Murky Markets, Steady CRE – A Fed Rate Cut, Housing Slump, and Transaction Trends

For the week ending September 19, the LightBox team unpacks a market defined by mixed data signals. The Fed’s latest rate cut sent investors mixed messages, with Powell calling it a “risk management” move as job risks mount. Inflation data continues to contradict itself; retail sales are running hotter than expected, and holiday forecasts point to consumer resilience, yet labor market cracks and a housing market slump keep uncertainty high. Against this backdrop, Manus Clancy, Martha Coacher, and Dianne Crocker dig into LightBox’s August transaction tracker, where CRE activity stayed steady. Deals above $50 million were down just 5% from July’s peak but still 12% above the 2025 monthly average, with multifamily dominating and office transactions starting to pick up. Three out of four properties with sale history traded at a gain, underscoring that most assets are holding or building value even as price discovery continues. The team also goes behind the headlines of some noteworthy transactions: from San Francisco where the city’s flagship mall has lost 86% of its value since 2016; to a multifamily deal near Walnut Creek, Bart Station that traded 15% below 2022 pricing; and a surge in data center land values in Northern Virginia where power grid strain is looming. They close with a look at San Francisco’s distressed office sector, where the collapse of WeWork continues to ripple through valuations, leaving once-prime assets trading at steep discounts. It’s a “miso soup” market, cloudy but not opaque, where CRE continues to show cautious strength despite economic turbulence.

00:17 Rate cut ripple effects
03:05 Inflation, retail sales, and the “miso soup” market
10:20 Labor market cracks and housing headwinds
18:07 LightBox August transaction tracker
24:44 San Francisco’s retail implosion
29:06 Multifamily deal near Walnut Creek BART
30:42 Data center land priced like gold in Northern Virginia
32:45 San Francisco office distress and the WeWork fallout

Have questions for the pod team? Send them to Podcast@LightBoxRE.com. 

www.lightboxre.com

Transcript

The CRE Weekly Digest by LightBox

Episode 64: Murky Markets, Steady CRE – A Fed Rate Cut, Housing Slump, and Transaction Trends 

September 19, 2025

Martha Coacher: This is the CRE Weekly Digest by LightBox, a firm transforming the commercial real estate landscape by connecting every step of the CRE process with comprehensive tools and data. I'm Martha Coacher with our experts Manus Clancy and Dianne Crocker. For the week ending September 19th, investors got the fed rate cut as expected, but the news wasn't focused on the quarter point cut as much as the forecast for two more cuts this year.

Chair Powell called the decision a risk management cut saying that job risks are rising faster than inflation risks. Manus, after the news, stocks rose, then fell, then closed, mixed, and the 10 year dipped below 4% before snapping back. How do you gain this out for the impact to commercial real estate? 

Manus Clancy: Well, I guess the obvious answer is if I could game it out, I'd probably not be cutting podcasts.

I'd be sitting on some high powered private equity trading desk making, uh, astute predictions. I think making astute predictions right now is extraordinarily hard. I think the data is really, really messy and I can't remember a time in my career where there was so many. Countervailing winds blowing. On the one hand, and I know we'll talk about this more later, home builders are very, very bearish.

That market really in the doldrums, while inflation has not taken off in the way that people have expected it to, it is inching up and that remains a risk. We have geopolitical concerns, Russia flying drones over Poland. What, what are we talking about here? And yet, the market keeps surging. Day after day, right?

We keep hitting new highs. It looks like today, Thursday, the 19th, I think it is. We're gonna hit another all time high today. So you go figure. We know that we're on pace to collect about a trillion dollars in tariffs, yet there's still risk that some of that has to be rebated, and that might be. A sugar high for the market.

If that does have to be rebated, we still don't know exactly who's paying for this trillion dollars. Is it the consumer? It seems so, at least to some degree. If you talk about what CEOs are talking about on earnings calls, it's certainly the companies in some cases, which means at some point earnings have to be nicked, and yet we keep powering higher and higher and higher.

The bond markets, as you said, Martha, we did. Crack that 4% thresholds for a very short period. Yesterday, I think we got to 3.994 on the 10 year, but if you look today, we're back up to four 10 on the 10 year. So there's just a lot of turbulence in the air right now. It's really getting hard to get a beat on what happens next for either the equity markets or the bond markets.

It's. As challenging a period for me as any I can remember in the last 20 years. 

Dianne Crocker: I guess that makes me feel a little bit better. Manus. You know, I'm here this week trying to write a presentation to give at the commercial real estate women's chapter in Boston next week, and I'm like, every day I'm scratching my head or changing the narrative a little bit.

You know, we had PPI and CPI moving in opposite direction, so we've got inflation sending mixed signals on the retail front retail. Sales came in hotter than expected, you know, and, and I'm thinking, well, what about the narrative that we're heading into a recession? How do you say that if retail sales are still hot, what does that mean for the, the holiday season?

I saw this week that Deloitte is actually forecasting a 2.9% to 3.4% increase in holiday sales this year compared to the same period last year. You know, so there's optimism there, and I'm just. You know, I'm kind of wondering, you know, what does this all mean? So I reached out to somebody who would be in the audience in Boston next week and said, you know, gimme one word that would describe how you feel about the market right now.

And she said, murky, not like pea soup. Murky, but cloudy. Like a, like a miso soup. And you know, it got me thinking like, we talk a lot on this pot about noise and, and how we have to look past the headlines for the real story, you know? And I guess for all of us reading the news every day, maybe the message is.

You know, we can't overreact to any single print because the print the next day might, might tell the opposite story. And I'd say like, if, you know, if it makes our listeners feel better and maybe keeps them from upping the retail sales on, on. Beer or wine or liquor. It's that the metrics that we're following here at LightBox, whether it's appraisal volume or property listings, or environmental due diligence or commercial real estate deals, we're still showing that despite some monthly or or seasonal fluctuations, we're not really seeing a pullback, at least not yet.

Manus Clancy: And we haven't even really talked about the labor market, which I think underscores the murkiness even more. Powell talked about. Threats to the labor market. We saw a couple of weak job reports. We saw the jolts numbers kind of at an inflection point, right? Where we're now more job seekers than job openings.

But in some ways, that's equally puzzling because there's reports out that say we have seen self deportation among the immigrant population of somewhere between a million and a million and a half. You would think that would act as a safety valve. For the labor markets that you would say, okay, if we're removing a million and a half people that were job seekers a year ago, that should be a bit of a safety valve for the labor markets.

But yet what we're seeing is that not really being the case that we're seeing job seekers. Outweighing job openings. So put me in the category of just really, really, really perplexed. I feel like most of my career, I've had very strong opinions about what's gonna happen next. I felt this way in 2006 and 2007.

I'm not always right, but I, I feel like I always have a good gauge on when we're frothy and when we're ready to take off. I have to say that my confidence barometer right now is really at. An all time low. It's really hard to say. If somebody said to me The stock market is gonna be 15% higher, six or 12 months from now, it doesn't feel like that should be justified with PE records, PE levels at all time, eyes.

But who am I to say that it couldn't be right? We have AI benefiting us. We have a lot of enthusiasm in the market. We have a lot of bullishness. I don't know, it's really hard to get your arms around this. 

Dianne Crocker: Well, now I feel worse Manus than when I tuned in. You usually make me feel better. 

Manus Clancy: Well, the one thing I'm confident about, and I said this at a town hall for LightBox, is regardless of the fact that I don't have any great level of confidence on the labor market, the home builder market, the impact on inflation or the equity markets, right?

In all four of those, I feel like I'm a, a ship captain without a compass. I do remain modestly bullish on CRE and I'll say, why. I just don't feel like the excesses that we saw 20 years ago, 10 years ago during COVID, where people were chasing valuations higher and higher and higher lenders were letting borrowers lever more and more and more.

That absence of discipline among lenders and that chasing of higher returns really hasn't. Taken root in the last two years. Maybe you disagree Martha or Dianne, but it feels like this has been a cautious incrementally bidding up prices, incrementally watching cap rates come down, not a irrationally exuberant market in CRE.

Martha Coacher: And perhaps to add to your optimism there at the end, Manus CBRE came out with a forecast this week that says that lower borrowing costs are gonna boost CRE investment volume by approximately 15% this year. And that's up from an earlier projection of 10%. And that is in spite of the fact that they're projecting a deceleration in economic growth during the second half of 2025.

So it's a, it's an interesting market. For the commercial real estate investor? 

Manus Clancy: Well, there are two tailwinds right now and one modest concern. The two tailwinds right now are treasury rates. The 10 year treasury is about 40 basis points below where it was in July. We were at four 10 on the 10 year, I'm sorry, four 50 on the 10 year in July.

We're at four 10 now. That's 40 basis points of. Lower borrowing costs just on the back of treasuries. We also, if people are using floating rate debt, we've also seen that come down as well. So the short end of the curve has come down as well. But if you use the CMVS market as the barometer, we've also seen credit risk spreads.

Compress CMBS spreads are near, uh, their tights for the year, which means that too is coming in when you add. The risk-free rate of the 10 year treasury plus the risk premium that comes with CMBS spreads. We are now, let's call it 60 or 65 basis points below where we were three or four months ago. That's terrific.

That means the savings is accruing right to the bottom line of the borrower, and that should be shoring up valuations, both for people that need to refinance and wanna make proceeds. Sufficient enough to take out existing debt and it should help distress people that couldn't get refinancing six months ago.

Maybe those cuspy cases, maybe those 10% that. You know, are on the cusp. They kind of muddle through now. 

Martha Coacher: And may, you alluded to the housing market a few minutes ago. The housing market has been in a prolonged slump after the Fed started raising rates. And it's important to know because it, the housing segment is about 16% of GDP and it has been an absolute drag to the overall economy.

Manus Clancy: It's really hard to understand in fact. It's so hard to understand that. I feel like I should probably try to get on the phone with a couple of these CFOs or COOs of some of the big residential operators because it's really hard to get your arms around just how bearish they are. The bearman sediment this month came in far more negative than was expected.

A lot of these developers are talking about. Cutting prices to remove inventory, and I don't have a firm feeling for why it's so bad. Rates have been trending lower. They haven't been racing lower, but mortgage rates are somewhat lower than where they were in the past. Yes, we probably have overbuilding more inventory than we need in some markets, but this does not seem like a systemic problem.

That should lead to the amount of bearishness we're seeing, but it is undeniable. The numbers that the people are reporting on CNBC reflect a really, really bearish market, and I'm not exactly sure why. 

Dianne Crocker: Did you see Manus two on the news this week? Um, home Builder, toll Brothers is selling a chunk of its multifamily housing portfolio to Kennedy Wilson for 347 million.

So that's a builder best known for its luxury single family home. So there's, you know, there's a lot of kind of movement, a lot of changes in sentiment and, you know, who knows where it's all gonna lead. There's definitely a skittishness, I think, on the part of buyers so afraid, start moving. We'll have to see if that changes, if that moves the needle a little bit.

Manus Clancy: The irony of all this is that I have a son who's in the residential construction business. He's been in it for five or six years, but whenever I pick up the phone to just shoot the breeze on a Sunday afternoon, we topple very quickly into the misery of the New York Giants and the New York Mets. So what could be a productive conversation between he and I once we get past?

How's he doing? How's his wife? How's the cat? What's new in Brooklyn, we, we pivot into, we pivot into the Misery Index of Giants football and Mets baseball. I should take us down a path of less misery and just talk about the business. How bad is that, that the Giants and the Mets are even more miserable than the housing market right now?

Like it is somewhat ironic. 

Martha Coacher: I don't even wanna talk about the Jets. Well Manus, not to add to the misery, but when you talk about unsure why this is happening in the housing market, we've seen a lot of data points that point to a constellation of issues. Home prices are 50% higher than they were five years ago.

Insurance premiums are higher, property taxes are higher. The price of homes and mortgage rates have made it very difficult to find homes that are affordable, especially for people. The, uh, lower economic strata, and you add to this, the job uncertainty on top of that, and you, you've probably got a whole slew of people that are holding back from buying a home just because there's a lot of uncertainty there.

Manus Clancy: Well, I came into the conversation saying I didn't have any answers. I think you have given me the answer. You've nailed it right on the head that. There are six or seven really good reasons why somebody 30 years old, who has uncertain job prospects and only has a certain amount to finance a down payment with might be tapping the brakes and saying, you know what, let's rent for another year or two before we, we, we dive in.

So I, I think your explanation makes a lot of sense. But to add to the murkiness, one thing we didn't talk about was there has been this looming belief that. The consumer is tapped out that we're heading for a recession, and yet another One of the puzzling things that came out this week was retail sales.

Retail sales came in stronger than people were expecting, and retail prices were up, which tells you that the consumer not only is continuing to buy, but they're willing to absorb somewhat higher prices to make these purchases. That doesn't sound like a consumer that is tapped out. So again, I keep using that word over and over and over this week, I'm puzzled.

There's just so much enigmatic data coming out, conflicting data that until we get resolution on whether or not we're having a recession, who's paying these tariffs? Is the deficit truly coming down? Our rates coming down because people think we're headed to a recession or we're in this Goldilocks world where we're growing just enough to support somewhat lower rates.

It's very, very hard to pinpoint exactly where this economy is going. 

Dianne Crocker: Yeah, I agree. The headlines were all over the place, you know, and to the points that you made, Martha, about housing. You couple that with the fact that there have been all these headlines this week about how college graduates can't find jobs just in that strat of young adults who are graduating with degrees and, and they have nowhere to go.

You know, leading me to think, are the college graduates gonna move back home because they, when will they be able to afford houses? You know? And to the point I made before, you know about Toll Brothers selling a chunk of its multi-family housing portfolio to Kennedy Wilson. Maybe they're getting outta multi-family a little too soon.

You know, if home sales don't rally back up, if home builders remain skittish, you know, maybe multifamily is the place to be. We're certainly seeing that that's still a bright spot in commercial real estate. 

Manus Clancy: Maybe you're really onto something with that remark, Dianne. I hadn't really thought about that. But if we stick on that point for a minute and we say somebody has to be paying this tariff and some of it has to be coming out of the corporation, maybe the way that they're sustaining earnings and it's indisputable that earnings were better than expected in Q2, right?

We had a nearly a record high number of companies beat on the bottom line. Maybe they're just taking this out in the form of we are gonna run as tight as a drum on the hiring side and where the slack is coming in earnings is, we are just not gonna hire anybody. I hadn't really thought about that, but it would explain why the unemployment numbers are going up, why young people are complaining about not being able to find jobs and why yet corporate earnings continue to soldier on.

I, I think your remark is very astute. Those dots, 

Dianne Crocker: except that it doesn't explain Deloitte's forecast for an increase in holiday sales. You know, why isn't that skittishness across the board? And that points to the mixed bag that we've been talking about. You know, it's almost like in the aggregate, holistically, nothing makes sense.

Manus Clancy: Well, maybe people are saying, if I'm not gonna buy myself a house, at least I'm going to. Surprise my significant other with one of those $50 water bottles that they're, they're selling in Target these days. I don't know, maybe that's the right, the, the other side of the coin. At least. I'm gonna spoil myself a little bit with that dinner at Ruth's Chris Steakhouse.

Maybe that's the, the safety valve 

Martha Coacher: turning to the LightBox data dive. Dianne, you're gonna give us a walkthrough, our August transaction tracker report. 

Dianne Crocker: We're about to release our monthly analysis of deals that closed in August. Manus, you have a really fabulous team that is combing the news for deals, and when we drilled into what they found in terms of deals that closed in August, the volume, just in terms of the sheer number of deals above the $50 million threshold, they were down a modest 5% below July.

I'll note that July was the year to date peak in terms of monthly sales and to put the August number in context, although it was down a bit month on month, it was still up 12% above the year to date, monthly average. And then if I looked only at the nine digit deals, so those are the ones above a hundred million.

August was running neck and neck with July. So that tells me we're not seeing any slowdown at the high end, um, capital. In August, even when we were all taking vacations on the beach or in Europe, capital was still very much in play. And then the other thing, Martha, that I wanted to note was what we added to the report for the first time is we took a look at matching current sale prices to what properties sold for in the prior sale.

And even with having that history on only about 20% of August. Closings. What we found was that three out of four deals where we did have the prior price data, those sold last month at a gain and only one in four sold at a loss. So, you know, what does this mean? It means that. Most assets, at least the ones in August are holding or building value.

And when discounts do hit, some of them are pretty brutal. So while price discovery's happening, the reset isn't really uniform. And now that we're, what, midway through September, we've got a rate cut under our belt for the first time this year, historically. September also brings. A kind of natural seasonal rebound after the summer break, and so maybe our analysis of September transactions, it could be a good sign, a good predictor of where Q4 will settle, you know, or whether caution is gonna keep activity in check.

We'll see. 

Manus Clancy: I think of that 75 25 that you talked about, without looking at the numbers and that without digging in, I would imagine that 85, 90% of those things that sold at a loss. In the office segment. It's almost a unicorn when you see an office selling at a premium to its last. I think we did an analysis, Martha and I, maybe a year ago, maybe it was, it was less.

But you know, the average office was selling at 55%, 60% off its previous sale, you know, and that's. That's not unique to one or two markets. That's really consistent market to market, to market to market. On the other side, the 75%, you have some mirror images of that. It's almost unheard of to see industrial property selling at a discount to where it's sold five to 10 years ago.

Some of those are seeing 60% adjustments. The multifamily is a little bit more in between. We do see gains there. I do think we have a little bit of adverse selection there. I think if a property value is up in the multifamily, people are happy to sell it and take the properties. The ones that are down, people that bought in 2021 are dealing with higher floating rate debt valuation declines, maturing loans, distress.

Higher expenses. I have a feeling they're sitting on these hoping to muddle through. So there's probably a selection bias there that if those people were forced to sell, it would probably be more of a 50 50 market. In multifamily, 

Dianne Crocker: you might be right Manus. And the report does call out a, a couple of examples.

So if readers want that detail, um, that report should come out early next week and we did cite a few office examples that probably prove your point, Manus, that those are the ones that are taking a hit. I 

Manus Clancy: think it's a very bullish sign though for CRE in general that we saw the level of transactions really stay steady in the last week of the summer.

Historically, nobody wants to sell a property. Nobody wants to announce a sale when a significant potential buyer group is at the beach. And so the fact that those numbers stayed steady in August, I thought was a very, very healthy sign. 

Dianne Crocker: Yeah, same. And I think. With August coming close to July's High watermark, and now that we have a rate cut, I wouldn't be surprised if September's volume got up to July and maybe even set a new high watermark for the year.

Martha Coacher: And our did, you know, takes us back to the August transaction tracker and we're gonna dig out a data point around multifamily. 

Dianne Crocker: Multifamily, once again dominated August deals, which is a trend that we've been seeing over the past couple months. So multifamily deals accounted for 37% of the mid cap size category, so those are 50 to a hundred million deals and multifamily accounted for an even larger 45% of all deals above a hundred million.

We also noticed that office. Man has posted a meaningful share. So office deals were 23% of the mid-cap deals and they were 13% of transactions overall. And that highlighted a point that Craig Benton at Cenovus Bank made in last week's podcast that, you know, it looks like capital is finally starting to really move in the office sector.

Manus Clancy: Yeah, it really has for several months now that we've seen, I guess you'd call it a throwing in of the towel. That holders of these properties have capitulated. They basically have said, you know, now in San Francisco, it had been an $800 square foot market at one time. It's a $300 square foot market today.

We don't see this rebounding anytime soon. Let's cut our losses and get out. Chicago is now $175 market, right? Give or take. Maybe it's $200 a market. People are cutting their losses. They're cutting their losses in Philadelphia, Charlotte. New York City, Atlanta. It's happening across the country. It's happening at a much faster pace than we saw after the great financial crisis, but it's happening.

Martha Coacher: Turning to the stories behind the headlines, we're gonna start with San Francisco and Manus. I don't know you created the term dead mall walking, but that's what we're gonna talk about. 

Manus Clancy: It is a term I've been using for many, many years. Malls are one of those things. We had a slew of mall defaults during the great financial crisis.

We had another slew of problems between 2015 and 2020 when e-commerce provided the gut punch to big retailers like Toys R Us, and Sports Authority among others, Sears. We saw that wave and then we've seen B and C class malls continue to be challenged even as some class A malls have really recovered value over the last couple years.

In this particular case, the San Francisco Center saw its value, reappraised recently Morningstar, who tracks his data very well. We had David tro come on several months ago to talk about that particular market. Not only did it have the typical problems that malls have with failing retailers, bank retailers, occupancy, spiraling, they also had quality of life issues.

There were some very high profile, call them, smash and grab events to the point where Nordstrom's, which had been there for 35 years, closed their flagship there. After in, in 2023, so, uh, that had been a dead mall walking for many years. This appraisal is just kind of, you might say, the final nail in the coffin there.

Dianne Crocker: Yeah, and San Francisco's been trying so hard to, to really revitalize its downturn, and based on what I read, it doesn't sound like the physical layout and the terms of the ground lease are really conducive to a housing conversion. The other interesting thing is that. 93% vacancy made me wonder like, where's that 7% that's occupied?

You know, I read a story that tourists keep coming in and, and asking what's going on? Like, what are the 7% of those tenants? Is it like a tourist t-shirt shop, you know, a food court vendor? And what happens to this property? The foreclosure sale has been delayed a few times. You know, who's gonna buy it and, and what might they do with it?

Manus Clancy: Sadly, what sometimes happens, that 7% is just a Halloween popup store. As soon as Halloween comes and goes, they're out. Or it's a Christmas popup store. Somebody takes it on a three month lease and pops up, but it is one of the under-reported parts of the demise of them. All right? There's three things that cause the demise of them.

All right? One is e-commerce. If the tenants can't make the sales the numbers they want. If sales per square foot falls below 350 bucks a square foot, that mall is likely on life support. But people can revitalize that if that's the only problem, right? The second part of it is competition. If it is a B or C class mall and something new opens two miles away, which is better, newer.

Has better amenities, has something which draws people in restaurants. That is a second thing which weighs on mall operators, right? If they have two of those, it makes it even more challenging. But the third one, which is under-reported, is if people don't feel safe, if the mall is under 50% occupied, if you're walking through there thinking, where is everybody?

Or there's a headline where, you know, where crime has picked up in the mall. It's very, very hard to come back from that. So just to be precise on those numbers about the San Francisco Center. The property was valued at about 1.2 billion in 2016. Around that time, a big CMBS loan was made on the property.

The value about a year ago was about 250 million, I think a little bit less. The most recent value according to Morningstar, now down to 195 million. So it's lost about 85, 80 6% of its value over the last nine years, not a recipe for success. 

Dianne Crocker: There's your poster child for your term dead while blocking Manus.

That's pretty astounding. 

Martha Coacher: So across the bay, let's look at apartments that are telling a different story about what capital is at play. 

Manus Clancy: Yeah, this was a little bit surprising. We talked about how in most cases, multifamily was up. For most property owners. Except for those that had bought in 2021 or early 2022.

But if you had bought before then you've probably seen a decent amount of appreciation. We saw kind of a head scratching one this week again out in the Bay Area. Acacia Capital bought way Mark, which is a 358 unit property at 1 0 1 Pringle Avenue. They paid 190 million. For the property, which was 15% below where the property was valued a couple years ago, I think in 2022.

The property is next to the Walnut Creek BART Train stop. The property was valued at almost 2200 25 million in 2025. So I guess that's evidence of how much the market has fallen since that peak valuation in. 2022 when people were really chasing these types of assets. 

Dianne Crocker: I think with that one too, man, is the financing tells a story.

Fannie Mae took out the loan, they had an institutional buyer, so there's a clear liquidity signal. You know, it tells me there's a sign. It's a sign that the agencies are open for business if the asset's well located, which it sounds like this one definitely is. So agency lending is available even when some banks are, are staying picky and are staying cautious.

Martha Coacher: So let's turn to land sales and we're gonna fly to Northern Virginia where we're gonna see how dirt is priced like a data center. 

Dianne Crocker: Yeah, this was an interesting one, Martha. It was a classic kind of park next to the hyperscaler move. In this story, black chamber grabbed 53 acres right next to Microsoft's Prince William campus.

It's in Northern Virginia, which is a huge data center market, kind of a a global data center, bellwether market vacancy. There is basically nil. Power is really, really tight. So if you've got a well located power reachable dirt parcel, you can still command a premium. That's what this, this story told me.

And black chamber isn't land banking either. They lined up about 1.2 billion last year to build out four Northern Virginia campuses. So they definitely have the juice to go from dirt to shells 

Manus Clancy: that Northern Virginia. Has really been the cluster for data center development. It's incredible how many have been announced the amount of money people will pay for land in that area.

I hope it doesn't become a bigger issue. However, we know that the power needs for data centers are enormous. When you cluster so many together, you're really betting on the fact that the grid will be substantial enough and invested enough in. To support all these new projects, right? It is a real leap of faith that the municipalities there will be able to keep up with the infrastructure needed.

To allow these data centers to thrive. 

Dianne Crocker: It's very true, and I did read RES recently that Prince William County is really leaning in on rezonings to accommodate these projects. But there's been a lot of community pushback and the constraints to the grid are real. I mean, they're gonna, they're gonna reach maximum capacity at some point with all these new projects breaking ground.

Martha Coacher: Let's go back to San Francisco, where office values on one street are giving us some new priced intel. 

Manus Clancy: Well, I've said many times in the past that CRE has largely been very disciplined over the last five years. There haven't been too many exceptions. One was developers, especially syndicators. Chasing valuations in multifamily in 2022.

Otherwise, the market has been fairly disciplined. The problems we've seen in office, I would call a black swan event. It's not the result of people chasing valuations in 2022. It's more of a, a wound that was inflicted by societal changes from work from home, right? That that's the thesis by me. But there was one small exception to that.

Over the last seven years or so, and that was wholly predictable and that, and it was very predicted by many, including Sam Z, the affinity for the WeWork model. We saw people lending in big numbers on properties for which WeWork was a tenant. Accepting this model that WeWork was gonna be able to maintain high occupancy numbers on short-term leases even as they grew at an exponential rate.

We know what happened. WeWork grew too fast. They weren't able to keep these properties full. They declared bankruptcy. A lot of these WeWork spaces are now vacant. The valuation of WeWork itself collapsed. So the cautionary tale, which. Was ignored in many cases. You know, Sam Zell's advice to people seven years ago was really ignored.

People plowed into the WeWork as a tenant trade, uh, comes full circle here with this story and that 600 California street in San Francisco, the property was incredibly. Levered to WeWork. Not only was WeWork the main tenant there, they actually bought the property and were the owner of the property. Uh, this particular asset is headed to market now, uh, for about 124 million.

This is what they expect to get out of it when it comes up for auction in the near term. This once had a $240 million CMBS loan on it. So it looks like that loan is gonna be looking at a 50% loss down the road. The property itself is 360,000 square feet. And if I'm not mistaken, the property itself was valued at $800 a square foot at one point, and is now down to about $300 a square foot.

So one of the few I would say. Mistakes made by the CRE market over the last six or seven years that was avoidable. 

Dianne Crocker: The other interesting thing about this story, Manus, is Loeb Street did a piece that highlights how this listing sits alongside other file sale comps that are on the exact same street. So it's like this California street has become San Francisco's.

Price Discovery Lab, as an example, 350 California Street, sold for about 60 to 68 million after being worth about 300 million pre pandemic. And a second example is 550 California Street, which traded at about 40 to 45 million, which was. Far below prior hopes. I don't have prior data on that one, but it's, my point is, it's, it's one street and there've been so many price resets, you know, within just a few blocks, you've got this live listing, there's a post-sale comp, there's a bank loss, there's a receivership.

I mean, it's, it's kind of a, a clean snapshot of the point that you made, which is just how far central business district office values have repriced. And it kind of struck me as it, it could be a good kind of. College project in a university's commercial real estate department. 

Manus Clancy: It's a little sobering, I have to say that Globe Street article, and by the way, great reporting by Globe Street on this.

I've called the San Francisco Market a 275 to $300 a square foot market, right? We've seen a lot of sales in there, but they paint a much more sobering picture there. You know, maybe, um. A little Pollyanna on San Francisco. Maybe it's even worse than, than I, I suggest based on the numbers I put together in their story, they talk about 3 51 California Street with guidance in the upper two hundreds.

That's where I am. Right? But they also say three 50 California Street, sold for a. Value of 200 to $225 per square foot, which is well below where I think the San Francisco market is sitting right now. And even worse, five 50 California, uh, the Wells Fargo building traded for 115 to $125 a square foot.

Ouch. Right? Let's keep our fingers crossed at that $300 threshold. Doesn't become 1 75 or one 50. 

Dianne Crocker: We're very San Francisco focused today. 

Manus Clancy: Do you remember when we were kids, we'd watch. You know the price is right. And they would always say, you have to guess the price of this rice. And they always had that thing, the San Francisco treat, right?

That was their tagline. How much for a box of rice, the San Francisco treat? And I always think of this in terms of the office. This is not the San Francisco treat, it's the San Francisco. What's the opposite? What's the, what's the antonym for a trick treat? Trick? It's the San Francisco trick. There you go.

Martha Coacher: And our last story, commercial real estate is getting the Reality TV treatment A and E's new series. The Real Estate Commission is going to follow an Albany broker through real estate deals where he is leasing, strip malls and selling apartments and chasing down troubled downtown offices. While they keep the cameras rolling and see what happens when the transaction either gets done or falls apart.

So the show premieres October 12th on a E, but my question to you guys is, which deals would make the most dramatic tv? 

Manus Clancy: Well, I would like to see the broker tailing around with a special servicer and also a couple of bond holders go to that mall that is 93% vacant. Explaining to the bond holder that the only potential tenants for this thing is a daycare center and an axe throwing operation, right?

That attracts millennials after business closes and having them argue about whether or not you can have an axe throwing operation next to a.

That would be the the train wreck television that I couldn't turn off 

Dianne Crocker: and let the sparks fly. See my mind. I've never been big on reality TV shows. I don't think I've ever watched The Bachelor or Real Housewives, but I do remember watching Survivor when it first came out. So when I saw this story, my brain immediately went to some like survivor type show.

That appeals to commercial real estate. You know, maybe something with like ticking clocks and mystery bidders and you know, down to the wire lender consents, you know, which I think would be a lot more fun to watch than anything I ever saw on Survivor. 

Manus Clancy: Yes. And, and maybe we could have people walking around in loin clauses carrying spears, trying to catch stocked fish in the decorative lake in the middle of the mall.

Dianne Crocker: Oh my.

Martha Coacher: And with that, we will say goodnight. Thanks to our producer Josh Bruyning and our entire production team, Alyssa Lewis and Molly Farina. Please join us every week as our LightBox team, share CRE news and data in context. You can listen on any of your favorite channels and send your comments or questions to podcast@LightBoxourre.com.

Thank you for listening and have a great week. 

Manus Clancy: Let's go.