428. Pressure Beneath the Profits: Bank Earnings, Hot Inflation, Falling Yields, & $2.9B in Hurricane-Exposed CRE

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 October 16th, 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 Bushbom, Head of Applied Research and Analytics. We have a busy week to unpack, starting with the September inflation report. Headline CPI accelerated to 3.7%, core inflation also moved higher, and treasury yields rose as investors reassessed the possibility of another Fed rate hike later this month.

0:46Energy remains a major contributor, but the price pressures extend beyond gasoline. Today, we'll also be digging into earnings from the largest banks, where continued loan growth and resilient consumer activity are sharing the spotlight, with higher funding costs and uneven results in trading and investment banking. In our property news and credit stories, we'll look at how those financing conditions translate into acquisition strategies, underwriting assumptions, and loan performance. And for this week's digging through the data, we'll examine approximately$2.9 billion in securitized CRE debt exposure across the Florida counties, included in FEMA's Hurricane Isaias emergency declaration.

1:30Stephen, we have a lot to cover this week. Let's look across the week's headlines and tell us what stands out to you first. Well, let me start off by saying this has been anything but an uneventful week. In other words, this surprised me and put my head on a swivel. What stands out is how much of the outcome depends on the financial flexibility behind the headline numbers, right? I would say that is a common through theme for everything, even the stuff that wasn't on my bingo cart this week. So the banks are still reporting substantial earnings and their customers are continuing to borrow and spend.

2:06The higher deposit costs and slower activity in parts of the capital markets show where rising costs are creating friction. Wednesday's inflation report adds uncertainty about how much longer those pressures could persist. In addition, we got an extremely hot PPI print on Thursday as well. Month-over-month increases were almost double than what was expected, the year-over-year number was almost a point higher. So between CPI and PPI, inflation pressures are very evident and are going to put a lot of pressure on the Fed. That's going to make their upcoming meeting really interesting to watch. You're seeing strong division and views out there between what the Fed should or should not do around midterm elections.

2:51In other words, if they hike on this next meeting, that could be perceived as political. Then again, if they don't hype. It could be seen as political. So kind of one of those, well, darned if you do, darned if you don't. So now getting back to the property story here, we have some interesting ones this week. The Chrysler building buyers are planning an acquisition and redevelopment without leverage. Really interesting. At the assembly in San Jose, the financing economics depend heavily on underwritten income materializing. And a larger hotel portfolio is entering special servicing despite reported cash flow that still covers debt service.

3:25So really interesting property stories this week. And then the hurricane analysis we went through as well adds another dimension. Properties can face immediate repair and operating expense pressures while insurance claims take time to resolve. Across all of these stories, we'll be looking at the cash flow available today. I mean, we've gotten so many great shout outs on LinkedIn. I love it. I love the image of the gap, the chasm between cash flow today and what the lender wants and how that gap gets closed. Just bring more equity. Fantastic. I love that. So the obligations are coming due and the resources owners have to manage that gap matter so much.

4:03But I would say what ended up being the dominant story this week, Lonnie, has to be this massive rally on the long end and treasurer. I mean, shoot, last week we were touching 5.35. I'm glad we did that pivot point analysis for resistant point because we didn't break through that. It showed that kind of technical analysis can have some value over a short horizon. What's really crazy to me is that we've rallied 15, 20 basis points from that. And even on the heels of a hot PPI print on Thursday morning, before that PPI print, the 10-year had already rallied 10 to 11 basis points. PPI came out hot.

4:38The 10-year looked like maybe it was going to retreat and was only down nine basis points, but then it went back to down 12 basis points. So in other words, the risk version trade from really what the main story Thursday morning was, was core weave, the concern about their corporate debt selling off and what kind of weakness exists in the tech part of the economy. How much should we be worried about the AI trade? How resilient is it really? It's becoming a much more important story on the macro front, which I think a lot of people are waiting for it, right? So there's this snap reaction. It's a V shape reaction.

5:14And I'm curious about the duration at this point. So, Milani, how are you feeling this week. Well, I think you summed it up, Stephen, by saying that there was a lot of activity this week, and you just highlighted a few of the bullet points. There's a large number more that we could get into if we wanted to have a two-hour-long show today. But for me, there's a couple interesting takeaways, and you hit on a few of these here. I mean, I think when you look at the CPI print, obviously, you know, I think the easy target here is that the energy portion of CPI has jumped through the roof. I mean, if you look at gas prices, we've talked about that like reality at the pump.

5:48But if you just look at the percentage increase, you know, like energy prices are up 20.4 % from a year ago. Gasoline alone is up 34.2%. Obviously, that's because of the Iran war, which not only does that put inflationary pressure on everyday Americans, but for the party that's in power right now, it's putting significant stress on their reelection hopes, which is coming up, as you mentioned, kind of sequential in timing to this next upcoming Fed meeting. And so the politics that we had avoided for the last year and a half or so are starting to rear their ugly heads. And I remember us sitting here, you know, with the previous administration when the Fed was making aggressive moves and thinking how and why the Fed was doing certain things right around midterms, et cetera.

6:37And it's an interesting dynamic. And so, you know, I think energy is the story for the politicians because that's the one that impacts people every single day. I think the broader narrative for CRE and just the broader macro economy with this higher than expected inflation print just adds another layer of complexity to kind of where the markets are and where things are pricing today. So it'll be interesting to see, you know, how that plays itself out. If you look at the FedWatch tool, you know, we've highlighted that on several episodes before the CPI print markets had priced a rate hike in October at about 22 percent that jumped to 40 percent after CPI print so you saw a pretty immediate reaction there and if you look at the December odds at this point I think it's around 90 percent that there'll be a rate hike in December so you know you put all these things together and it's just very interesting to see how this plays out I mean you have a lot of people online on Twitter and on other social as you mentioned picking up some of the stuff that we talked about last week but also just following the 10-year movement like crazy because you know to this point it just depends on which side of the table you sit on there's a lot of people saying look the 10-year it's up but it's not up enough that it should derail good deals you have other people saying look we're at a inflection point here where the 10-year if you're not accepting of where it is and understanding the ramifications of that and the downstream implications for CRE, like you're kidding yourself here.

8:02Like this is going to put a really big pause or stop on just transaction volume, et cetera. And so it's interesting seeing, we've said this a lot, I've said this a lot, that everyone talks their book, but sometimes it's even hard to talk your book when the data is where it is today. And then you look at bank earnings and like, we're going to talk about them, but they're not showing really any signs of weakness on the broad spectrum. So, you know, I think for me, it's just another week of incredible headlines. You got to dig both beneath the headlines. But depending on where you sit, I think you could argue pretty strongly that things either are going to continue to resist the downturn or you could make a pretty compelling case that the end of this soft landing narrative is near.

8:42So Lonnie, we haven't thrown out the specific numbers really on the absolute level of the 10-year yield. So this is pretty astonishing. Let me walk through this. As of 8.46 a.m. on Wednesday this week, the 10-year yield was at 5.291 % versus 5.261 % before the CPI inflation numbers hit. Now, fast forward to Thursday morning before the equity markets open, right? Mid 9 a.m. range. We're at 5.05. That's absolutely crazy. When just a week ago, we were saying, man, like, are we worried about hitting 5.5 on the 10? And all of a sudden, narrative gets turned on its head, all because of, well, fairly substantial credit concerns in the one leg of the stool that's holding up the entire economy.

9:33Make no mistake, folks. We have a one-legged stool right now. AI, AI, AI. And if you knock that leg out, it's going to get super ugly. No reason to think that's going to happen, right? Anthropic, OpenAI, NVIDIA. Well, we do have maybe some concerns about the absolute level they'll reach. The trajectory is undeniable and the CapEx spend won't abate. It's the concerns and the weaker credits, like CoreWeave and Oracle, are really where you've seen the concerns concentrate. And that's just the natural order of markets, right? when we get these sort of consolidation and weeding out of weaker players, it's just a natural occurrence in the market and it's bound to happen.

10:12So I view this as a healthy natural adjustment currently that will hopefully bring a little bit of calm after the fact if we can just push through. But then again, we could see more contagion. I won't rule that out either. I love your optimism here on the tenure, Stephen. And I think the core weave and Oracle stuff, I mean, those are not new factors. I mean, like we've known that those were kind of the two over levered kind of weaker players in this space. And, you know, I think the market's just having to deal with some of that real time now. It's interesting on the AI front because I think the timing is critical here.

10:48People have to start realizing some ROI. I don't think we're quite ready for that at scale. I mean, like everyone that listens to our show knows how bullish I am on AI. And I think we've hit critical mass. We've gone beyond turning back. But if the pressure really gets ramped up, if they turn up the heat on AI broadly and say, we have to start seeing some immediate returns on some of these investments. And when we start throwing out trillion dollars of commitments and this and that, and the time horizon shrinks from, you know, maybe a five or 10 year type of turnaround to we need to see some stability and some real ROI now.

11:22I don't know that the AI market is ready for that. I mean, I think that's the nuance here is that even the stronger players, the horizon is super bright for them, but there's still a lot of unknown or unanswerable questions for them in terms of productivity gains, etc. today as it stands on a broad basis. And so, you know, I think this is one that could get very interesting. And to your point, you know, anyone that's kidding themselves and thinking that the economy is being held up by anything other than AI is a little bit delusional at this point. And the AI spend is what's propping things up.

11:53So, you know, I think for us, we're definitely going to have stuff to talk about over the next couple of weeks. I think maybe I'm a little bit numb to the 10-year movement at this point, just because as quickly as it's retreated this week, you know, over the last 30 days or so, I think we've seen, what, 40, 50 basis points swing. I mean, maybe not that aggressive, but I mean, it's been substantial. I don't have any reason to think that that won't continue to yo-yo unless something, you know, dramatically changes. Well, I think it was BlackRock who came out this week and said, for the first time in six years, we feel good about fixed income, specifically investing in treasuries, right?

12:32Five, three, five yields on the 10 year. I mean, yeah, sure to go to five, five. I don't think it's going to six realistically, but at five, three, five, you have to lock in some yield. You have to feel good about that, right? Because the limited upside throughout the rest of the equities portfolio, I don't know, I like that trade a lot at 535. So hopefully that ends up being our near term ceiling. We're just going to have to continue riding this crazy wave. So speaking of rates and the broader economy, we also had a pretty big week for bank earnings. And there were some pretty mixed signals here.

13:06We're seeing long growth, some pretty strong profits, but also higher funding costs and some softness in capital markets activity. Lonnie, what's your big takeaway from what we've heard so far? And then Stephen, walk us through some of the specific bank earnings. So I think if you look, you know, JP Morgan, we got a lead with JP Morgan. I mean, it's not a bank earnings report from the TREP side if we're not talking about Jamie Diamond at the top. And so, you know, they did have a profit miss as dealmaking and bond trading loses some momentum. JPMorgan earned$5.57 per share below the 5.85 consensus.

13:40So this was the first profit miss in nearly three years. Investment banking fees increased 14 % annually, but declined 8 % from the second quarter. In equities trading, revenue rose 49%, while fixed income trading revenue declined 4%. You know, I think if you listen to what was put out, management described a strong deal pipeline, but recent weakness potentially reflecting delays rather than cancellations. And I think this is a narrative you've seen just pretty much across the spectrum of anything that's being sold in today's market. It's not necessarily that people are not doing deals or paying less.

14:14It's just that it's taking longer to get that approval. and you know diamond was was quoted as saying the banks tighten credit somewhat because covenants have weakened even as its current credit metrics remain benign so i think for me the takeaway you know broadly and steven you're going to get into some of these other ones here is just that this is an expected outcome for where we are in the market cycle i mean banks have been on a unprecedented tear generally through this you know last couple of reporting quarters and it's it's not surprising to me that we're starting to see some mixed signals.

14:47I mean, I think there's, again, like I said earlier, depending on which side of the table you sit on, there's a lot of really positive news across the sector where they're still seeing strong growth in certain areas, but you are starting to see some pullback across some of the other sectors. And so higher interest rates, psychological stigmas that are coming along with some of these investors, people looking for yields in different areas, the tenure that we've talked about, all these things together, create a market where you're going to see a little bit of ebb and flow, and you're going to see some shrinks and weaknesses.

15:15And I think that's what's reported here on this most recent earnings across the spectrum. Yeah, the long and short of it is last quarter's bank earnings were fantastic. This quarter's, they're still good. They're just not quite as good. And the common weak point was fixed income trading for almost all of them. I think maybe Citi had some decent results in fixed income trading, but the relative size of that to some of the other players, maybe not as substantial. But all in all, still very solid and no reason to think we're going to start seeing credit loss provisions ramp up at an exponential rate.

15:50We'll walk through some of these though. So let's move on to Wells Fargo. They beat profit estimates, but net interest income and revenue fell short. So they had EPS of $1.87, which exceeded the$1.85 estimate, but revenue of 21.87 billion missed expectations. Net interest income, or NII, increased 5 % to$12.52 billion. Also below expectations, higher deposit costs were among those pressures. Average loans and deposits grew approximately 11 % annually. Credit loss provisions increased to$1.03 billion from$681 million a year earlier. Now, on the flip side here, non-performing assets declined sequentially driven by lower CRE non-accrual loans.

16:36However, the commercial charge-off rate increased partly reflecting higher CRE charge-offs. So it's basically the balancing the book here. These measures show different aspects of credit performance on Wells Fargo's book. Now, on to Citi. Their profit topped estimates on higher investment banking, services, and wealth revenue. You've seen a lot of the major banks push very hard into wealth management. And so far, that looks like a trade that's generally been playing very well for them. Citi earns$2.85 per share, beating the$2.66 estimate. Investment banking revenue rose 9 % annually to$1.35 billion, but fell 13 % sequentially.

17:14Trading revenue increased 6 % annually, while declining 13 % from the second quarter. Services and wealth revenue grew 15 % each. Management still sees a strong pipeline for M &A refinancing and equity issuance. Annual growth remains positive, but the sequential comparisons reveal slowing capital markets momentum. Now on to Goldman Sachs. They beat quarterly profit estimates on equities strength. Goldman reported$5.29 billion in profit, or$17.01 per share, with revenue up 23 % to$18.68 billion. Equities trading revenue jumped 72%. Fixed income currencies and commodities revenue fell approximately 1%.

17:53Investment banking fees increased 21 % annually, but declined 5 % sequentially. David Solomon warned that growing AI financing needs and pressure on interest rates could affect project returns and viability, an especially relevant point for data center underwriting and this exact moment in time, given what we've just discussed, has been going on this week. Now, B of A, this was a big one. They got dinged after their quarterly report. They missed profit estimates on trading weakness and they booked a$1.2 billion charge. So Bank of America earned$6.9 billion or$0.91 per share after a$1.2 billion regulatory settlement charge.

18:30Adjusted EPS of 1.08 still missed 1.1 consensus, and FIC trading revenue declined 17%. Investment banking fees fell 11%. Net interest income increased 8%, so solid. Benefiting from balanced growth and fixed rate asset repricing. So this earnings decline combines a bank-specific regulatory expense with broader capital markets pressure, which is why you saw B of A kind of stand out from the rest of the pack this week. And then finally, onto Morgan Stanley. They beat quarterly profit estimates on equity trading strength. They earned$3.03 per share, exceeding the$2.91 consensus estimate. Revenue reached 20.34 billion.

19:09Equity trading revenue increased nearly 41 % to 5.8 billion. Fixed income trading though, again, that revenue fell 7.3%. Investment banking revenue increased 2%. Wealth management attracted a record$232 billion in net new assets with just over half associated with IPO-related flows. Again, that's very much in line with the broader macro theme of the reason why this economy is standing up so well on this single-legged stool is the massive amount of equity gains we've seen over the last three years. And that's really what's holding up consumer spending and consumer sentiment at the upper part of this K-shaped economy.

19:47Management said interest rate volatility and wider credit spreads complicated holding bond inventory. Now, I want to circle back a little bit, Stephen, here to the Wells Fargo, I believe it was. Credit loss provision, you know, going from$681 million to$1.03 billion. Did you think we were kind of past that part of the cycle where it felt like for the last couple of quarters, we'd seen those loss provisions decline pretty much across the spectrum? Is this a surprise to you, or do you think that this is just kind of a reality that these banks are going to see this kind of up and down trajectory as credit performance, you know, potentially deteriorates.

20:22Yes. I expected both. So I did expect provisions to start ramping up again sometime soon, given all of the concerns around private equity, some of the more speculative plays in the AI trade, like say CoreWeave. There's just bound to be some consolidation there that eventually should roll into higher provisions. I know that's not specific to like the CRE sector that was highlighted here for Wells Fargo, But to get back to your question of was this a surprise, yes, this actually was a surprise for me to see it jump that much on a year-over-year basis because Wells Fargo did have a lot to work through, maybe not as much as some of the other banks that I'm thinking of off the top of my head that I don't think we want to get into right now.

21:01But this was a little bit of a surprise, maybe not as big of a surprise given that we already knew Wells Fargo had been dealing with a decent amount of non-accrual and just troubled loan work throughs. So we can't talk about news of the week this week without talking about the hurricane that has hit the U.S. this week. So for this week's digging through the data, we're looking at securitized commercial real estate debt exposure to Hurricane Isaias. Our research team screened properties in the Florida counties identified in FEMA's emergency declaration. And the balance is total roughly$2.9 billion after removing any overlapping records.

21:41So today we're going to discuss where exposure is concentrated and what we should watch as property level updates come in. So Lonnie, walk us through this analysis and then we'll dig into what has stood out within the data. Yeah, so I think before we get into the actual rough numbers here, which we try to do this every time there's an actual disaster, whether it be wildfire, hurricane, etc. We know that there's definitely a human component to this. And so while we report on the financial implications for some of the commercial real estate holdings, there's definitely a human component that, you know, these people's lives have been disrupted and there's going to cause some significant changes in some of their day-to-day life until things get rebuilt.

22:24So we don't want to overstate just the financial component here. We know that these natural disasters have a very real human component to them as well. And, you know, what's interesting here is the initial screen covers outstanding non-defeased debt across private label CMBS, CRE, CLO, and Freddie Mac loans and reference pools. So across those cohorts, we identified 306 property-level records across 15 Florida counties with gross-reported balances of approximately$3.27 billion. There's an adjustment we need to make to the headline number. 23 Freddie Mac records appear, both an agency CNBS pool and a multifamily structured credit risk reference pool, also known as an MSCR pool.

23:08Stephen, we probably need to do a 101 on some of that in a future episode, because I think people will be interested to kind of see how some of the Freddie stuff gets put in two different buckets. And so we'll make a note here to maybe come back to that in an upcoming episode. So you remove approximately$343 million of Oprah Love being balances across the 23 properties, and that's where we get to the$2.92 billion. Those 306 records drop to 283 unique individual properties. There's also a geographic exposure screen. So being located in a county covered by the FEMA declaration does not establish that a property actually sustained damage.

23:44The balances help us identify where to look. Property-level operating updates will tell us how much credit stress develops. So this is obviously an ongoing story. And as we start seeing real-time updates to the property-level commentary, et cetera, we will be sure to share that. So, Stephen, I wanted to ask you, it felt like there were three things that stood out across the data set. And can you maybe give our listeners a deep dive on what those three things were? Sure. First off, multifamily dominates the exposure. After removing the overlapping Freddie Mac MSCR records, multifamily accounts for$1.9 billion, or 65 % of the total.

24:24Hotels follow at roughly$485 million, or 17%. Retail contributes another$255 million, and then self-storage accounts for approximately 165 million. That mix puts two operating questions near the top of the list. How many rental units remain habitable and how quickly can hotels restore room availability and normal operations? Hotels are one of the most sensitive property sectors to these sorts of natural disasters because you have to basically rebuild the infrastructure, rebuild the town in order for tourists to want to come back. So the business interruption can be very significant for these businesses.

25:02For an apartment property, damaged units can interrupt collections, while repairs create additional expenses. A hotel can lose revenue immediately through cancellations and closures. And in either case, the length of the disruption matters for cash flow and the borrower's ability to cover expenses and debt service. Now, second, the geographic concentration extends inland pretty significantly. Leon County, which includes Tallahassee, has the largest balance in the screen, approximately$1.13 billion after removing those overlapping records, or approximately 39 % of the total. About$955 million of that is multifamily.

25:36So while attention naturally gravitates toward coastal properties, a substantial portion of the debt we're monitoring here is associated with inland rental housing. Now, along the Gulf Coast, Walton, Scambia, Okaloosa, Bay, and Santa Rosa counties collectively account for approximately $1.65 billion, or nearly 57 % of the adjusted total. Walton County alone has roughly$568 million of exposure. And the hotel concentration is especially notable. Walton and Okaloosa counties together account for almost$289 million of lodging balances, nearly 60 % of all the hotel exposure in this screen. And finally, third, there are a few large loans that give us specific assets to follow.

26:17First up in Miramar Beach, Silver Sands Premium Outlets secures a$140 million loan across three CMBS transactions. Hilton Sandestin Beach Resort secures another$120 million across two transactions. Together, those two properties account for$260 million of the city's approximately $290 million in reported balances. Those are meaningful concentrations for the affected deals. So we'll be looking for specific property-level information about damage, access, reopening schedules, and operating performance. I did my best. I scoured. I was not able to find any before and after satellite imagery like we got with the wildfires.

26:52So it's really difficult sometimes and sometimes not, right? Maybe sometimes the best search is just going to Facebook and looking at the operator's posts. It's kind of funny how you stumble across these useful grains of information. Now in Tallahassee, the ACRES 2026 Floater 4 CRE CLO includes two multifamily loans, totaling approximately$141 million, the nearly$90 million Renegade loan and the roughly$51 million exchange Blair Stone loan. So again, identifying those properties in the screen does not establish that there's been any damage to them. It just tells us which of these large exposures weren't follow-up.

27:33The credit question is how quickly operations and cash flow can recover and how the borrower funds the period in between. Insurance coverage is part of that story, but so are deductibles, the timing of the claim payments, available reserves, and borrower liquidity. Even when insurance ultimately reimburses a substantial portion of a loss, repairs and operating expenses may need to be funded before those proceeds arrive. And that gap in time can be pretty substantial. I mean, I've seen claim delays for easily 12 months on some of these properties before. Other ones only take one to three months.

28:05They're very quick to process. So it's a wide spectrum of reimbursement schedules out there. So that's why we'll be monitoring servicing commentary, watchlist activity, and payment performance alongside updates on unit or room availability, repair schedules, insurance claims, and reserve usage. The takeaway is that we have approximately$2.9 billion of screen exposure concentrated heavily in multifamily and in Leon County and the Gulf front panhandle counties. The next stage is simply just our follow-up. Just a quick question, Stephen, on this, and it's not related to this particular hurricane, but it feels like we've maybe experienced a little less damage from hurricanes in that Florida market than we have the last couple of years.

28:46And so I know, you know, we pulled together and highlighted the trajectory change in insurance nationally has been very positive for property owners. You know, I'm hoping that if this is the worst that we get this year, you know, this should be another positive sign for that insurance cost for multifamily owners across the U.S. Because, you know, the last couple of years, by this time in the calendar, it seems like We had had several significant climate-related or, you know, whatever you want to call them, natural disasters that had, you know, garnered significantly more than$2.9 billion worth of exposure.

29:22So I'm glad you bring this up, Lonnie, because there's a really, really interesting stat here associated with this hurricane. Get this. This hurricane was the first hurricane of the 2026 Atlantic season on October 7th, 2026, which is a 121-year record. the latest first hurricane in the Atlantic. That is wild. I mean, we're in a super El Nino cycle and yet 121-year record. That's how just absolutely crazy the weather patterns can get when you get into these extreme weather cycles like the super El Nino conditions. It's wild. Look, weather is competing with 10-year treasury headlines. It's competing with CPI headlines.

30:02It wants to break some 100-year-old records so it doesn't get left out of the crazy world that we live in, 2026 headline phenomenon. Mother nature shall not be outdone. I think this is a good reminder that this is the type of analysis our team can do for all kinds of events and market developments, natural disasters, changes in regulations, or other emerging risks. So we can always look at property loan exposure across different geographies, property types, or your portfolio. So if there's something you're watching or your team has been discussing and they'd like more details on, reach out to us.

30:41We'd love to work with you and see what we can do with our data. So let's shift gears here and get into some of the deals and data property type stories that we were watching this week. And I'll start here in New York with one of the city's most iconic office buildings, the Chrysler Building. Tishman Spire is back in the picture, acquiring the leasehold interest for$235 million with plans for a major renovation. And what's particularly interesting is that they're planning to do it without taking on debt. So Lonnie,$235 million for the Chrysler building sounds surprisingly low, but there's obviously a lot more to this transaction when you factor in the ground lease.

31:23So walk us through this story. Yeah, so just for those that maybe aren't as familiar, when you're buying a leasehold interest you're just you're buying the the building that sits on top of the land so you have a you know a lease fee owner or a ground lease owner that actually owns the land and so you're you're buying the improvement to interest here and in this case you know the chrysler building i think everyone if you see a picture of it you know exactly what it looks like but just to give some perspective it's 1.2 million square feet 77 stories and then set 405 lexington avenue and to your point haley They had$196 a square foot.

31:59If you didn't have the details of this being just for the leasehold, you might think that this looks like a crazy anomaly. So the seller on this transaction was Cooper Union. They took control of the property back in 2024 when the previous leasehold owner, this was pretty widely publicized. It was a venture of RFR Holding and Austria's Cigna Holding. They became delinquent on the ground lease payments. They had reached$32.5 million annually. So the transaction includes a new 150-year ground lease with Cooper Union. The school retains ownership of the land beneath the building, as we just discussed, which has owned since 1902.

32:36So the school uses the ground lease payments to support its endowment. And the new lease term payments, unfortunately for this story, were not disclosed, the terms. The buyer group includes institutional investors led by PSP Investments, so the Canadian Pension fund investment manager. As you mentioned, the venture plans to fund the acquisition and redevelopment without leverage. I want to get your thoughts on this, Stephen, as we finish this story out. But the new owners plan a substantial renovation. You know, this is a pretty iconic building because of its Art Deco structure. They're going to restore the facade, upgrade elevators, the electrical system, and air handling, trying to modernize the building at some level while still maintaining its Art Deco theme.

33:19You know, plans call for converting the 61st floor into an indoor-outdoor amenity space with a lounge and food and beverage options. I think that's a pretty smart move. You've seen what happens with One Vanderbilt with the summit, you know, Top of the Rock, the Hudson Yards. These type of experiential components to these office buildings drive some pretty significant revenue growth. They're also going to have additional fitness, wellness, and meeting facilities added to the building's underground arcade. So they plan to build out existing and upcoming vacancies as move-in-ready office suites. So I think that's a nice strategy, an effort to make the historic building more competitive with newer trophy office properties.

33:56And there's a reason they want to do this. If you look across, you know, JLL just put out a survey that said the trophy office vacancy in Manhattan sits at 4.9 % in the third quarter compared to 12.6 % for Manhattan's overall office market. So if you can get this building, at least components of it into that upper echelon of trophy office, you have a lot more pricing power and your vacancy is going to be much improved. And so Chrysler building last traded, for those wondering, back in 2019 when Tishman sold it to RFR and Cigna Venture for$150 million. The latest$235 million transaction represents a 57 % increase, although the two deals, as we explained, involve different ground lease circumstances.

34:40So, Stephen, this one has a lot to digest. I think it's great. Listen, Tishman knows how to run an aggressive and productive rehabilitation, ownership structure, management structure. The fact that they're back here as the owner, I think, is a great positive for this building and the prospects of the future. Yeah, this is absolutely a statement deal. I love the fact that it's round tripped to one of the strongest operators in the city here. And the fact that it's getting done without leverage, I view is an absolute positive because introducing leverage in a deal like this that comes with so much execution uncertainty on timeline, and then the approvals that would typically be required under a levered structure.

35:24That's just noise that obviously the equity players don't want to deal with. They're saying, let's just remove that for the time being. We can bring in leverage at a later point. Right now, let's just focus on executing on the plan because there is a lot going on in this deal. And once they execute that plan, I wouldn't be surprised if we see this deal end up into a CMBS deal where they add a little bit of leverage after the fact once they've stabilized and realized some of the benefits of the renovations. Yeah, the 150-year ground lease renewal was an absolute massive positive that needed to happen.

35:58I'm really curious to see what the terms of that are. If it obviously goes into a CNDS deal, we'll get those details. So let's talk about a retail story. This comes from our friends and team members over at CRE Direct. Public Supermarkets is increasingly buying the shopping centers that house its grocery stores, turning locations where it once paid rent into owned real estate that can generate rental income from other tenants. So, Stephen, walk us through this story and then explain what the strategy might be behind this. Sure. The Lakeland, Florida-based grocer recently paid$83.25 million for Air Park Plaza, a 205 ,000-square-foot shopping center near Miami International Airport, and also acquired the 73 ,000, roughly 500 square feet of shops at Quail Roost in Miami.

36:48Both properties were purchased from First Washington Realty. Publix now owns 550 properties, including 77 subject to ground leases. That represents nearly 40 % of its just over 1 ,400 store portfolio. The strategy gives Publix more control over strategically important locations. It can make decisions about maintenance, lease renewals, and the tenant mix while it's reducing its exposure to rent increases. Publix is also building a very meaningful rental income business. The company generated 322 million in lease income last year, up from 286 million in 2024 and 253 million in 2023. Its capital spending supports the strategy.

37:29Publix spent 2.3 billion in CapEx last year and expects to spend another 2.4 billion this year, including property acquisitions and development. Grocery anchors can support the value of an entire shopping center by drawing regular customer traffic. And by owning the property, Publix is capturing rental income from neighboring tenants, as well as the strategic benefits from controlling its own store locations. The approach differs from Kroger's real estate strategy. Kroger owns about 51 % of its almost 2 ,700 store portfolio, but its focus is on owning individual store properties rather than necessarily acquiring the surrounding shopping centers as well.

38:09Now, one other grocery dimension here that Lonnie, I'm sure you love, HEB is another comparison, but it has historically emphasized developing and managing its own grocery anchored centers rather than buying existing properties. It's commercial real estate operations manage more than 4.3 million and over 1 ,500 tenants. Yeah. So Steven, I think the HEB comparison is really interesting because, you know, they have a very heavy presence in Texas. And as you highlighted, they really only develop their own centers. They don't really buy the existing properties. They love, you know, the pomp and circumstance that comes with an announcement that they're bringing an HEB to a local market because everyone views HEB locally as very favorable compared to some of the other options.

38:53And so I think for Publix, this is a great strategy. I mean, it gives them the ability to really bring in some of that inline space tenant mix that they need that's super complimentary to their centers and generate additional income for the properties. And I think, you know, they've maybe realized that as the anchor tenant, beyond just being able to get favorable rents when you're a tenant in a center that you anchor, there's real upside for them. And they've explored that and they've been able to highlight that they can execute on it. So I'm very bullish on them. I think this is a great move and I think we'll see them continue to expand.

39:26Okay, let's talk about hotels now. We have two different stories this week. First, a pretty significant luxury hotel transaction in Scottsdale. So walk us through this story. So Braymar sells the Four Seasons Scottsdale for$372 million. That's a pretty high price. And they agreed to sell for about$1.77 million per room to Evergreen Acquisitions. This Four Seasons Resort is a 201-room luxury property that sits on 37 acres in Scottsdale, Arizona. As expected, it includes multiple pools, a full-service spa, restaurants, fitness facilities, and access to the Troon North Golf Club. The agreed price is about 39 % higher than the$267.8 million Braymar paid for the property back in 2022, so a pretty substantial increase over roughly four years.

40:16Bramer said the sales price implies a 6.2 % cap rate based on trailing 12-month NOI through August of 2026, including anticipated capital expenditures. Resorts operating performance provides context for the valuation. In the second quarter of 2025, it reported 62.6 % occupancy and an average daily rate of, get this, Stephen,$816.25, producing revenue per available room or RevPAR of$510.64. I mean, Four Seasons is known for, you know, that top tier experience. The financial sphere highlight the fact that they're able to, and it's a really nice Scottsdale market. I mean, obviously, but 63 plus or minus percent occupancy at those average daily rate and RevPAR numbers makes this a very attractive investment.

41:07So Lonnie, this is an interesting one. First, let me talk about the cap rate. At a 6.2 cap for a property of this caliber, this quality, and importantly, a run-up in price of 39 % over the prior four years, I mean, to some extent, you have to wonder, should that be the new floor of where we're underwriting cap rates for at least full-service logic? Now, at the other end of this discussion here, I can't help but wonder, at this price, given what we just talked about earlier in the show, the one-legged stool, the fact that the massive amount of equity gains or wealth gains that you've had to the stock market are supporting the spending and lodging properties like this, how much upside really is left to capture on a deal like this versus downside risk in the event you have, well, a collapse in equities or a drawdown of, say, 20%.

41:59Because if equities drop 20%, people don't feel as rich as they once did. There's no way you're going to have people spending$816 per night. It's just, I can't see it happening. Steven, you sound like a logical 20-year CRE veteran with your take on this. And I don't, I don't hate it because I think it's, it's real, but I'm maybe a little more new age when it comes to some of these numbers. Like I'm getting comfortable with the fact that at 60 % occupancy, If you look at weighted average hotel occupancy across the nation, I think it's about 70 % right now. So there might be a little bit of room here to push occupancy.

42:35I mean, if you can push occupancy, you probably can absorb a little bit of a decrease in some of those ADR and REVPAR numbers. And I don't know if that 2022 price coming out of COVID, that was kind of in the 2022, depending on when this deal was negotiated. not sure that people had full confidence that we were going to see like this full return or if it was just revenge travel at that time so i don't know that the 267 million in 22 is a solid benchmark for for like you know the 39 increase like this price feels extremely high at 1.77 million per room but that scottsdale market has been incredibly resilient and those high net worth individuals that like to travel there and visit, I think they probably have a little more staying power than like your typical person that maybe would be more directly impacted by that stock market wealth effect.

43:26I think that's an excellent point. I mean, the occupancy does have a lot more upside. And with properties like this, it's actually a good thing you have such diverse services because you have a lot more levers you can play with to try and stabilize revenue. So my curiosity is simply, depending on the depth and duration of the next equity drawdown. Whenever that occurs, will it cause a significant structural break in that like psychological spending pattern on luxury properties that's been so resilient post-COVID, right? Will we see a reverse of the pattern? Yeah, it's fair. And look, I mean, these are some of the things, like again, 1.77 million per key.

44:06I mean, like it's hard for me to understand how that works, but when you're getting that type of daily revenue, it makes it work, I guess. But I don't disagree with anything you said. I think there's some real downside risk here. This will be one that we can keep an eye on over the next couple of years and see how it plays out. So our other hotel story this week is a trading alert that we sent out to our clients about a massive hotel portfolio loan that has transferred to special servicing. Yes, the$745.68 million loan against a portfolio of 72 hotels across the country has transferred to special servicing due to imminent monetary defaults, according to October remit data.

44:45Updated commentary indicated only that the special servicer was assessing the situation. The loan, however, matures on December 10th. So this is another classic case of transferring ahead of a scheduled maturity. The loan, known as Project Prime, originally had a balance of$794 million and was backed by 84 hotels with 7 ,993 rooms in 21 states. Since its origination three years ago, 12 properties in seven states have been released from the portfolio. Properties in the portfolio were built between 1985 and 2004, and all have undergone renovations. Previous month's watchlist commentary noted that inspections identified life, safety, maintenance issues at 11 properties that needed to be addressed.

45:26The portfolio was 77 % occupied and generated 79.55 million of net cash flow during the 12 months through June. That's 25 % more than is needed to service the debt on the loan. That places a 10.67 % debt yield on the mortgage. So interesting that we're having this portfolio transfer, even though the debt yield and the performance is relatively strong, kind of in line with what we've been seeing. Yeah, I mean, I think this just kind of highlights exactly what we've been talking about, Stephen. I mean, it's great for us. I mean, obviously, we live in the data. But for our listeners out there, like, this is a real-life example, real-time of exactly what we've been talking about for the last several months.

46:07And so you got to get, you know, we've been saying you got to get beneath the headlines. But the same thing at the property level. Headline numbers are no longer good enough. And finally, we have a mixed-use story this week. Prelock Holdings acquired the Assembly, a six-building industrial and research and development complex in San Jose, California, for about$264 million, or about$539 per square foot, from EQT Real Estate. Stephen, walk us through this story. Yes. The property totals just over 491 ,000 square feet across 27 acres and was built in 1999. It has undergone an estimated$136 million in renovations over the past three years.

46:50Wild spend. I mean, that's the tech spend for you. The complex has fully leased three technology-related companies. Figure AI occupies 321 ,000 square feet through May 2035. Logitech leases 86 ,000 square feet through November 2033. And Teradyne leases 83 ,000 square feet through August 2042. The tenant mix is particularly interesting because the spaces support advanced manufacturing, robotics, and semiconductor testing rather than conventional warehouse distribution space. Power capacity is a major feature of the property. The complex has 25 ,700 amperes of electricity capacity. So, in other words, Lonnie, this is like over 120 times the capacity of your typical 200 amp residential box.

47:37Wild how much is needed to run these things. Yeah, it's amazing. I mean, I think we're going to see this shift in the markets where you're going to have to have a better understanding of electrical power production, consumption, etc. to be a commercial real estate player with anything related to industrial data center or any other type of properties. It's becoming a real component of the marketplace. Not to get too distracted here, but if I was making a play in today's industry, my whole game would be trying to find absolutely well-powered industrial complexes that can be retrofitted for any sort of tech need, because I feel like you get a lot more upside and probably a lot quicker, a lot straighter line to the finish line on those deals.

48:18And from the little bit I've been hearing from some folks, it seems like those strategies have played out very, very well, so long as you're kind of leaning on the higher efficiency components. Barclays Capital and Wells Fargo provided$172.2 million of financing for the acquisition. The five-year loan carries a 7.03 % interest rate and requires interest-only payments through its term. EQT acquired the property in 2021 for$192 million, meaning Prelock's purchase price is about 38 % higher than the prior sale price. The property was projected to generate $11.98 million in NOI this year, based on results through May, but get this, Lonnie, underwriting projects 19.16 million in NOI after accounting for recently commenced leases and contractual rent increases.

49:02So based on that projected NOI, the acquisition implies a seven spot two, 3 % cap rates, which to tie back to last week's episode, that's positive cash on cash leverage. You have an IO loan at 7.03%. Your unlevered property yield is 7.23 % on underwritten cash flow. So solid positive cash on cash leverage for this deal. But importantly, the difference between current projected income and underwritten figure is worth watching because those two tenants leases started relatively recently, especially since it was mentioned that you're underwriting contractual rent increases. So I'm curious about the ramp period to hit that 19.16 million.

49:43But given the credits for this deal, this does look with a very solid play. Okay, so a few programming notes before we close today's show. First up, we have another Trepsiary targeted training session coming up on Tuesday, October 20th at 2 p.m. Eastern. So if you're an early listener, you still have time to register. This one will focus on our new monitoring reports feature, which gives our clients a more interactive way to look at their portfolios, track exposure and identify potential risks. So if you're a Trepsiare user and want to get more out of the platform, definitely reach out to us or your account manager to sign up.

50:24And you can also sign up directly within Trepsiare. And then later in the month, Lonnie and Steven, you too, will be back for our next MarketPulse webinar on Thursday, October 29th at 2 p.m. Eastern. You'll be digging into some of the topics we've been discussing here on the podcast, but a lot more in-depth, including interest rates, refinancing challenges, upcoming CMBS maturities, and what's happening in multifamily. So if you love this show but wish you had a visual to go along with it, check out our MarketPulse webinar because we have a lot of robust slides and data that the team puts together.

51:00Reach out to us, podcasts at trip.com if you want to register, or you can usually find the registration on our LinkedIn page while you're there. Give us a follow. Engage with some of our posts. We always appreciate it. And finally, applications are open for our future CRE leaders program, which is something we're always excited about here at TREP. This is a really exciting program that allows us to recognize students who are getting ready to enter the commercial real estate industry after their college studies. So if you're an undergraduate, graduate, or PhD student graduating in December, or you know someone who would be a great fit, please apply or nominate them.

51:43You can reach out to us at podcast.trip.com and we'll get you all the info. And you have until November 11th to apply to be a future CRE leader. So many of our past awardees are now doing incredible things across the industry at brokerages, banks, research institutions. A lot of them are now TREP clients and podcast listeners. So we'd love to have you join our community if this sounds like something that you're involved in. And turning to shout outs. On LinkedIn, our friend Landon W. gave us a shout out and he said every TREP Inc. podcast episode is insightful, but last week's episode was particularly informative as they walked through how the math works for current deal trends.

52:27So thank you, Landon. He was commenting on another friend of the show's, Ryan T's post, where he really dug into what we covered on last week's episode, refinancing trends and a common assumption that if the cap rate is below the interest rate, leverage is negative. So thank you both for giving us some nice coverage of the show and your back and forth on LinkedIn. We have to do a shout out within a shout out. Last week, we gave our friend Samir T a nice plug for a deal that they worked on. And he reached out to us and said, heard the shout out. Thank you for the coverage. So we love when it comes full circle.

53:05Another friend of the show and past podcast guest here, Shlomo C said, great post and episode following up with that same LinkedIn post. Lenders look at a$10 million check against a large loan balance and wonder why the owner of such a large property can't find that kind of money. And he added some great color. We have some good plans coming up here with our friend Shlomo and hope to do another panel or podcast here in the near future. Yvonne B. gave us a shout out for our guest episode with Stephanie Stewart and said fabulous content on this episode. She gave Stephanie a shout out for her service as an FSU Real Estate Center board member.

53:47If you haven't listened to our guest episode with Stephanie Stewart of Voya, please go check that out. Stephanie is incredible and gave us so much good color on what she's working on. Another friend of the podcast who's still very active on X and we appreciate that, Dan M, he gave us a shout out for our TREP CMBS special servicing report, which we've actually reported that the rate rose seven basis points to 11.49 % in September, which is the highest level since February 2013. So if you haven't seen a copy of our special servicing report yet, send an email to podcast.trip.com and we will get you a copy.

54:25James H. was interested in our latest CRE Debt Universe report. He likes to look at the breakdown of outstanding debt by lender type. So thank you for that. Shout out. Sophie R. wanted more information on the Future Leaders program and loves our show every week. Daniel F. was interested in our MarketPulse webinar and said he doesn't miss a week of this show. And Chris N said, I really enjoy your podcast and your monthly webinars. How can I make sure to sign up for the next one? So we will get you that link, Chris. And then lastly here, we got a very cool email from John B, aka Dr. Jet Yield. He thanked us for the shout out on the latest podcast and then said, also this morning, Byline Bank hosted a Crane Chicago business breakfast.

55:12And he gave the opening speech and then he was surprised when after they gave his brief bio, they actually invited him to the stage as Dr. Debt Yield. So then he gave a shout out and plug for our show. But that has to mean that they're listening to our show if they know his nickname as Dr. Debt Yield. So, so cool to see that is really kind of a matrix of us in the wild, our listeners in the wild. And thank you, Dr. Debt Yield. We always appreciate your comments and your feedback. So that's really cool. And if you're a listener at Crane Chicago Business. Reach out to us. We'd love to find out who you are and work with you.

55:49And before we wrap up today's show, I have one more very special shout out. And this is for someone whose name many of our loyal listeners who make it to the end of our episodes would know. This is for one of our dedicated marketing team members and podcast producers, Mariana Sobrana. Mariana just welcomed her beautiful baby girl, Kiara, into the world. so we just wanted to take this time to wish you congratulations to you and your family and thank you for everything you do for this show behind the scenes to make the podcast happen every single week we appreciate you so much we'll miss you while you're out and we can't wait to have you back maybe we'll be at four million listens when you're back from maternity leave so we hope you enjoy every minute with baby Kiara and if you're a loyal listener and you made it to this end of the podcast.

56:39Send Mariana some congratulations our way. 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.trip.com and subscribe to the Tripwire podcast with your favorite provider. Thank you for listening and stay well. All right.

57:08you