaten path here, but I want a six-axis flight simulator in my office at some point. If I can convince my wife that I can build a desk around it, maybe I'll get that done. But the big takeaway here is that the sharp decline in appraised value didn't necessarily mean a loss for CMBS investors.

50:13Unibail Rodamco Westfield was able to pay down and ultimately retire the loan despite the property's valuation being cut nearly in half and allowed senior bondholders to be repaid in full. This is a fantastic win on an asset that we thought was maybe not going to make it out alive. Yeah, but still not the outcome everyone had hoped for when they signed on for this. But I think given the plight of this mall, this is a great outcome. And it just goes to show that while the appraised values can be reduced, if you stick to your conviction and try to operate the asset the best you can, sometimes you can get an outcome that's favorable.

50:49And so hopefully for this mall and the operator, they can continue to push occupancy, continue to grow that cash flow. So again, we're about 6 million below where it was at origination, but it's not 50 % less than it was at origination. I think there's still some room for growth here. So as always, a lot of coverage from our team, and I do have programming notes. We have even more coming. Next week on Tuesday, September 8th, we're hosting a special webinar. This is our banking series. We call it the TREP Lending Market Snapshot, where we provide key trends that we're seeing in bank, commercial real estate, CNI, and NBFI portfolios.

51:28So this webinar is happening at 11 a.m. Eastern, and we'll walk through stabilized and construction trends. We'll share some key performance benchmarks and market shifts and some early warning signs and risk indicators that lenders should be watching closely. So if you're interested in attending this webinar, send an email to podcast.trip.com, and we'll make sure you're on the list. Also next week, the Tripwire podcast team is heading to Las Vegas. So we've been mentioning this, but it's so crazy that it's already September and it's almost time. So Lonnie, Stephen, and I will be recording this show live at the California MVA's Western States Cref Conference as part of their keynote luncheon.

52:11We're calling this session Beyond the Headlines, What the Data Really Says About Western CRE. And we'll do what we normally do here, but with a Western lens. We'll dig into office and life sciences, go deeper on what we're tracking across multifamily and self-storage, and we'll look at a few individual deals through the TREP data. So if you will be in Vegas for the conference, come see us at the keynote. We'll also be doing a special Q &A session through the event as well. We'd love to book some time and meet with you at the conference as well. And a big thank you to the team over at the California NBA, Paul G and Cody C and everybody that's been planning this.

52:53There's been a lot happening behind the scenes to make a live show like this work. And we're really excited to be taking part and meet so many of our listeners at this show. And if you're not attending, you can still check out the live recording because we will release it as our episode for next week. So stay tuned. Turning to shout outs. Ben S. has been listening to the pod for a while and has really enjoyed the content and insights. He was wondering if we have emails, mailing lists, or any market update distributions that he could be added to. We have a lot. So we got you signed up for everything, Ben, and we're excited for you to really dig in and see all our research, newsletters, podcasts, and webinars all in one place.

53:38Michael R. was interested in our recent research on multifamily net operating income and expenses. We didn't really talk about that too much here, but we do have a new series of research coming out. We've already released multifamily where we really dug into the financials and the income and expenses. So if you're interested in that, please send us an email. Andrew T. said, great podcast as always, and was interested in our life insurance commercial mortgage data. We recently released some of the latest returns information that we're tracking there. Jason L. was interested in the lending webinar and wants to have his team join.

54:16Daniel K. said he's a big-time listener of the show and wanted to see the latest delinquency report, which speaking of, we're recording this podcast on September 2nd, which means we just released our August 2026 CMBS delinquency report, and we found that the rate decreased by one basis point. But of course, there's always more to that story. So if you're interested in seeing our August report and the figures across property types, reach out to us at podcast.trep.com and we will share all the details. Steve and Em really enjoyed the show and loved our MCP webinar and is excited to put our data to work in his AI tools.

54:58Thomas G said, great show, wanted more information on CMBS maturities. Eric A. loves our daily CRE rundown newsletter. Nick F. really enjoyed our recent data center coverage and was looking for it in written form. So Stephen, you did a deep dive into data centers and deals and how they're priced recently. We do have that as a research report if you missed it. And Susan W. really enjoyed our recent episode with Catherine S. from BMO. If you haven't checked out that podcast episode yet, please give it a listen. We just released it and it was an excellent episode on the lending market, what she's seeing across data center lending, and really how she's seen bank commercial real estate financing and lending evolve over so many years.

55:45So thanks for the shout out there. I had a couple of shout outs, Haley, and kind of a fun story. I was at a conference, as you guys know, this week in the DFW area and I went to have dinner at one of the restaurants at the hotel and was sitting into the bar and met a couple of guys that were using Claude and Replit to build the website and go through and do some some cool AI stuff. So obviously the product manager part of me like was paying very close attention to what they were doing and so I jumped in before I paid my tab and told them hey you should actually do this and this to your website I think it'll drive traffic and so that kicked off about a two hour long conversation and coincidentally one of the guys has actually went to my high school, which was a small private school, which my graduating class had like 60 students.

56:33So it's, he was obviously quite a bit younger than me. I didn't know him when we were in school together, but it was really just kind of a small world moment. So shout out to Leandro G and his friend, and now my friend, DJ Chino L, who's rocking the DJ scene here in the DFW Metro. And so really cool to kind of talk shop with them and learn a little bit about them. and tell them a little bit about what we do. They were very intrigued by TREP and everything that we've put together. So shout out to my two new friends. I love it. And if you hear this shout out, guys, send us an email, podcast at trep.com.

57:08We love to hear from new listeners. As always, thanks for listening. If you haven't done so, rate us five stars on Spotify, Apple, leave us some comments or email us anything. We've gotten a few longer form, in-depth emails. one just today about someone wanting us to dig into CRE CLO so we're coming through your emails and your suggestions your feedback and we'll use that on future segments we always appreciate anyone getting in touch with us so with that we'll close thanks to our producer Carly Cento join us next week as we look at what's happened during the week and how it may be impacting you if you have a question or just a comment send an email to podcast.trep.com and subscribe to the Trep Wire podcast with your favorite provider Thank you for listening and stay well.

57:56All right.