424. The Numbers Need Context: 5%+ Treasury Yields, AI Roadblocks, and Hotel Distress

0:04Welcome to the Trepwire podcast, the show where commercial real estate meets data and insights. This is our Week in Review for the week ending September 25, 2026. I'm Haley Keenwith-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. The market has given us plenty to discuss since last week's Fed rate hike. On Wednesday, the 10-year treasury yield climbed above 5.1 % during trading after a strong reading on business activity. While Fed Governor Michael Barr said further rate increases are likely to be needed, Richmond Fed President Tom Barkin also warned that inflation is spreading beyond energy and tariffs.

0:52Oil is back above$100 a barrel, and the administration is weighing how to respond to high diesel prices. On today's episode, we'll also look at two sides of the AI build-out. Corporate bond buyers are demanding more compensation to absorb a wave of AI-related borrowing, while Texas has paused new state-issued data center permits, pending a grid audit. Later, our property and credit stories of the week will raise a question that runs through the week's episode. When a building is busy or well-occupied, how much does that tell us about the income available to support its debt? We'll also do a Digging Through the Data segment on Marriott and Hilton-flagged hotels Together, they represent more than 40 % of the securitized lodging balance in TREP's latest research.

1:38But their loan performance tells two different stories. Stephen, where do we start this week? I think we have to start with Wednesday's tension. I mean, that news was wild. So the business survey data suggests that demand is holding up. In fact, demand is very strong, which is encouraging for property revenues. But stronger demand can also make inflation harder to tamp down. That helps explain why Barr is talking about more rate increases and why the 10-year treasury moved above 5.1 % during the day and is reaching the highest levels since 2007. So for Siri, the good news about economic activity can carry alongside it higher cost of financing.

2:25The AI stories show another limit to reading a headline number in isolation. Investors are still willing to buy debt from large technology companies, but the volume of borrowing has led them to demand wider spreads. And a long queue of proposed data center projects in Texas is now running into questions about the grid, which we've been talking about for weeks, if not months. And water use and permitting are also headline issues. The investment plans alone cannot tell us when a project will be built or what it will cost to finance. And we'll see that same need to look underneath the headlines and the property stories.

3:04Two buildings can report very similar occupancy and face very different outcomes because their cash flow, expenses, and existing loans differ dramatically. It's also the right way to approach today's hotel data. The flag level numbers show us where the differences are. The individual loans help explain them. But this week was largely, Lonnie, a week of geopolitical tension, higher oil prices, and a question of ultimately, what is it going to take to tamp down inflation? How sticky will it be? How long will the tail be? And gosh, at this point, seeing Wednesday's rates rise, it's a question of what's the ceiling going to look like?

3:45Initially, we 5 % was kind of that holding, that tension level. Now, to me, it kind of feels like maybe five and a quarter is that next resistance point on the 10-year. I don't know. Do you feel similarly about this week's yield moves? Yeah. I mean, I think we were in agreement a couple of weeks ago that 5 % was the push-pull or the friction point, inflection point, whatever you want to call it. It is interesting though. I think people get a little bit desensitized as you hover around 5 % for so long, and it doesn't materially change market appetite or market decision-making, that once you cross over five, the immediate impact is somewhat subdued.

4:21I mean, I would suggest that today the biggest economic impact being felt across the spectrum is just the cost of diesel fuel and gasoline relative to a 25 basis point rate hike with the Fed. Like the 25 basis point rate hike was pretty much priced in. We were at 4.6 on the treasury, 4.7, 4.8. eclipsed five, but it was somewhat expected. I think the pressure at the pump is where people are really feeling it, but it hasn't really impacted the over, as you reported last week, Stephen, on the pod, that consumer spending and everything else was still strong. So it'll be interesting to see how, if this additional price premium at the pump is persistent, I think that could do some real damage on consumer spending.

5:07I did want to highlight a couple of your last takeaways here, just for maybe people that haven't listened to our show this year, I think you summarized effectively what we've been trying to do for all of 2026. And it's that you have to look underneath the headlines because that's where the truth lies. The headlines have some truth, but they're not the truth. And it's when you dig beneath the headlines that you actually start to parse out what is true and what's not true. And for those that have listened to us for a while, they've heard me say ad nauseum that, you know, real estate's a local, sometimes hyper-local endeavor that two buildings on the same street can have two completely different outcomes.

5:42And we're going to highlight that today. I mean, it really depends. What is cash flow expenses and how do their capital or debt stacks look really impacts the outcomes, even though the buildings physically, when you walk by, may look exactly the same or their characteristics, year built, size, you know, those things may be exactly the same. So I'm excited that we're talking about this in a different frame this week, like the fact that the Fed has already made their move, The markets have reacted. It gives us a little bit of a chance to digest where things are. I'm still feeling pretty bullish relative, all things considered, even though we're across 5 % on the 10-year and inflation has continued to be as persistent as it has been.

6:20You know, I think one of the biggest macro and global news items this week has been oil, specifically diesel. The energy secretary hinted this week at a voluntary cap on diesel exports rather than a ban. And this was a big part of what was whipping around oil and treasury yields on Wednesday was, I think it was Politico came out with an article saying that the U.S. was contemplating an outright export ban on diesel. And then later in the day, that got tamped back down by somebody in the White House saying, no, no, we're not going to do an outright ban. That's not it. But some stuff is being drawn up to try and help with diesel prices.

7:03So the Energy Secretary Chris Wright said the administration is considering a voluntary approach to limiting diesel exports while continuing to supply overseas markets. And his comments followed President Trump's statement on Tuesday that an outright export ban was under consideration, but no specific policy had been announced as of late in the day on Wednesday. The goal is to bring down domestic diesel prices, which the Wall Street Journal article here put at$6.52 per gallon on Wednesday, up 16 % over the past month. We know diesel factors into a bunch of different parts of the economy. I mean, shoot, what most of us are going to feel other than filling up at the pump is, well, food prices, right?

7:45I mean, so much of what we consume at the grocery store is put on 18 wheelers. That is a lot of diesel consumed, and that gets factored in fairly quickly into ultimately consumer goods prices. So, I mean, this is a really concerning element, especially this close to midterms. So Lonnie, I mean, like this could be interesting for a while here and it's going to take, gosh, probably a month, two months, ultimately to see any material and sustained move downward and diesel prices. I feel like. Look, I mean, when the politicians start talking about export bans or voluntary bans, it just seems like they're scrambling to me at some level, like they're trying to pull political levers to create something.

8:27But there's not that's not a foolproof solution. I mean, if if refiners can't sell what they produce, guess what they're going to do? They're not going to produce as much. Like, I think this one has to be weighed very heavily on are the the benefits worth the the consequence in some level? Because that's not our problem. The the Iran conflict and everything else associated to this upstream is the problem. And pulling political levers to try to find some, you know, short term offset is not a viable go-forward strategy in my mind. It's like when they suspend gas tax at the state level or something like that for a period of time.

9:05Like, okay, it helps a little, but it doesn't actually solve the issue. And so this is going to be, to me, the story of the next six or eight weeks if this conflict continues to stay active. Because, you know, for all of the talk about tariffs and the impacts and then all of that, like, it never materialized like this. Like, This is undeniable. To your point, people underestimate how many of our goods or how much of our goods get delivered via semi-truck, all diesel. Rail, ships, I mean, like you just go down the list. Large-scale transportation relies on diesel fuel. And it's interesting. I know I've given some personal anecdotes, but, you know, the last two weeks I've gotten to fill up my diesel truck.

9:44And the pump shuts off before I can even fill it up because I hit the cap. So you're forced to either slide your card again and hope that the bank doesn't call it fraud and send an alert and lock your account down or just drive around three quarters of a tank because you couldn't get to, you know, the$200 that's required to get it filled up. It's just it's frustrating. I hope they find a solution. I don't think what's being proposed here is a viable go forward solution. No, and I have a really hard time believing that some of the things that are talked about to try and help relieve the pressure will actually materialize.

10:17I think one of them was that the U.S. was putting together a military aid package for Ukraine to try and get them to stop attacking Russian oil infrastructure. I just don't see that playing out well. Like if you're Ukraine and you're actually making a dent, why would you stop attacking oil infrastructure? The economic damage that you're inflicting is significant. And it's war. I mean, it's just that's the sad fact of it. It's war. And, well, a lot of people suffer. in these types of global wars. It's just, it's a matter of fact. Now, also this week, we got a lot of Fed comments. So the Richmond Fed president, Tom Barkin, said inflation risks currently outweigh employment risks, explaining his support for last week's quarter point rate hike.

11:03The policy rate is now three and three quarters to 4%. His concern is that inflation extends beyond energy and tariffs. In his prepared remarks, Barkin said that more than 60 % of the PCE index is rising faster than 3 % year over year, while some shocks thought to be temporary have persisted. He described consumer spending as resilient and cited momentum and defense, manufacturing, and lending pipelines as a sign the economy may be firming beyond AI and data centers. Larkin left the path open and he said that it's too early to know whether further hikes will be needed. Now, he's not an FOMC voter this year.

11:40So what's interesting here, Lonnie, and I've heard some chatter about this, but one of my favorite theories that I've heard this week about the last FOMC meeting and what we learned from it, that unanimous agreement to raise rates by a quarter point, was that maybe Warsh from the beginning has been the most hawkish of all of the Fed members. And that this gradual move to a rate hike was actually him pulling Fed members into the hawkish camp, which I think is really, really interesting. And it's just going to take some time for this to play out in public theater. But if you're thinking about how Trump is maybe viewing this rate hike and what we're learning from the Fed's move, this will get really interesting from a political standpoint.

12:26I mean, hasn't the Fed has been synonymous with politics over the last 24 months or so? I mean, I think, you know, anyone that expected the political theater to go away when Powell left and Warsh stepped in, I think underestimated kind of where we're at in this saga. And so I don't find that too surprising, though, that Warsh was coming into this hawkish. I mean, he's been pretty steadfast that he doesn't feel like we're seeing the movement we need. Now, I would have liked to have seen if they think they need to raise rates to just do a 50 basis point rate hike and kind of plant the flag in the ground.

12:59I think the 25%, as you mentioned last week, is kind of just to restore some credibility that they're actually looking at the data and making adjustments as needed. But it would have been much more demonstrative to say, we're going to do a 50 basis rate point hike if we actually think these challenges extend to Barkin's perspective beyond just the energy and tariff inflation, et cetera. So obviously he's not a voter right now. So he's a little more free to say what he wants. Neil Kashkari also said that he doesn't think that we're maybe done just with this last rate hike. So I know you had been opining on whether or not we would start hearing more from these Fed governors.

13:36And I think the answer is yes, we've started hearing that. At this point, though, do you have any confidence that there's a strategy on this that actually yields results beyond just the blunt force exercise of we're going to raise rates and kind of slow things down? I mean, could you make a case, Stephen, that at some level you almost need to force the economy into a recession to actually materially change the inflationary discussion? I'm hard pressed to imagine that the blunt force of raising rates is going to actually have the finesse of cooling softly the economy without breaking something.

14:15thing. Now, that being said, just like how we were skeptical on whether or not the Fed could thread the needle and achieve a soft landing, it still might actually be possible given some of the broader forces in play and specifically the pushback against the AI build out and some of the other things. Now, the risks that we've started having to contemplate within the AI sector over the last two weeks, I think are bringing in more significant downside risk that maybe in the margin is getting priced, but we're at a very tricky point. And one of the articles that I pulled out this week highlights some of this tension.

14:55This was from Reuters about corporate bond buyers getting picky with the flood of AI debt. Investors are demanding wider spreads and bonds from hyperscalers and other AI linked issuers as borrowing to fund data centers, chips, and related infrastructure accelerates. Goldman Sachs estimates that hyperscaler debt issuance could reach$420 billion in 2027, up 60 % from what it's been in 2026. And we have a pretty good idea of what 26 volume end up being. The article cites AI-related bond spreads of around 115 basis points versus 78 basis points for the broader investment grade market. Now, those figures come from very different indices.

15:34So they're best treated as an indication of the gap rather than a matched credit comparison. Managers point to the volume and unpredictability of future issuance, uncertainty about investment returns, and limits on how much exposure they can hold to the same technology companies. They generally do not describe the wider spreads as a sign of imminent default risk. This is very much a supply and demand of investment assets story. Demand remains strong elsewhere in investment grade credit, Aon's$13.5 billion financing reportedly drew$65 billion in orders, so well oversubscribed. So the AI buildout still has access to capital, but investors increasingly want more compensation to fund it.

16:16That distinction matters when discussing data center growth. Abundant investment plans do not guarantee financing at the same price, so we're finally starting to see that marginally higher cost of capital get baked into the asset build out. We've seen this within CMBS directly. I mentioned this earlier in the summer about the wave of issuance, the pushback on spreads. We had deals widening by about 10 to 15 basis points, and that widening has persisted. And you're seeing what I would say is maybe a strengthening of the bifurcation of the K-shape and bond spreads, where the best deals, maybe you're going to widen a little bit, call it 10, 15 basis points.

16:55The riskier deals have widened at the low end, 20 basis points, but in many cases, closer to 30 or 40, some cases wider from there. So it's a very interesting evolution we've had since the tights of the beginning of the year. Yeah, I would just say this makes sense given where we're at. I mean, I think we're getting past some of the hype. Reality has to set in at some level and risk and other things get priced accordingly. This is not something unique to the markets. It's maybe just new to the AI stuff. And it's, this is an evolution that's real time across the spectrum. I mean, we talk about this a lot, but I mean, I did a presentation this last week, Stephen, on AI specifically, and it's, it's amazing.

17:35The numbers are just so large. It's just, it is so, it's amazing. Like the power consumption numbers that's needed, incredible. But then on the financing side and the scale side, it's just so large. So I know we're going to talk a little bit about the Texas governor and I can actually lead us into that one. I think that being the Texas resident here. So, I mean, we've talked at some level about some moratorium and other actions that have been put in place. So before I get into the Texas, I wanted to give you a couple of nuggets here. Did you know a hundred plus U.S. municipalities or localities, whether it's government at the county level or city level, et cetera, have enacted some form of a data center moratorium or ban in 2026?

18:17Over a hundred. This is no longer some small grassroots effort. This is like a concerted, concentrated, strategic kind of movement at this point across the U.S. Okay, New York legislature passed a one-year 20 megawatt permitting pause. Governor signed a statewide moratorium by executive order. Main governor vetoed a proposed permitting ban but signed a law barring data centers from state tax incentives. California had other bills requiring data centers to pay their fair share of grid costs and other things. And at the federal level, you had Bernie Sanders and AOC introduce companion AI data center moratorium bills in March and June.

18:57Neither of them have been enacted yet. But this is, at every level of government, some form of discussion around pushing back on data centers is taking place. So that gets us to Texas. Governor Abbott is in an election year and he has really done a 180 here. I mean, you want to talk about politics and political theater. There's literally videos of him within the last year and a half saying Texas is going to be the epicenter for data center development. We are going to be the mecca for data center development. You want a data center, come to Texas. We got the power. We got the space. We're ready, willing, and able.

19:29Well, then fast forward to the election cycle, and it's like, oh, we're not so sure about that. We're going to tap the brakes. Now he's pulling the emergency brake. So he's actually put a hold on all pending permits, pending an audit from ERCOT, which is Texas's own independent energy provider, the grid. He directed Texas regulators to pause state-issued permits for data center projects until ERCOT completes the audit. The state will review and examine the grid impacts, electricity and water use, and related infrastructure costs. If you listen to Reuters, they report that more than 470 gigawatts of data center projects and other large electricity users were seeking grid connection when the audit was ordered, which is more than five times Texas peak demand.

20:14It's a queue of proposed lows and operating data center capacity. And this follows an earlier pause on data center grid connection. So I think for us, it's, you know, this is a tangible, quantifiable, like real-time example of what's taking place in the market. So I'll let you give your thoughts on this, Stephen, and I'll close up on this with just my thoughts on where this leads us because I do think we're getting much closer to an in-state than what people realize. Well, let me start first with what's maybe not a politically correct question to you, Lonnie. I don't know if this politically correct would be considered a pun here.

20:47If we were not in an election year, and let's say the moratoriums were at exactly 100, if we were not in an election year, how many moratoriums do you think would have been put in place? Considerably less. I mean, like, I don't think it's zero. I think it's probably, yeah, 50, 50, 60, right? I mean, like, look, the grassroots effort is real. People are adamant against data centers. So like, it's not like it's going to go to zero, but there's certainly some like Texas, as an example, is not even in this mix if it's not an election cycle. Full stop. So my hope here, I want to go ahead and like ring our bell a little bit.

21:23We mentioned this on the podcast. I think I brought this up like three months ago, four months ago, at least four months ago. We started talking about moratoriums more frequently. I said, you know, this is the sort of market discipline we didn't ask for, but that might actually benefit the market in a big way. And since then, you've heard that echoed by a few major economic strategists. But I'm pretty sure we were one of the first to say it on our podcast. I just want to ring our bell a little bit there. So what's interesting here is that from what you've seen with the productivity boost of AI adoption, right, this is keeping token costs high.

21:58This is keeping compute costs high. the fact that we haven't been able to bring on as much compute capacity as we had originally planned. So that higher cost means that the adoption will be much more selective within the economy. Part of me thinks that's a good thing, right? A broader mass adoption in a very sloppy form might overstate sustainable demand and in the long run results in a greater amount of oversupply. The same time though, you have the tech heads and Jensen Wong saying, look like the amount of compute need out there is so substantial that there's no way we're going to overbuild for it.

22:35Right now, we're just dramatically underbuilding for what's needed. So my hope is that this kind of buys a little bit more runway. It makes the doomsday predictions of Michael Burry less likely and helps us thread the needle of perhaps what might be one of the most substantial infrastructure buildouts in the last century and what could be the most transformative technology will have in generations. At the same time, though, there's real risks that have been brought up. I mean, substantial risks in the last week and a half, two weeks. And now there's talk of forming an objective or third party monitoring and testing of these models to make sure we're not creating our own doomsday scenario, which is really interesting.

23:19That's a whole other talk track in and of itself. But this is certainly not good. We need token costs to come down. It's political theater, but I think this will quickly reverse itself start of 2027. I think we'll get through some of these issues fairly quickly. And some of this is truly political theater and concerns are overblown. Same time, the costs are real to the consumer. And I don't see that pushback stopping anytime soon. So let me give you a couple of stats here, Stephen. In the first quarter of 2026 alone, there was$130 billion worth of data center projects blocked or delayed. So the first quarter of this year equaled the entire total of 2025.

23:59So when we talk about grassroots being more systemic or, you know, systematic in how they approach this,$130 billion in a quarter, now extrapolate that over the 2026, the full year, we're talking sizable numbers here, right? Now, if you look at the number of grassroots community-led opposition groups, whatever you want to call them, 833 of them across 49 states. If you did the same analysis at the end of 2025, there were 396 opposition groups, over a two times increase in one year. Gallup did a poll in May of 2026. What is the percentage of Americans that you think are opposed to AI data centers being cited near their homes?

24:41Oh, I'm going to go with 83%. Very close. 71%. Now, this is where I don't know if it's cognitive dissonance or if it's just people just live in an alternate reality. 71 % of people are opposed to AI and data centers. Yet, how many people use AI as part of their everyday lifetime function? All of us. 100%. I mean, there's going to be some around the edges that don't. But it's just this weird conundrum of like, oh, we want the ability to get into chat and type our questions in, use Claude to solve this problem. We just don't want the data center anywhere near us. So something's going to have to break there.

25:19So I'll get to my kind of like what I'm supposing will happen is you've heard Trump and the administration, you know, they had the all-in podcast summit a week and a half or two weeks ago. And he actually called in and talked to Jensen while he was on stage. and he's so bullish on AI, this is going to push towards some sort of federal protections for data centers. Like we've said it at some level already, but I think the stronger the opposition, when you start quantifying these numbers and 130 billion per quarter of projects delayed, et cetera, the impact it has to the broader economics of the country, the impact it has the national security of us not being the leader in AI, it's going to force federal intervention.

25:59So it's almost one of these weird dynamics where like the stronger the opposition gets, I think the faster the resolution comes. And if we look at last year to this year in terms of growth of the opposition, if we see another 2x increase in opposition this year in terms of community groups that oppose this, you're talking about a significant push. So this is not going to go away. The talk track will be something that is nuanced and changes, but it is interesting and it's, we're all going to be impacted by this. We're already impacted by this. We have already hit critical mass with the AI race.

26:32It is too late to go back. The topic you talked about, models trying to take us out, that's a whole nother discussion, and that'll be a whole nother set of opposition that comes up. This is just on the actual data center development itself, and it's just, it's remarkable to me that there's so many people opposed to this. So, Lani, you mentioned that AI destroying us all. I just couldn't help it. I saw this headline in the Wall Street Journal this week. And it ties back to that really dark joke I made or a live podcast about like, hey, what's going to save life sciences? Well, unfortunately, maybe the biological threat that AI brings.

27:07And sure enough, this week, the headline from the Wall Street Journal was Anthropic Leaders Back Startup Developing System to Detect Biological Threats. Now, what's surprising though, is how cheap, I would say like in the scheme of fundraising, we talk about these data center deals and the billions of dollars. And this company, Pilgrim, has raised$25 million and developed a 50-pound device that detects biological threats. Like, wow, this is actually on the cheap end of startups. So I'm really interested to see exactly how quick, how fast, how much value gets created in this new niche sector, which is just, it's inevitable.

27:43It's an immediate need, and it's something we'll see lots more in the coming years. So let's move over to some data. We have our Digging Through the Data segment this week. If you listened to last week's episode, we dug into industrial and looked at two of the biggest tenants in the sector there, Amazon and FedEx. This week, Treps Tom T wanted to look at two hotel flags with the largest securitized loan balances, Marriott and Hilton. Together, they account for more than 40 % of the lodging balance in Treps' study. But their credit results look quite different. So Stephen, walk us through what the research found.

28:22Yes. Let's first look at really what these two flags account for within the securitized lodging universe. Marriott flag properties account for roughly$22.1 billion of balance and Hilton flag properties account for $16.2 billion. Yet Hilton has more non-performing debt in dollar terms,$1.9 billion versus$1.6 billion for Marriott. That puts Hilton's non-performing rate at 11.17 % compared with 7.2 % for Marriott. Hilton also has a higher share of its balance in special services, 17.9 % versus 9.5%. Those are striking differences, but I would be careful about reading into them as a verdict on either hotel company in isolation because there's a lot more beneath the surface that we have to understand here.

29:13A flag identifies the brand of the property. It does not tell us that the brand caused a loan to run into trouble at all. To understand that gap, we have to look at the hotels, the loans behind them, and the performance. For Hilton, the pressure is concentrated in full-service hotels. They account for approximately 1.7 billion, or nearly 89 % of Hilton's non-performing balance. The non-performing rate within that full-service group is 16.2%. Marriott's comparable full service non-performing rate is just 4.4%. So Chicago shows what that concentration looks like at the loan level. The Palmer House Hilton has roughly$329 million in senior loan.

30:00It's in foreclosure currently, and a separately reported $94 million mezzanine piece classified as non-performing mature balloon. Together, those pieces account for about$423 million of Hilton's$491 million in non-performing Chicago balance. The properties reported occupancy is 82%, the same as at securitization, but debt service coverage on the senior note has fallen from 2.49 times to 1.04 times coverage. Occupancy alone would miss much of that credit story. So Lonnie, this is interesting here, right? We have two major brands, both, I mean, we know from experience, fantastic hotels, but there is dramatic differentiation between subtype and geographic footprint.

30:48And this also isn't going to broadly mirror the broader exposure for both these hotel groups across all debt sources. So can you help us kind of zoom out, widen the lens and understand this differentiation? Yeah. So we'll dig into this at a very granular level, but I wanted to give some just general overview as well. When you're composing a portfolio, it used to be that geographic dispersion was a really good thing, and you wanted to be in the five gateway cities if you could. Chicago, at this point, has unfortunately been a laggard, and I think you're seeing that here with a couple of the examples that we just walked through.

31:24It's not just Chicago office. Chicago hotels are really struggling, and Hilton has a couple of great examples here where they're really large outstanding loan balances. what would have been considered, you know, prime lodging assets pre-COVID, pre kind of this paradigm shift and how Chicago is being viewed in the market. Shout out to NDB for this. We're not downgrading Chicago. We still love the city, but the performance is not great. And if you have a portfolio that has a higher concentration of assets in those markets, then it's negatively going to, you know, provide some consequence for you on a portfolio basis.

32:00But I think, you know, to get to the granularity between Hilton and Marriott, if you look at Hilton, they actually have a larger share of its book in limited service hotels than what the Marriott book has. But Hilton's limited service balance has a non-performing rate of only 3.6%. So they're doing really well in the limited service portfolio composition of their portfolio. If you look at Marriott's, you know, non-performing rate in their limited service book, it's 16.7%. So even though they have a smaller limited service footprint, they actually have a much higher non-performing rate. Hilton's higher overall rate is, you know, not simply a matter of having more exposure to weak lodging subtypes.

32:41It's really due to those very granular specific full-service loans that we highlighted. So from an investor perspective, you know, you can use the flag data, hotel flag data as a starting point. The brand level rates tell us where to look, while the loan mix market and property financials tell us what's driving the result. You know, one scope to point out, the TREP study includes both CMBS and CRE CLO lodging loans. So for those that maybe don't know the difference, the CMBS loans by definition would be for stabilized assets, whereas the CRE CLO loans are for more of the transitional value, add story, reposition, et cetera.

33:18So just to give a quick overview of the flag breakdowns here, if you look at Marriott International, Stephen, you highlighted some of this on the top end of this story, $22 billion in outstanding balance, 946 properties, about$1.59 billion non-performing, 7.23 % non-performing rate, 9.47 % special service. If you look at Hilton,$16.17 billion in outstanding balance, 17.2 % of the book, 704 properties,$1.9 billion non-performing, 11.73 % non-performing rate, and almost 18 % specially serviced. So those numbers don't look great. To make a nerdy dad joke or, you know, data nerd joke like we do on the show, what is Hilton's tagline?

34:02Do you know what Hilton's tagline is, Stephen? Not off the top. I'm drawn. So it says Hilton for the stay. So you could look at this and you could actually say it might need to be Hilton doesn't pay. Now, I just want to throw out one quick note here for any of our listeners that are also product users and specifically product users that are familiar with the hotel reports page within TREP CRE. The property counts are going to be a little bit different if you're looking at these flags because what the research group did as part of the work on this piece, we use the TREP real ID to help deduplicate property counts.

34:43That's one of the really useful things about the TREP Real ID as it is deal, loan ID, prop ID agnostic. It is a separately computed unique identifier at the property level that can be used for a variety of use cases. And this is one particular example. You can use it to de-duplicate property performance information. We love the product shout out here. And Real ID, for those that don't know, is an acronym, stands for Real estate asset library. And it's a proprietary patent pending process that TREP developed over the last couple of years and can be used to do all kinds of data connection and additional research and, you know, granularity type of query.

35:27So if you have any questions about that, we actually have that set up as a self-serve API where you can standardize, normalize addresses, get an associated TREP real ID and connect data on your end at scale very seamlessly. So in the world of AI, just to go one step further with that product, plug, if you're looking at an aggressive project or a plan to pull together disparate data sources at the property level, the Trep Real ID API can help you out immensely. Love it. And speaking of our data, here are some stories we have this week powered by Trep's CMBS data that's been trusted by the industry for many, many decades.

36:09So in our deals and data segment this week, we have a pretty good mix of stories, some big refinancings, a pretty dramatic office story, and a couple of interesting situations. So let's start with student housing. We've got a$180 million refinancing near FIU. Lonnie, what happened here? Yeah, so this is Adam America and JW Capital. They land$180 million refinancing. As you mentioned, Haley, Corbridge Financial provided the refinancing for Terazul. It's a 1201-bed, 932-unit property across from Florida International University's east entrance. This takeout retires the construction financing and returns an undisclosed amount of cash to the owners.

36:54So this is a newer construction property built in 2024. It's 98 % occupied. This is according to the Atom America and JW Capital release. The transaction does not disclose the new loan rate, term, or debt service. However, the owners are continuing their student housing partnership, including a planned development near the University of Texas at Austin. So TerraZool is a concrete example of a recently built, highly occupied student housing property that was actually able to secure a cash-out refinancing, not a cash-in, and provides a useful counterpoint to the stressed properties narrative that we've started seeing pop up.

37:30I This is a great story, Steven. Really strong occupancy coming out of construction, great takeout financing into a permanent loan with cash out for the ownership group. I think this has gotta be a green shoot. Absolutely. And FIU has been on an absolute growth tear. I mean, from faculty to students, to the campus. So, I mean, this is a perfect example of student housing on the upward trajectory, right place, right time. and I'm going to say it again, the right place, right? Hyperlocal in nature. This is a perfect example of it. So let's talk about a different story in office. And I want us to head to Chicago for this one.

38:10I think the numbers here are going to get some attention. So Stephen, what's happening lately at 135 South LaSalle? Yes, this is a massive story because of the potential implication it could have or the senior CMBS bonds in a conduit deal. So we'll get to that in just a minute. The new appraisal value for the 1.31 million square foot field building has brought it down to 34 million, down nearly 90 % from the$330 million valuation to 2015 origination of its $100 million CMBS loan. This is an appraised value of roughly$26 per square foot. The decline and followed the departure of Bank of America, which had leased nearly 830 ,000 square feet.

38:56According to service or data cited in this Commercial Real Estate Direct article, the occupancy is now below 10%. I mean, this is absolutely brutal, classic example of value destruction and what's happening to, well, some of the most deeply and hardest hit urban office buildings. The field building backs the 135 South LaSalle loan that is in a 2015 conduit securitization. The vacancy has become an operating problem as well as a valuation problem. The property produced a$4.28 million cash flow deficit in the first half of 2026. It has operated in the red since 2022. It means the owner must contend with the cost of holding a largely empty landmark building while working toward a redevelopment.

39:44The proposed way forward is a partial residential conversion. Chicago has approved up to$98 million in tax increment financing, or a TIF, assistance for the mixed-use project. TIF uses future growth and property tax revenue within a designated area to help fund eligible redevelopment costs. So this article also identifies$33.3 million in historic tax credit equity, a proposed$86 million loan, and$24.3 million of additional equity. Those sources may make a future project feasible, but they do not restore the value available to repay existing CMBS loan investors. That loan must be resolved before the conversion proceeds.

40:28A discounted payoff is one possible route, and its amount would drive the trust's ultimate loss on 135 South LaSalle. The significance reaches beyond this one loan because this 2015 deal has only three loans left. The deal has already realized 44.72 million in losses, wiping out the H and G classes in this deal and nearly 90 % of the F class. So for any of our listeners out there that aren't familiar with how CMBS bonds or deals are structured, The bonds are generally in alphabetical order, A, B, C, D. And so the lower you get in the alphabet, the lower the bond class and the riskier the bond.

41:08So we've had the junior bonds, the riskier bonds wiped out, and those losses are eating up towards the originally rated AAA bonds. And that's what we worry about here. The combined appraised value attributed to three remaining loans is roughly 40 % below their outstanding balances. Now, appraisals are not final sales proceeds, But that gap shows why further losses could move the bond waterfall as the loans are worked out. The class to watch here is the AS, which was originally rated AAA by KBRA and Morningstar DBRS. KBRA has since downgraded it to B minus. A principal loss there would be an extraordinary outcome for a post-GFC conduit bond that began with a AAA rating.

41:53So to say this another way, This is very significant because this could be the first originally AAA rated conduit bond to take a loss since the GFC. I mean, that's why we've seen some other AAA bonds take losses, but that's just been within the SASB or single asset, single borrower space, not conduit. So this would be a big deal. Yeah. I mean, look, Stephen, when you underwrite a property, you never underwrite occupancy going from 90 plus percent to 10. I mean, the deal structure, if this is conduit, SASB, whatever, I mean, like that's a catastrophic occurrence at this property as evidenced by the appraisal reduction, you know, down 90%, et cetera, et cetera.

42:36You know, this is just one of those byproduct downstream implication, whatever you want to call it, of just this new paradigm that we're in. I mean, the reality is that there are a lot of these buildings. This is not unique. Like this is maybe the first that we're going to see in terms of like actually taking a loss. but I remember we've you know it's been a while since we pulled the data but there the last time we pulled it office valuations were down 40 percent from peak on the properties that had gone into some sort of distress right if they've gone into servicing or delinquency or whatever there's going to be a handful or more of these types of buildings where the value effectively goes to land value or zero I don't know if I think some partial conversion leveraging tax credit incentives and all these things like save this deal this is one where you just it is what it is.

43:22I mean, like, I don't know if there's anything coming back from this in today's market. Like, maybe you can get this for land value and sit on it until the market fully recovers in Chicago, but that's probably a multi-year type of recovery. We're not talking about something in the next couple of years, in my opinion. So if there are any of our listeners out there who have traded bonds recently off of the Citigroup Commercial Mortgage Trust or CGCMT 2015 GC31 deal, I want to hear from you. I want to know what's happening out there on the street in real time with these bonds. What's the price talk?

43:54What's the action? What's the A4, the AS, the B? Are they trading at all? I just, I want to know. I want to hear from you. I mean, you're putting the trading alert and the action here, Stephen. I mean, we publish these and put these out weekly as things come to the market, but you're putting a call to action out there. I love to hear it. And the coolest part is we will hear from that person. So I love it. Let's talk about industrial here. We saw headlines this week that Blackstone Real Estate Income Trust is arranging a$1.71 billion refinancing backed by 76 warehouse and light industrial properties across 18 states.

44:33So if you look at this one, you know, BREIT has been in the headlines multiple times over the last couple of years for various different reasons. I think this is a positive one for them. So the Blackstone Real Estate Income Trust,$1.71 billion across 76 warehouse and light industrial property across 18 state portfolio deal. The$19 million square foot portfolio is reportedly 96 % leased across 115 tenants. And if you get into the numbers on this transaction, proceeds are expected to retire$1.48 billion of existing debt, cover$40.6 million in closing costs, and provide BREIT with$105 million dividend.

45:12Expectations are that the transaction will close somewhere around October 15th. So I would say at this point that this transaction would be best described as pending. Proposed loan is floating rate interest only with an initial two-year term and three one-year extension options. The structure gives BREAP flexibility, but leaves the eventual payoff exposed to future rates and property performance. You know, Stephen, this is really a sizable example of capital flowing to a very well-leased industrial portfolio with enough proceeds for, again, a cashed-out dividend. I mean, this is two stories this week where we're talking about cash out.

45:46I mean, this is a great example. And I love the cash out aspect because Blackstone is so incredibly active. And this helps, I think, kind of give you an idea of where cash is coming from, where it's going to. And I don't know, this fits in nicely. You know, I think one thing the story highlights, Stephen, is we've almost forgotten about industrial as a separate subsector. Data centers have taken over the talk track. This is just a good reminder that there's still plenty of upside in like pure play industrial markets. And so, you know, Blackstone's super well positioned to take advantage of those.

46:23They've got an enormous portfolio. And this is just one portion of their portfolio. But I think for me, it's a nice reminder that just the pure play industrial still has value in today's market. Okay. And two stories this week in retail. The first is a big refinancing that's in the works, this time at Oak Brook Center outside of Chicago. Yes, this is a sizable one. GGP is lining up an$800 million CMBS refinancing for the 2.4 million square foot Oak Brook Center near Chicago. The loan is expected to close around October 8th. It is not yet closed. So proceeds would repay an existing$700 million CMBS loan, cover$30 million in early payoff penalties and$5 million in closing costs, and return about$65 million of equity to the sponsors.

47:11Proposed loan is interest-only for five years with an assumed 5.9 % rate. Mall was 94.1 % leased to more than 160 tenants as of July. sales across the total property exceeded 1.2 billion in the 12 months through May, 2026, up 81 % from 2019, while annual visits totaled roughly 14.5 million. Now, this is a useful counterpoint to the troubled Eastview Mall. These are two highly occupied malls that face very different financing prospects. So just keep this one in mind because this is a very interesting comparison we have here for this week. So this next story is in Victor, New York, and is the proposed taking of title to Eastview Mall parcels to address a troubled CMBS loan.

48:01So Victor is considering, rather than completing, an unusual eminent domain transaction. The town would acquire five Eastview Mall parcels and transfer them to Victor 2040 LLC, a Wilmerite affiliate. The stated goal is to allow maintenance, investment, and development that the town says the current loan arrangement has impeded. A public hearing is scheduled for September 28th. The property backs a$210 million CMBS loan split between two 2012 conduit trusts. It has been in special servicing since September 2024 with excess cash flow trapped. Although the property was 95 % occupied, first half 2026 cash flow of 7.04 million implies about 14.08 million annualized below both 2025's 16.09 million and the 21.35 million underwritten at origination.

48:56A February appraisal put the property at 112 million versus 368 million in 2012. That value is roughly$98 million below the loan balance, but it is not a realized CMBS loss yet. Compensation for the proposed acquisition, any negotiated payoff, and the eventual treatment of the trust's expenses remains unresolved. So Victor says the mall supports nearly 4 ,000 jobs and supplies about 20 % of its operating budget through sales taxes. Victor 2040 would cover acquisition costs, according to the town. The town also says it intends to leave lenders in the same financial position. How that would work in a completed transaction is still an open question.

49:38The striking feature is the gap between a 95 % occupied mall and a capital structure it cannot readily refinance at its current cash flow and appraised value. The proposed municipal intervention makes this a distinctive retail and CMDS workout story, rather that there's still a lot that is yet to take place, be agreed upon, and actually play out. So nothing has been cemented or crystallized in terms of the eminent domain decision, valuation, and ultimate losses. But this is definitely a unique story. I mean, I'm hard-pressed to think of another eminent domain situation similar to this situation.

50:14Yeah, I mean, these two stories are very interesting. I think the GGP, it's always good to hear GGP in the market because the last time we heard them broadly, it was negative. They were not doing so well. So it's great to see them refinancing on the Victor New York story, Stephen. I mean, this is taking public-private partnership to a whole new level. I don't know that I've ever seen any type of eminent domain acquisition as part of some, this is just something that we should do like a deep dive on this if and when it actually takes place. Because I think this would be a case study for the industry.

50:50Because I, you know, maybe if our listeners have seen something like this, I'd love to hear of other instances where something like this has taken place. But this is a very unique proposal to try to find a solution to a situation that's not great. The property is not performing well. But this puts a whole new meaning on that public-private partnership in my mind. The timing of this article is really ironic for me personally, because this past Friday, I was on a call with a buddy of mine and we were talking about some CMBS liquidation scenarios and yada yada. it. And one thing that came up during the call was zombie office buildings and how they compare to zombie malls.

51:30And I just threw out the idea that it wouldn't surprise me if we saw an imminent domain situation where somebody was trying to operate a zombie office building that they got at a super low basis. And the building was only like, say, 30 to 60 % occupied. And the tax value got reset super low. And the municipality would basically say, look, this is ridiculous. We have somebody that wants to redevelop it into a much more valuable alternative use. We want you to sell it to them because our tax revenues would go up substantially under that scenario. So I just told them it wouldn't surprise me if we saw an imminent domain tension arise like that.

52:06Lo and behold, I only had to wait, you know, a couple of days for that story to present itself. You're on a roll to show, Stephen, you've been predicting the future. I have maybe a similar, we've seen a town that owned property that wasn't part of a taking in like near term, but maybe, you know, in generations past, they had taken property and then fast forward, you know, 20 years, then it gets developed for the reasons that you just mentioned. But yeah, I'd love to hear if anyone else has seen anything like this across the U.S. Lastly, let's close here with lodging. We talked about Marriott and Hilton earlier.

52:40So let's turn to another flag, Hyatt, where a loan in Jersey City just transferred to special servicing. So according to September remit data, the$100 million Hyatt Regency Jersey City loan transferred special servicing for eminent balloon slash maturity default ahead of its October maturity date. Now, we last mentioned this loan in a December 22 edition of Truffwire when new ownership assumed the loan following a sale to property. Special servicer commentary indicates the borrower has stated it will be unable to pay off the loan at maturity. The borrower has executed a pre-negotiation letter and submitted due diligence materials while the lender is in discussions over a potential forbearance.

53:21So more to come on this loan. The loan is secured by a 351 key full service lodging property in Jersey City, New Jersey within the New York MSA. The property was built in 2002 and renovated in 2013. This is under a Hyatt Regency brand and the flag within our system is the Hyatt Hotels Corporation. The property is also encumbered by a ground lease, which could make things a little bit more interesting. For the first half of 2026, the loan posted a DSCR based on net cash flow of 0.86 times coverage with 75 % occupancy. The collateral was valued at$191 million at securitization in 2016. So as always, if there was a story that you felt like was missing this week, we had even more coverage in our Trepwire newsletter and in the CRE rundown.

54:11And there's so much more that you can get access to inside our platform or in your AI tools. So reach out to us if there's a story you want us to cover or if you're interested in a property type and you're looking for the latest coverage on some of the loan performance there. In programming notes this week, before we closed, I wanted to take a minute to thank everyone who listens to this show every week. We mentioned this briefly on a recent show, but the Trapwire podcast was named the number two commercial real estate podcast in CREI's 2026 rankings. And we really do not take that for granted.

54:48So thank you again to the CREI Summit team and to Ken Ashley, who founded that organization. And really, it's not just about the ranking here. We wanted to give a shout out to all our listeners, all our guests. We actually had a really cool interaction with one of our guests recently. His team told us that they were at a conference and nearly 200 people came up to them and said they heard their episode on the Trevwire podcast. So that was so incredible for us to hear. We know there's so many of you that listen every week, but every time you take the time to reach out to us, to send an email, to connect on LinkedIn, it really means the world.

55:27Even if you're just a listener every week, if you reach out to one of our guests, Every one of those interactions matter to us. And especially when you reach out to our guests and say you found them from our show, it really helps us to showcase the breadth of where this podcast has gone over the years, how many people we've reached. So we've been running this show for a long time now, six plus years, but we're grateful every week. There's so many of you who are so dedicated and it's why we're going to keep running this show every week from now on. So thanks again. Wanted to give a quick shout out there to our listeners and remind you all, reach out to our guests, reach out to us.

56:06If we don't answer your questions, don't worry, we'll get back to you and we'd love to meet you in person. A few other chances to meet our team. We have two webinars coming up. Our TREP targeted training, which is exclusive for our clients, where we're going to be digging in further to our TREP MCP and all of our AI capabilities. capabilities that's taking place on Tuesday, September 29th at 2 p.m. Eastern. If you're not registered for that yet or you don't know how you can use our AI tools or if you even need it, just send us a note to podcast.trep.com. No pressure. We'd love for you to see it and really make it actionable for you and your team.

56:44If you have our data already, there's probably so many other ways that you can use it and improve your day-to-day processes. Also that week, we'll have our MarketPulse webinar taking place on Wednesday, September 30th at 2 p.m. Eastern. So if you like our Digging Through the Data segments on this show, you will love this webinar. This month, we're talking office line item financials. We'll be digging into property revenues and operating expenses. We'll also talk about multifamilies regional divide. And we'll dig into self-storage across markets. So if you're not signed up for that yet, you still have time, email us, podcast at trep.com.

57:22And a few other shout outs this week. Reed G said another great episode and was interested in our digging through the data segment last week on industrial. If you liked that, we have it in written format. So send us an email. We'll get you access to that. We heard from a listener, Michelle Kay, who was looking at different avenues to get in front of their client base and other leaders in commercial real estate and wanted to find out about sponsorships and advertising with our podcast. If you're in that boat too, and you want to leverage our network or work with our team in any way, reach out to us.

57:59We have a lot of different ways that you can sponsor, advertise, partner with us. We have teams of consultants and advisory firms using our data to really bolster their own internal expertise. So if you have an idea of ways to work with TREP or you want to figure out how to use our data, just send us an email. Jack H. has been listening to the show for his entire career and said he's become infatuated with it, which we love that. That is so cool to hear. I think Jack also might share a last name with you, Lonnie. So Jack, we're revealing your identity. I'm not sure if you guys are cousins. You should probably find that out.

58:37But thanks for listening. He wanted the slide deck that came along with the Western States Cref podcast. We really appreciate all the engagement we got from that live show. and we're at the wire here, but we just heard from Dr. Debt Yield. John B., who was a guest on our show, he said, I'm not sure when you're recording this week's show, but I have a really interesting question for you. We might be running too long, guys, but this might be a question we want to address at the start of next week's show. So we won't leave you hanging, Dr. Debt Yield. We'll get to this next week, but thank you as always for reaching out, engaging with us and giving us new topics to talk about.

59:14and Lonnie you had several presentations this week I know we heard from William K who's a big listener you probably have many other names that you want to give a shout out to if we want to round them up for next week we can do that because I think even tomorrow you have more speaking engagements yeah this week has been pretty uh jam-packed I think five presentations over the week LA fly in fly out very quick and so yeah we can do some shout outs for next week I do wanted to give just two quick ones miles t and brian d from cushman wakefield really appreciate the opportunity to speak with your teams and um i got to have spent some time with brian out in la and always a great time to catch up with him he's definitely a mover and shaker in our industry and uh we value the relationship there for sure and then quickly but maybe anecdotally on my flight home last night from la i actually got to sit next to marcus spears maybe a name some of you might not know, but he was a first round draft pick of the Dallas Cowboys, played in the NFL for a very long time.

1:00:15He's now on ESPN. He's known as Swagu. Super down to earth, chill guy. I got my photo taken with him from the kids and really awesome. So shout out to Swagu. Appreciate your friendliness on the flight and your willingness to take a photo after. Love it. And we'll have to talk football on another episode. So stay tuned. With that, we'll close. Thanks to our producers, Mariana Sobrana and 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 at trep.com and subscribe to the Trep Wire podcast with your favorite provider.

1:00:54Thank you for listening and stay well.