430. Hike or Rate Spike? The Fed's Next Move, 245 Park's Second Act, Large Servicer Transfers, & a Chicago Office Foreclosure

0:05Welcome to the Trepwire podcast, the show where commercial real estate meets data and insights. This is our Week in Review for the week ending October 23rd, 2026. I'm Haley Keen with TREP, a data, modeling, and analytics firm for the CMBS, commercial real estate, and CLO markets. I'm with Lonnie Hendry, Chief Product Officer, and Stephen Bushbaum, Head of Applied Research and Analytics. This week, expectations are building for the Fed to hold rates steady in October, even as economists anticipate another increase in December. Today, we'll discuss how AI investment is complicating the inflation picture, renewed pressure from oil prices, and a series of housing reports showing the strain from higher borrowing costs.

0:50In property news, we'll look at how those pressures are playing out across office, multifamily, hotels, and retail, why strong occupancy of a major institutional sponsor doesn't always resolve a loan's maturity challenge. And in our Digging Through the Data segment, we're revisiting 245 Park Avenue. It appeared in our recent discussion of 2027 office maturities, and now it's being refinanced early with a new$2 billion single-asset single-borrower loan. We'll trace its history and examine the investment, leasing, and loan structure supporting that transaction. Stephen, with borrowing costs still elevated, what separates a property that can refinance from one that needs more time?

1:36All right, Lonnie, let's sit down at the school desk. It's a basic one. A lot comes down to just basic cash flow to support the debt. No, groundbreaking insight, right? Right. But there's also something to do with how much confidence a lender and a buyer can have in that income. It's not just today's income. And we'll be talking about this for, I'm sure, weeks, if not months to come. But it's the growth in that income. In fact, just a little preview of what we'll talk about at next week's Market Pulse. If you look at the break-even growth rates implied by some folks' forecast of, like, say, the next five or 10 years of real estate fund returns, to get there, the break-even growth rate would need to be like 4.5%.

2:21Well, guess what? Long-term average is like 2.5%. So there's this weird discrepancy right now, and it's either going to take either A, stronger growth in cash flows, B, a drop in values, or C, a drop in rates, or some combination there. of. So it's a really interesting dynamic right now. And that's what makes the macro backdrop that much harder to assess. AI investment is keeping parts of the economy growing, while higher rates put pressure on housing and other borrowers that depend more heavily on credit. In other words, rate-sensitive sectors are hurting a lot right now. AI investment is not very rate-sensitive at the moment.

3:01A pause at the next Fed meeting would give markets some breathing room. But at the end of the day, the long end of the curve is dictating so much of the financing costs across our economy. And so it basically is leaving owners facing very different financing environments from one of which many of these loans was originated. And that's what makes the 245 Park loan such a useful case study. It's an early refinancing. It follows a bankruptcy and a change of ownership, substantial capital investment, and a major leasing recovery. So we'll look at how the new loan funds and the remaining obligations and the supports.

3:37Basically, we're going to unpack this entire transaction. There's a lot to it. I mean, there's so much to it and it's a fun one. Now, the property stories give us a very different angle, some tests of that same issue. Some owners face weak operations. Other have well-leased buildings, but still need more time to refinance. And the distinction matters because each problem calls for a different solution. And extending the loan only helps if there's a credible path to repayment. So Lonnie, I'm going to put you on the spot here. The theme of the week, my favorite phrase of this week that I've heard, has been hike or rate spike around the next Fed meeting.

4:15So do you think the Fed will hike or do you think we'll get a rate spike or maybe something else? Just, I don't know, business as usual. So when Stephen says he's putting me on the spot to our listeners out there, that means that it's not in the outline and he really is putting me on the spot here. So you're getting real-time response here. I think October, we're going to see a hold. And so I don't think you're going to see the Fed take action. I think they're setting themselves up for some action maybe in December. I think the December timeframe makes more sense. You mentioned a little bit last week with the elections and everything coming up.

4:50I think there's some political pressure that, you know, if they make a move in October, it potentially turns into a bunch of headlines that they don't want to deal with. They're coming off of a raise in September. and so the markets have reacted pretty significantly and clearly after that raise you know and i and i think we're we're set up for just kind of more status quo which at this point is a little bit like a roller coaster we're going to see some up and downs i mean if you look at the nasdaq last week it closed down i think more than it had in the last year plus i mean it was really ridiculous just how this ai trade has played itself out in the sense that you know people aren't suggesting the AI doesn't work.

5:31They're just not sure how the funding for this AI spend is going to continue with the results that we've seen. So I think we're going to see more of the same, but I do think it's setting itself up for a very interesting close to the calendar year in December, depending on what the Fed decides to do. If you look at the CME Fed watch, I think as of right now, they're basically baking in like an 85 plus percent chance of a hold in October, and you're going to see what happens here in December would be my take. So what I love about this whole dynamic right now, I personally want to see a hike because that would be very provocative.

6:09I'm with you. I don't think that probably makes a lot of sense from a holistic standpoint. But the funny part of all of this is that you had two Fed members come out and be really dovish before the data came out. and yet fed at a dependent. Well, if they're data dependent, how can you be dovish and signal a likely hold at the next meeting? There's this weird dynamic. And I heard somebody this morning mention like you have this weird, like a three person power structure behind the scenes that maybe is dictating things. It's a very conspiracy theory feeling dynamic. I get it. It's like Warsh, Williams, Jefferson.

6:49And the supposed line goes that like Warsh is meeting with Williams and Jefferson and saying like, look, guys, we're not going to give forward guidance, but what we are going to give is going to signal this and here's why, blah, blah, blah. I'm really interested to see how this all plays out and if it can pull a little bit of the Wizard of Oz curtain back, because it feels so much like we're back to the Wizard of Oz dynamic right now. Steven, with your use of the word provocative, it takes me back to the famous movie quote from blades of glory. No one knows what it means, but it's provocative.

7:21It gets the people going. Oh, Will Ferrell. Gotta love him. So a big part of the headache the Fed sees right now is that AI investment is supporting economic demand and contributing to inflation pressures, which is complicating the Fed's response. You have these large technology companies that will maintain investment despite by higher rates. This is an all-out technology war globally, and smaller businesses and households are going to pick up at least part of this slack. If we think of the K-shaped economy, small businesses and consumers are going to be in the bottom end of this K, and, well, finance and tech are at the upper end.

8:01Cleveland Fed President Beth Hammock described the potential cooling occurring around the edges of the AI expansion. So it'll be interesting to see how monetary tightening can restrain housing and other credit-dependent sectors before substantially slowing the investment-driving part of the inflation problem. And this gets to the concern I have is, do we break the back of part of the economy before we can cool the underlying causal factors? It's a very precarious balance we're trying to strike here. Yeah. I mean, I'm with you, Stephen. I mean, if you back some of the AI spend out, GDP probably goes negative it's supporting the economy right now i don't know if you saw the anthropic report this week that came out they took a 80.7 billion net loss in the first half of 2026 and so it's like this unicorn that everyone's riding high on valuations continue to increase and like the future and the prospects and stuff seem limitless there's a harsh reality that they're just not producing cash flow at this point and to some scale of magnitude that we're not used to and And for the Fed, I mean, like to your point, do you start pushing that lever and do you start, you know, forcing some of these things that maybe aren't supportable today out to try to cool things down?

9:18Or you just kind of let it ride? I think that's the conundrum everyone's at. And even if they don't push and it doesn't break, is there enough psychological stigma at this point that people are starting to really question this bubble narrative that I think we've pretty well avoided? You know, when AI spin started going through the roof and the numbers started jumping off the page, people were just, I remember seeing stuff on Twitter and everywhere else where it's like, this is some magnitude bigger than what we saw with the dot-com bust. But that narrative has gone pretty quiet on the whole. But I think it's going to rear its head right now.

9:53And it's just like anything else. You talked about some of the home builder stuff and sentiment and home sales and all. So like psychology plays a huge role in people's actions, especially when it comes to spending money, making investments, et cetera, et cetera. So one product that I'm excited to see come out, it's not, I don't think it's there yet. They're doing some comment period right now, but it's CME Group's Compute Futures Contracts. It's a derivative contract that's going to be tied to Silicon's data's H100 and B200 GPU rental prices. and that will let businesses hedge the cost of AI compute capacity.

10:30Personally, I am very hopeful, maybe naively so, but I'm hopeful that with the introduction of a product like that, we'll get some very important timely information about token costs, compute volumes, and ultimately an early warning sign of trouble to come, right? That volatility smile, the shape of volatility in this market will be, I think, really informative and timely. And I can't wait for this derivatives contract to launch because, oh, man, it's going to be the latest and greatest and heavily traded, I think. from the tokenization costs, how much, like, what is the actual cost to consumers if there was no subsidy on this stuff?

11:14I mean, that's the part that I don't think people have really factored into the model of, like, we're all using these tools pretty much at scale for everyday tasks. We're not disproportionately focusing our AI usage on the really tough, complex challenges. we're using it kind of across the spectrum to proof emails and to, you know, put together PowerPoint decks and other things. If we as consumers had to actually pay the real cost of the token, though, I don't know that we would be using it in nearly the same fashion that we are today. Yeah, I've been pondering this for a while, right? It's the airline and hotel pricing model.

11:56and that I think you could still come out net neutral on revenue because the parts of the economy that benefit the most will be the most price insensitive. For example, you and I both know that if we pay$20 a month, let's just go with the basic$20 a month plan. If Anthropic or Claude were to come out tomorrow and say, all right, we're ripping off some of this Band-Aid, it's now going to cost you$50 a month. Would you or I cancel a personal plan? I'm guessing the answer is no. Yeah, I mean, I'm paying for the$100 a month tier now, but I know I'm getting a bargain compared to what it actually is probably costing them to run all the computes that I'm doing.

12:37If that goes from 100 to 1 ,000, I probably am pulling back. I probably am finding alternatives or I'm paring down my usage. Well, the good news is it won't go from 100 to 1 ,000 because the token costs have been on an exponential decline. And so I think the incremental cost is going to be more like an aggressive, say like Netflix, Apple, Disney, ESPN type pricing ramp. It's going to be a more aggressive form of that. And the only thing holding it back right now is really the IPO, right? Once these companies go public, I suspect within 12 to 24 months, all of a sudden that band-aid is getting ripped off pretty quick.

13:18And as that exponential decline in token costs, you know, decreases, that's when the economics start to get real. And hopefully we start to see more of these numbers push into the black instead of say, you know, 80 billion in the red. Yeah. I'm hopeful too. I did an interesting takeaway was the CEO talking about the pushback on data center development. And it feels like that's a story that just won't go away. And, you know, we've covered that pretty extensively with all these grassroots opposition folks across the country. And I'm just wondering, at what point do we finally get to that, you know, inflection point where some sort of legislation or regulation has to come in that says we're going to continue to develop data centers?

14:03Like, we understand that you as individuals maybe don't like them, but we've passed critical mass. It's not optional. We have to continue. you. This is the naive optimist in me. I'm fairly optimistic that we'll have a private market solution because you have some really fantastic success stories of, say, municipalities where teachers are getting like 10, 15,$20 ,000 bonuses because of the data center in their backyard. Their property taxes are going down. The utility bills are not going up. The water costs are not going up. The data center and AI companies have done a very poor job of getting ahead of this problem.

14:41And it's been ramping for a long time. That's what's shocking about this. This is not a new issue. I mean, we started talking about this 18 months ago, I think. It was probably when we talked about the first data center moratorium. And so if they had gotten ahead of this and pushed harder with some of the economic benefits and said, look, we hear you, we hear the pain points, here's how we're going to mitigate them. And here's how you personally will financially benefit from having this in your area, I think that goes a long way. Because if you ask any citizen on the street right now, what's your main pain point going into the polls in November?

15:16Cost of living, oil, finances, right? That's top of mind. And so if you tell, say, your municipal workers, guess what, folks, you're getting a$10 ,000 bonus this year because the data center, that's going to make a difference. I hope that you're right. I will say if you're a data center company out there, you should reach out to the TREP marketing team. They can help position this in a little more favorable light than what you presented yourself, at least for the last couple of years. I agree with you, Stephen. There's a real marketing problem with how they're presenting data centers as a solution instead of not presenting themselves as a solution when they should be.

15:53So while we're on the topic of new data and new stories of the week, I want us to look at housing for a minute because this is where we're really seeing the impact of borrowing costs. We had weaker housing starts, builder confidence falling, and pending home sales hitting a record low. Stephen, walk us through the latest data this week and then talk to us about if this is a financing and affordability story or are there other forces at work here? So let's start with the housing starts and permits. I mean, housing starts plunged, building permits hit a three and a half year low. September single family starts fell 4.6 % month over month to an annualized 859 ,000 units.

16:38Although the remains 2.6 % above the September 2025 level, single family permits declined 4 % to an annualized 845 ,000, indicating a weaker construction pipeline. Total starts, including multifamily, fell 5.2 % to an annualized 1.221 million. So this is really a story about higher mortgage costs, construction costs, labor constraints, all of these weighing on activity. And that monthly decline should be distinguished from the still positive annual comparison for single family starts. Now, what's equally kind of just negative is that you also had builder sentiment falling on rising rates, which is really no surprise at all, because as we've talked about a few times in the podcast, one of the things that has been able to move buyers off the sidelines for new construction has been, well, the concessions builders are making, specifically the rate buy downs.

17:36And those rate buy downs get more expensive as rates increase. So the National Association of Home Builders in Wells Fargo Housing Market Index dropped three points to 29. It's the lowest reading since June 2012. Readings below 50 indicate that more builders view conditions as poor than good. We're at 29, well below 50, not even close. All three components weakened. Current sales fell to 33, expected sales fell to 32, and prospective buyer traffic to 18. That's abysmal. 43 % of builders cut prices, the highest share during 2020 to 2026. Average reduction was 6%. 65 % offered sales incentives, illustrating continued pressure on margins as builders tried to offset affordability constraints.

18:28National Association of Home Builders cited elevated mortgage rates, material and energy costs, and labor disruptions as contributing pressures. Now, that was all pretty negative. But Lonnie, I think the pending home sales number was maybe the biggest warning sign flat. Yeah, and we'll jump into that. I wanted to cover quickly on the home builder side. Let's just say you wanted to build a house today on your own. So you go and you find an architect, you get a builder. What do you think construction, new home construction interest rates are on a construction loan? Oh, gosh. I would be happy if I got like eight and a half to nine percent.

19:04I'd be ecstatic if I got eight and a half to nine. Yeah, that's where they are right now. I mean, so imagine you own a home today, you're at 2.9 or 3.25 % interest. You're thinking about building a new home. It's eight and a half percent interest on the construction loan. And with all the volatility in the markets, you're not certain what it's going to be on the permanent takeout financing. Super challenging, not just for these, you know, production builders. Obviously they're facing that reality. But if you're an individual trying to build today, there's no way mathematically that it makes any financial sense to do that, especially if you have a locked-in rate.

19:39So it kind of goes to your point here on the pending home sales. So just to give you some numbers here, we've thrown a lot of numbers out today, but we want to give you some of these here. The pending home sales index dropped 7.3 % to 66, which is its lowest reading since the series began back in 2001. Economists had expected five-tenths of a percent decline, so half a percent decline. and we're at 7.3 % decline. So contract activity fell in every region. It was 11.3 % below a year ago. 7.4 is the average 30-year mortgage rate during this most recent preceding week. And pending contracts generally become completed sales within one or two months, making this a forward indicator transaction activity rather than a measure of the previous September month's closing.

20:29So listen, I think we've seen certain markets kind of continue to proceed with a reasonable amount of transaction volume, Stephen, to where you have some markets where you pull up the Redfin or the Realtor app and there's just red dots everywhere. But there's been enough markets where transactions were still happening. I think we're starting to see that come to an end where it's basically every market now. And when I say every, I don't mean every, but most markets are going to start feeling the ramifications of this hire for longer or the affordability and just the broader uncertainty. You know, if we were to parse out the economic data into buckets, right, and put our blinders on and I were to give you, say, non-farm payrolls, I wouldn't include the unemployment rate.

21:15Let's just go with non-farm payrolls growth. I would go with, say, the home sales data and rates. That would look pretty scary, right? And then if separately I were to give you the unemployment rate and consumer spending and say median house price, you'd be like, wow, that looks good, GDP. So we say that history often rhymes. I'm struggling to figure out what this rhymes with, like supercalifragilisticexpialidocious? I don't know. This is bizarre. Listen, it rhymes with this new paradigm where you just extend, you pretend, fundamentals don't matter, reality doesn't matter. You print more money, you do what you got to do to keep things going.

22:03Like, that's just where we're at here. Because at some point, what do we all know? Like, there has to be a recession. There has to be bargain basement prices on properties where they can't support debt service. or when someone loses their job and they can't pay the mortgage, foreclosure has to happen. None of those things have happened. We've run into these rescue plans, bailouts, whatever, across the spectrum, residential, commercial, student loans. You just go down the list. The markets just keep moving. The cynical part of me just says that none of this actually even matters at some level. Now, obviously, I think it does matter.

22:42But you can make a cynical argument that says none of this effectively matters because the markets just keep going. We just keep spending. Things just keep going. And they're going to until the music absolutely stops and then it just all falls apart. You know, one of the sectors that has probably baffled me the most has been the corporate CLO market, right, and just private credit. if we roll back the clock to, say, pre-GFC and look through the 08 crisis, the corporate CLO market actually performed incredibly well, right? That would have bucked expectations. I think you had default rates like 1%, 5%, depending on sector.

23:18That performed really, really well. So getting back to like warning signs flashing across the economy, I wouldn't call this a red one. Maybe it's like a yellow flag, but the hardest hit fixed income sector over the last year has been CLO equity. It's posted like negative 15 or negative 20 % returns because you have this negative R, short for negative arbitrage, right? Tightening spreads, higher rates, it's compressed and actually crushed the CLO equity portion. And what's ended up happening out of that is, well, you've had to see some creativity. You've seen some captive equity continuation fund type plays where they go and raise a bunch of money and it's captive equity and they're kind of using that in a very liberal way.

24:05I mean, the return on it, the levered return is maybe 15 % pre-fees. I think net of everything that you have to take out, it's probably 10 to 11%. Somebody were to tell me, hey, I want to take say 50, 100 million from you and you don't get any control, any say, but I'll give you like a 10 to 11 % return net of fees. Don't worry about it. Is that enough? If it's my 50 or 100 million, which I don't have, by the way, the answer would be no. I love the way that you phrase creativity because that's part of the cycle we're in right now. And I think it's just going to continue like where the math doesn't change, the pressure gets compounded.

24:43And, you know, if we bring it back to just the CRE market, I mean, it's the same story there where this maturity wall becomes a maturity wave. But guess what? Like the wave comes crashing to the shore at some point and the tide has to come in and we're going to see what happens here. I mean, there's, for my cynical take a moment ago, I'm still optimistic. I think, generally speaking, if you can fix some of the oil challenge, you can get gas prices back into a manageable frame. People still feel, from my perspective, like pretty optimistic about where things are right now, despite some of the negative stuff.

25:17If you looked at it, that you pointed out some of these warning signs, like it's pretty remarkable that with all of the negative news, that people are still as optimistic as they are. And I'm hopeful that that just continues to carry the day. But I wouldn't be surprised if we're sitting here in six or nine months, even if this AI stuff doesn't pull itself out. Some of these AI deals go under, and the funding stops, and the ROI doesn't materialize. This could go the other direction fairly quickly. The free cash flow trough on the AI CapEx spend is projected to be late 27, first half 28. That's where the risk is.

25:58That's where my bearish sentiment lies. That's where I'm looking to hedge. AI is only as reliable as the data behind it. And when you're managing investor relationships in a competitive capital market, that data has to be accurate every time. InvestNext MCP connects the AI your team already uses directly to InvestNext, a platform purpose-built for investment management. Find your top investors, see how a fund is tracking, build a custom report, get briefed before your next investor call, all in seconds, grounded in data direct from the source. investnext mcp ai doesn't know your investors investnext does connect your ai to your data see how it works at investnext.com slash trap so all that macro backdrop really brings us to an interesting example of a deal getting done in this environment a couple of weeks ago we were talking about the wave of office maturities coming in 2027, and 245 Park Avenue was one of the major properties on that list.

27:11Well, fast forward a couple of weeks, and now we're looking at a new $2 billion refinancing ahead of schedule. And what's particularly interesting is that this is a building that went through bankruptcy, a change in ownership, and a pretty significant turnaround. So, Stephen, walk us through this story today in our Digging Through the Data segment and talk to us about what changed here that allowed this property to secure$2 billion of financing. Yeah, this is a fun one because as we'll see in just a minute, this is one of those loans that came full circle and full circle with some negative, some positive.

27:52But ultimately, at the end of the day, I would classify this more as green shoots. Definitely not crab. Definitely not negative. So a couple of weeks ago, when we were looking at office loans facing hard maturities, 245 Park Avenue was one of the big names on the 2027 calendar. Now it has a new$2 billion financing package. So let's look at what's changed and what that tells us about the new law. And this is a useful follow-up because it lets us move from the maturity calendar into the actual refinancing. The old mortgage was scheduled to mature in June of 2027. Instead, the owners are refinancing this roughly eight months early with a larger mortgage and a new maturity of November, 2031.

28:31Getting there took a change in ownership, a substantial capital program, and a much stronger leasing position. So if we go back to 2017, H &A bought the approximately 1.8 million square foot tower for 2.21 billion. It financed the acquisition with a$1.2 billion mortgage plus 568 million of Mez debt. So that was a one spot$768 billion debt package or around 80 % of purchase price. The mortgage itself was a 10-year IO financing package at three spots, six, seven percent. and reported 54 % LTV, and that excluded the MEZ debt. So the mortgage was also spread across several securitizations. There was a 1.08 billion senior A note and 120 million of subordinate B notes.

29:22The original standalone 2017 trust held 500 million of that mortgage and other pieces were scattered across numerous conduit deals. So the$98 million balance in our attached conduits prospectus that I used to help kind of dig out all the details I needed for this was just one piece of the financing, not part of the whole one. This is what makes it so fun is when you go across different deals, you tend to get different little tidbits of information to piece everything together. So moving forward to the 2026 prospectus and some of the information that's been disclosed by SL Green. SL Green bought a$148 million preferred equity interest in 2018.

30:01So just one year after that 2017 securitization. Then came HNA's property level bankruptcy filing in October of 2021 and the loans transferred to special servicing that November. So Trump's servicing notes showed a September 2022 modification associated with the SL Green taking control, followed by a return to regular servicing in November of 22. The old debt stayed in place. And in June of 23, Mori Trust acquired a 49.9 % ownership interest at a$2 billion gross property valuation. So if we think about all of the fallout through COVID and where we're at at this point in time, this is actually not that bad.

30:42You went from a$2.21 billion valuation back in 2017, only down to$2 billion in 23, when we were all pretty bearish on the office sector. So this was actually a relatively positive outcome for the time. Now, the recovery acquired substantial investment. The leasing recovery has really been driving the majority of the performance. So the offering summary from the 2026 prospectus shows a$445 million completed and planned capital program since 2022. That includes about$170 million for the redevelopment itself, plus building work and the costs of attracting and accommodating tenants. Approximately$339 million had been spent by July of 2026.

31:25The property is getting a new arrival experience, upgraded building systems, a fitness and wellness center, dining options, and a rooftop park. For an older office tower, that capital program is a major part of the credit story. The building's age alone tells very little about its current competitive position, but that committed capital and what's already been executed is really what gives all of us the confidence in this sort of a credit deal. So the offering's occupancy shows the lease occupancy fell to 78.7 % in 2023, and then it reached 99.2 % as of August 26. That's amazing. I mean, that speaks to the K-shaped leasing that we've talked about on the podcast for New York City.

32:13The latest sponsor announced that the building is 100 % leased effectively since the start of 2025, and the offering counts about 463 ,000 square feet of leasing activity, including expansions, new leases, and a renewal at average starting rents of roughly$163 per square foot. And the tenant roster helps explain the finance. Aries, Sockchen, and Carlisle, EQT. I mean, you've got some fantastic anchor names. Five investment grade tenants generate 72.5 % of underwritten base rent. That's phenomenal. Although some of those ratings belong to parent companies that do not necessarily guarantee the leases.

32:52So you do have to take that with a bit of a grain of salt. The weighted average reigning lease term is 11.2 years, only 3.2 % of underwritten base rent is scheduled to expire before the new loan matures. But this does not mean every tenant is already occupying the space and paying rents. Aries has expansion space still to occupy. Carlyle is expected to start its buildout in August of 27 and occupy roughly a year later. And the summary also includes Nearwater's future occupancy. Those three commitments represent about 20 % of base rent. The underwriting also includes Fulham's exercised expansion space.

33:27So that distinction carries the financials. The offering's normalized NOI rises from$62.8 million of 24 to$97.3 million of 25 and$117.7 million for the trailing 12 through July of 26. Lender underwritten is even higher at$154.7 million or about 31 % above that trailing 12 figure. So these historical presentation figures already remove free rent effects. So they should not be described as unadjusted cash collections. The new loan is lending against a signed leasing recovery that still needs to convert more fully into cash. So, Lonnie, do you want to walk us through how the new financing works? Yeah.

34:12Before I do that, I want to just comment quickly. A couple of things that we could maybe come back to a 101 session in the future is the difference between actual age and effective age. And I think you highlighted that here with the renovation on this building. It's certainly performing like something much newer than what it actually is from a physical perspective. And the weighted average lease term here, I mean, if you're a lender, that is exactly what you're looking for. 11.2 years and you didn't have any real exposure during the life of the loan. That's exactly what you're looking for. A ton of capex, newly renovated building, great occupancy, weighted average lease term that's exceptional, and real no rollover risk during the term.

34:52So let's get into the structure here. So how does this new, as you described, Stephen,$2 billion loan compare with what was there before? And if you look at the difference between the 2017 and 2026 prospectus, this new financing is a five-year fixed-rate, interest-only, non-recourse first mortgage. It replaces both the old$1.2 billion mortgage and the$568 million mezzanine piece that you mentioned. In other words, the debt that used to sit outside the mortgage is being refinanced into a larger first mortgage. So the new mortgage is 67 % larger than the old mortgage, but total debt increased by only about 13 % because we have to include the old mezzanine debt in that comparison.

35:32If you look at the 2026 prospectus again, at the bond level, there are still different layers of credit risk. The executive summary describes a componentized loan and six certificate classes, excluding the ELP and residual classes. So investors are taking different payment priorities and loss exposures against the same building. The HRR class is initially the controlling class, and Blue Owl Real Estate Debt Advisors is expected to be the initial directing certificate holder. A first mortgage on the property does not give every bond investor the same seniority within the securitization. So if you go to the sources in use on this, it's particularly revealing.

36:08Estimated proceeds repay$1.768 billion of existing debt, put$226.6 million into upfront reserves, and pay$37 million worth of closing costs. These uses exceed the$2 billion loan, so the sponsors are actually contributing another$31.6 million. The larger mortgage, therefore, does not produce a simple$232 million cash out to equity under this estimated closing budget. The summary says the existing mezzanine loan is held by Mori Trust, so some debt repayment does go to a party that is also an owner. The reserves matter because the building still has work to finish, as you highlighted a moment ago, Stephen.

36:48Tenant improvements to fund and rent concessions to bridge. A large reserve balance helps fund the transition from signed leases to the income those leases are expected to produce. It is not an additional$226 million that can simply be added to the property value. And I think he did a good job of describing that earlier and some of those signed leases not converting yet. There are cash controls as well. Rent goes through a hard lockbox. cash management springs into effect for specified events, including a default, a material tenant sweep event, or coverage below 1.15 times for two consecutive quarters.

37:22The summary also permits whole loan defeasance after two years from securitization closing and penalty-free repayment beginning in November of 2030, about a year before maturity. So that gives the owners an earlier refinancing window, which just saying that out loud, Stephen, is actually a pretty nice thing to say, like that people actually have some optimism about the ability to refinance before maturity when we've seen so many of these deals blow past maturity dates while still performing and unable to refinance. Yeah, this is one that if I was a bond trader, I would be watching very closely at performance because I see this as a strong prepayment candidate.

38:02The structure, the story, everything hints that at the first chance, the first optimal chance they get, SL Green is cashing out equity on this deal. So this is definitely a prepayment candidate. If everything breaks the right way, the economy doesn't blow up, right? We don't hit the fiscal cliff, blah, blah, blah. At the same time, there's a lot that has to go into this deal. So it's a fun one. So maybe now that we've covered the structure, Stephen, like what is it about this deal that stands out to you? I mean, we've covered a lot. I know for our listeners, this is a lot of numerical data and we're kind of talking, you know, through a bunch of different documents.

38:45What about this particular deal when you're, you know, compiling the data really stood out to you? So to me, this is a classic transit oriented development, right? The supporting ingredients are here. It's a grand central location. It's substantial reinvestments, institutional sponsors, signed leases extending well beyond the loan term. It's just, it's the proper mix. It's done right. And the limited lease rollover during the next five years is especially important. What I've looked at how certain loans have been sized in recent securitizations, the ones that I've spent the most time and have raised my eyebrows the highest on are the ones that have ended up having substantial lease roll.

39:25In other words, I've looked and said, why are these metrics so wild? Why is LTV suit so low? Why am I seeing a debt yield of 20 % on this deal? And then I go to lease roll, I'm like, oh yeah, that's why. You have massive, massive tenant expiration risk. This deal doesn't have that. Well, at least not within term. You do have the SOCGEN lease that expires shortly thereafter. So if SL Green were to get an early lease commitment. I mean, heaven forbid Sokjen blows up, but if they do get an early Sokjen recommitment, maybe with some favorable terms to Sokjen to do that renewal early, and especially if the rate environment is cooperative, that's the proper prepayment trigger right there.

40:08So this new capital structure is more demanding. The summer reports 7.7 % of underwritten NOI debt yield and 1.2 times coverage on net cash flow. The 2017 mortgage had 9.6 % underwritten NOI debt yield in 2.4 times net cash flow debt service covered. So it's really interesting to see how we've shifted. But again, given the lease commitments that are in place and the trajectory of cash flow, yes, all of that really makes sense for where we've underwritten and where we think we're going with this deal. There's also an important pricing update. SL Green's October 19th announcement reports a 6.52 % fixed coupon or 147 basis points over the treasury index with its own share hedge to an effective rate of 6.37%.

40:57I thought that was interesting. I don't often see firms come out with their financing announcements mentioning the rate hedge here. So, I mean, obviously SL Green was paying attention to the environment and got ahead of that perspective rate hike that was coming down the pipeline. So I should say rate spike, not rate hike. or maybe a little bit of both. I know we don't do a lot of product plugs, even on the podcast, but this is one where I'd be remiss if I didn't highlight the fact that this data is in the system and available and some of the documents and other things that you've highlighted here through commentary, et cetera.

41:33You know, if you were someone that wanted to get into the weeds on these types of deals, there's no better place than to come to TRIP to get that insight. So just to wrap this one up, takeaway is that 245 Park gives us a concrete example of what resolving a large office maturity can require. A workout, capable new owner, hundreds of million in capital for a trophy asset, and leased income that supports the new financing. And that new loan reap moves, fortunately for us, a major 2027 maturity, while moving the next test to 2031. Its success from here depends on delivering the redevelopment and converting the signed rents into durable cashflow.

42:11So let's turn to our deals and data, the property type news of the week. I want us to start with a headline in multifamily. The Real Deal and others reported this week that Blackstone's$1.3 billion CMBS loan has headed to special servicing. Yes, this CMBS loan was backed by a 21 property, 6 ,671 unit multifamily portfolio that has entered special servicing after missing its October 2026 maturity date. Now, we should note that a substantial portion of the original$1.3 billion loan has been paid down through prior asset sales and asset releases. So the current loan balance stands at 517.7 million.

42:54Now, this is the Blackstone 2021-21M deal. This loan was placed on the servicer watch list in December of 24 after property inspections identified some deferred maintenance and it remained on the watch list as the maturity date approached. Now, Blackstone has been selling properties from the portfolio since at least 2023. The original loan issued in 2021 and the balance dropped from$1.3 billion down to$517.7 million. Six properties totaling 1 ,842 units remain, meaning Blackstone has sold 15 properties and reduced the loan balance by about 60%. Blackstone secured a three-month forbearance to sell the remaining properties.

43:34The collateral includes two Seattle properties, one San Antonio, one in Jonesboro, Georgia, and one in Bradenton, Florida. among those remaining assets. This isn't Blackstone's only recent multifamily setback. In June, the firm lost control of 75 West Apartments, a 490-unit property in Dallas, after faulting on a$90 million loan. That debt worked out to roughly$184 ,000 per unit. Blackstone has also had their successes. In August, it refinanced a separate just over 6 ,000-unit multifamily portfolio, primarily in Florida, Texas, and Georgia, with about a$1 billion CMBS loan. So this is an interesting one, Lonnie, because you and I have talked about this one, I think a little bit debating, you know, was there some adverse selection in this portfolio?

44:17But so far right now, I have to take the special servicer comments at face value that we're going to do a three month forbearance to allow asset sales. And if you look at the property ages here, you only have one property built in the 1990s and really the bulk, the rest of them largely are like mid to late 2010s vintage apartments. So while you might have some adverse selection, we're not talking about like the class BC pre-1980s stuff that we'll be talking about next week on the Market Pulse. This is a very different situation. And I think it's just a matter of a very difficult time in the market to execute sales on these assets.

44:57Look, we say all the time that real estate, by definition, is a local endeavor, sometimes hyper-local, two buildings, same street, different outcome, right? People have heard me say that like a broken record. It holds itself extremely true in multifamily. Submarket matters. So obviously the older vintage, we've documented that 1970s, 80s trade that people were paying sub four caps on trailing 12 NOI in 2021, etc. That doesn't end well. But even for some of these newer construction assets, if they're in submarkets that are depressed, multifamily submarket really drives the narrative. It's the reality like you're not competing with a region you're competing within that specific sub market and guess what in some sub markets they're clearly winners and losers and blackstone i mean listen this is one of those things where 1.3 billion is a huge headline number but to blackstone it's a rounding error and you just don't know like they've had like you highlighted you know several other portfolios they've had success with they've been able to divest some of these assets here like this is probably just a bad pool of deals and it happens i mean you you deploy capital at the scale they do across the U.S., you're going to find some assets in certain markets that maybe look good on paper, but just can't perform.

46:08And we'll see how they remedy this. I mean, the three-month forbearance will hopefully help them sell the remaining properties. But like San Antonio and Seattle, both of those markets have been challenged on the multi-side. And within that, there are certain sub-markets there that have been extremely challenged. So we'll see how this one plays out. It's always interesting when you see someone like Black Blackstone in the newspapers for default because it obviously gets a ton of eyeballs. Then I think it does for our listener base and just for some other, you know, people that are just in the market trying to get a feel for what's happening.

46:40It's not just the smaller syndicators, as you mentioned. I mean, this reality is distress doesn't care if you're an institution or a syndicator. Market performance is dictated by market preference. Let's talk about an office story next. This headline from Chicago Business brings us to the Illinois Center, which is heading to a foreclosure auction. And the numbers here are pretty striking. The property's value has fallen from$390 million at securitization to just$66.5 million in the latest appraisal. Stephen, walk us through the story. Sure. Illinois Center is a two-building office complex in downtown Chicago, totaling 2.1 million square feet.

47:24and it's heading for foreclosure after its owner defaulted on a$239.48 million mortgage. The auction is scheduled for November 12th. The debt was securitized across three CMBS deals. The loan transferred to the special servicer, L &R Partners, in April of 2024 and defaulted at maturity in 2025. The property's value has fallen sharply, as Haley mentioned. The asset was appraised at$390 million when it was securitized in 2015, then$85.7 million in 2024, A March 26 appraisal put its value at just$66.5 million, an 83 % decline from its 2015 value. Its previous owner, Amtrust Realty Group, paid$376 million for the entire complex in 2015.

48:07Occupancy is another challenge. The property is 52 % occupied and expected to generate$18.97 million in cash flow this year. The original underwriting projected$21.33 million in cash and 72 % occupancy. TriGild IVL was appointed as the receiver in February. LNR is positioned to bid on the property on behalf of the CMBS bondholders pending court approval. The loan has also been prematurely classified as real estate owned. So this is an interesting one that even though the foreclosure sale hasn't taken place yet, Lonnie, interestingly, the servicer or special servicer has actually already classified the asset as REO.

48:45And I think that transfer code actually started back in August or September, which is an interesting one. In other words, like they classified as REO once they got court approval to proceed with the auction. So I kind of feel like they jumped the gun on that code. So Illinois Center illustrates the severity of the valuation declines facing some older downtown office properties, combination of low occupancy, a missed low maturity, and a steep drop in appraised value leaves a substantial gap between the property's original valuation and its current estimated worth. So it's going to be a severe reset and basis for this asset.

49:18Talk about ripping the Band-Aid off. I mean, we started the show with talk around that. I think this is an example where that's taking place at a property level. So, yeah, it's interesting on that code, Stephen. You know, nothing's a foregone conclusion in CRE, even if a court's ordered it. So interesting that they would put an REO tag on something that's not technically REO at this point. Next up, we have a trading alert that we send to clients. And we just talked about an office property that's struggling with occupancy and valuation. But our next story in Philly is about a property that's almost fully occupied, but is in special servicing.

49:57So this is a very different situation. Lonnie, walk us through what's happening at 2400 Market Street. So this is a$205.38 million CMBS loan. As you mentioned, Haley, it's backed by 2400 Market Street. The collateral is a 600 ,000-square-foot office building. This is in Philadelphia Center City. It's transferred to special servicing after the borrower failed to sell the property before its loan maturity. It's like a tale of as old as time in the last couple of years. The borrower indicated they need more time, as every borrower needs when these maturity dates come. The borrower has requested an extension through May of 2027.

50:34Loans securitized through a single-asset single-borrower deal that stems from a 2021 securitization. Originally matured in December of 23, but included options for three additional one-year extensions, all of which were exercised. So as Stephen likes to point out in a lot of the research that he's published, this is a hard maturity. The borrower recently hired CBRE to market the property for sale with hopes of completing a transaction before that hard maturity date. Unfortunately, with no sale completed, the borrower is seeking more time. We'll have to wait and see whether the servicer provides the necessary runway.

51:08Unlike many distressed office properties, the 2400 Market Street continues to report strong occupancy and cash flow. This is a positive. The building was 99 % occupied and generated about$8.62 million in net cash flow during the first half of 2026, which puts it on pace for an annualized cash flow of$17.24 million for the year, which would be slightly above the 2025 number of$17.03 million. The building has a substantial roster of tenants, mostly with long-term leases, Aramac is the largest, occupying just under 300 ,000 square foot with a lease that runs through October of 2034. Fittler Club leases just over 80 ,300 square feet through July of 2036 on its lease expiration.

51:53And Audacity occupies 67 ,500 square feet on a lease that runs through July of 2034. This building was originally built in 29, that's 1929, had four floors. The building was expanded in 2019 as part of a renovation. Its current performance suggests the immediate challenge is less about occupancy or declining cash flow and more about just completing the sale or resolving the upcoming loan maturity in a very tough marketplace. So this is one, Stephen, where you kind of call it a little bit of a mixed green. Like this property is checking all the boxes from a performance perspective. It's occupancy strong, revenue strong, seems to be doing everything it can to showcase that it's viable in this market.

52:36Nobody wants to pony up and pay, obviously, what is necessary for it to clear a loan balance. Yeah, I mean, we've had so many just crabgrass office stories out of Philly. I gotta say, if I was a servicer on this one, I would give maybe a little bit of slack and be like, look, if you can line up a sale, it's not gonna be a substantial discounted payoff. We'll maybe knock one or 2 % off, but we will be happy to get this thing done. Just please, let's put it to bed. So as always, a lot of stories from the TREP team. And if you want even more in our programming notes this week, I wanted to call out that you still have time to sign up for our next MarketPulse webinar.

53:17It's happening on Thursday, October 29th at 2 p.m. Eastern. Stephen, you mentioned it earlier, but we'll be digging further into some of these hard maturities and where we're seeing distress in the multifamily sector. So send an email to podcast.trep.com. We'd love to have you there. Also, if you have feedback or if you've shared the MarketPulse or the podcast with any of your colleagues, let us know. We'd love to hear who's joining and how you found us. We also still have time for people to submit applications for our future commercial real estate leaders program. As a reminder, this is our program that recognizes students who are preparing to enter the world of commercial real estate in corporate America and are really trying to make an impact early in their careers.

54:06This is open to undergrad, graduate and PhD students who are graduating in December, 2026. We had a lot of you reach out to us last week, nominating colleagues, interns, friends, and we'd love to have even more of you reach out. If you're a student and you're part of a real estate program, please share this with any of your classmates, professors as well. You can apply up until Wednesday, November 11th. So we'd love to highlight you. You get named a future commercial real estate leader. A lot of people use it when they're interviewing. They put it on their LinkedIn, and you really get to join a great community of other TREP leaders.

54:47Turning to shout outs, our team was at ABS East this week in Miami, and we met a lot of our listeners. So thank you to everyone who stopped by our booth. We wanted to give a specific shout out to Melanie G, who came over and said she loves TREP and the podcasts. She even remembered working with our marketing team on getting a student discount to TrepConnect when she was still studying at her university, and now she's working in the field. So, so great to meet you, Melanie. Nick M. said he tunes into the TrepWire podcast every week and has enjoyed the insights. Richard M. is a loyal listener who actually noticed we didn't have the episode notes and asked us to bring them back.

55:30So don't worry, Richard, we will bring those back. We appreciate any feedback and any inbounds. Don M said he would like to nominate someone for the Future Leaders program. So thank you, Dom. Brad M was also interested in nominating a peer for our program and was looking for all the details. If you can't find the details, email us at podcast at trep.com and we'll get you the materials. William F said, Lonnie, I love listening to you and Steven on the podcast every week. He's going to RSVP for our upcoming webinar. Kevin J was also interested in the MarketPulse webinar and was really particularly interested in CMBS maturities.

56:10We would say everyone in the market is right now. And if you need that data, we have it. Andrew P said, great podcast as always. He was looking for our September special servicing data. If you're on LinkedIn, you'll see our delinquency data, our special servicing data all over the place. We want everyone to know that, yes, we report on the headline numbers, but you have to listen to this podcast to get the behind the scenes and what that data really means. So thank you, everyone, for sharing. Michael F. saw our recent research on the hurricane exposure and was interested in how we complete this analysis and doing it for other exposure areas.

56:48So we can perform that for anything you really need. Reach out to us if you have a specific requests. And I guess one more programming note slash shout out here. I just got off a call with Lonnie before we recorded this podcast and we're planning his New York City travel schedule. So we're thinking of really maximizing his time in New York and hosting a few smaller in-person events at our TREP office while he's here in the city. So we're looking at the weeks of November 4th and December 7th. If you're a listener and you'd love to meet us or come to some type of panel event or market update or cocktails and networking, send us an email to podcast at trep.com.

57:33We'd love to hear from you and kind of gauge interest and see what we can put together pretty quickly. We'd love to see you guys in person. And then, guys, we need to wrap up. But I'm wondering how we made it through this entire episode without talking about flying cars. So I'm sure you have some thoughts on that. But of course, we saw that Tesla unveiled the new Roadster that can actually lift itself off the ground. And now I'm getting headlines in my inbox about a potential Tesla SpaceX merger. So what do you guys make of this? I think when that event happens, all auto insurers across the company said WTF.

58:13No way am I touching that thing. I don't see how in the world. You could underwrite a car with that kind of risk. And I'm sure the price tag, I saw somebody on social media say, we put down a$500 ,000 deposit. So heaven knows what the price is going to be on this thing. Listen, Stephen, if you can afford to have a flying Tesla Roadster, you're not calling State Farm for insurance. You're just self-insuring. Like, it's kind of, that's a non-issue. But I got to tell you, man, like we're living in some interesting times. We detail them every week on our podcast with some of the economic news and the macro and all this stuff.

58:54But on the technology and just the things that are being built in front of us, it's amazing. I mean, the fact that he can have the car vacuum suction cup itself to the road upside down and then fly off there and land and then go zero to 60 in less than one second. We just incredible. Just regardless of what you think about Elon Musk and his companies, and I know there are varied opinions, but just the technological advancement and the capabilities that were on display are undeniably awesome. Is it zero to 60 in 0.6 or something like that? 0.87 seconds. That's ridiculous. I mean, that's crazy. So, yeah, like I and I think it's cool that you had to have people there in person, because if there were no people in attendance, there's no way any of us would have believed that that was actually real and not AI.

59:42Well, before we close, I did have one last shout out that I would be remiss. I would be shamed if I did not throw out because I didn't mention the name in our Stephanie Stewart podcast. I mentioned Maurice Moore, but in my road down nostalgia lane, I failed to give credit to probably one of the most influential, one of the most fantastic people that has helped me out in life, Greg Machaud down at Voya. So Greg, this one's for you, along with Dave G, Tim M, Colin D, and the whole CMBS, ABS non-agency team down there. Love you guys. You're great. Told you I'd do the shout outs. There we go. Love it.

1:00:24Now email us if you guys heard that shout out. And 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 at trep.com and subscribe to the trepwire podcast with your favorite provider thank you for listening and stay well all right