August 22, 2025 • 27 mins
This episode of First Draft Live is presented by Agora.
The godfather of the CMBS market issued a warning that commercial real estate is not out of the woods of its downturn, which is a potential problem for the U.S. economy.
“The losses in CRE are so big that the rippling effect of those losses to the economy are so big that they could be quite harmful,” Ethan Penner, the founder of Mosaic Real Estate Investors, said on this week’s First Draft Live.
Roughly $23B of CMBS loans have matured without a resolution, and more than 10% are delinquent or in special servicing. Yet the CMBS lending market is roaring, with $60B in new debt issued in just the first six months of this year.
“The truth is there are massive, massive losses in real estate,” said Penner, who is credited with inventing the commercial mortgage-backed security in the early 1990s. “These are breathtaking losses, and I think that clearly the system hasn’t recognized that on any level.”
Penner also spoke about his candidacy for the California governor’s race in 2026, with a platform focused on deregulation and a radical new approach to the homelessness crisis in the state.
“I don’t know where the toilets are in the state house, that makes me an outsider,” he said. “But I do know that the systems are broken.”
Register on Bisnow.com to join the next conversation live, or check back here for the conversation after it airs.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Mark Bonner (00:08):
Hi. Welcome to First Draft Live. It's Friday,
August 22. I'm Mark Bonner,business editor in chief coming
to you live from New York. Thankyou to everyone for tuning in.
Today's episode of First DraftLive is presented by Agora.
Whether you're managing deals,raising capital, or growing your
portfolio, Agora is your trustedplatform for seamless real
(00:31):
estate investment management.Visit agorareal.com to learn
more. That's Agora, real.com.Okay.
Today, we're stepping into theeye of the storm in commercial
real estate finance. More than$23,000,000,000 in CMBS loans
have passed maturity withoutresolution. AAA bonds have taken
(00:52):
losses for the first time sincethe financial crisis. Yet, new
issuance is booming. Nearly$60,000,000,000 in the 2025
alone.
That is the busiest start since02/2007. Investors are flocking
to single asset deals. Conduitsare shrinking. Office is even
creeping back into favor. Sowhich is it?
(01:15):
A market on the brink or oneevolving into something
stronger? Our guest today knowsthis world better than anyone.
He's credited as the creator ofthe CMBS market in the 1990s,
and now he's aiming to remakeanother system he calls broken:
California politics. EthanPenner is the CEO of Mosaic Real
(01:35):
Estate Investors. He's chairmanof Revan Office REIT, an
independent candidate for thegovernor of California with
policy ideas on CEQUA,homelessness, affordability, and
wildfire prevention that couldreshape the state's real estate
future.
Before we get going, send yourquestions in the chat. We'll get
to as many as we can. Ethan,welcome to the show. Appreciate
(01:57):
you being here.
Ethan Penner (01:59):
Thank you, Mark. It's a pleasure to be here with
you.
Mark Bonner (02:01):
Look. Before we get into CMBS, let's talk about
this, speech that Jerome Powelljust delivered in Jackson Hole,
Wyoming this morning. You know,he is he the market was hoping
that he would give a clear greenlight for interest rates, but
instead he gave a little bit ofa warning shot. I'm quoting him
here. The chairman said, thebaseline outlook and the
(02:22):
shifting balance of risk maywarrant adjusting our policy.
That seems to be a clear hint torelief next month for the next,
FOMC meeting. The markets arereacting positively. Right now,
we're hovering around 900 gainon the Dow. But he said
decisions, quote, will be basedsolely on their assessment of
data and its implication for theeconomic outlook and the balance
(02:44):
of risk. Clearly, a rejection ofpresident Donald Trump's push to
slash rates for his ownpolitical gain.
His overall tone was a littlemurky. The bottom line, Ethan,
is that his outlook for The USeconomy is not looking good. Yet
we're seeing what the Dow isdoing this morning. What do you
make of it?
Ethan Penner (03:05):
Well, I think we always get mixed messages. I I I
would say that, Mark, hiscomments today absolutely
foreshadow interest rate cutsover the over the coming
periods. He's starting to set upthe argument for that, and he's
making sure that peopleunderstand that the argument is
(03:26):
not political. The argument iseconomic. And I think that is
very important.
I think that people have tobelieve, you know, we for better
or worse, the Fed is the Fed. Itis what it is. I I think that
there's arguments to be madethat is for better, and there
are arguments to be made that isfor the worse, but it is what it
is. It's an animal that existsideally, apart from the
(03:49):
political machinery of ournation, and I think that's part
of its important valueproposition. And I think he's
resisted the pressures from ourpresident.
And I think he doesn't want itseem as though, when he does cut
rates, that it's because ofpresident, and I think that's
important. So he's setting upthe arguments, and you could see
(04:11):
it. And it I think that thatportends lower rates going
forward. I think, in fact, hadthe president not publicly
pressured him over the last fewmonths, we would already seen
cuts in interest rates. I thinkthat he was fighting two fights.
He was fighting the fight toactually do what his he believes
his job is as the Fed chairman,with regards to the economy, and
(04:35):
he was also doing his job as theFed chairman to ensure that the
world sees the Fed continuing tobe an an entity independent of
economic of, political pressure.
Mark Bonner (04:46):
Assuming we get to mid September and the Fed lowers
rates by 50 basis points, thatdoesn't seem like a lot in the
grand scheme of things in thelast five or six years when we
were at near zero. How big of adifference do you think that's
gonna make for the commercialreal estate market?
Ethan Penner (04:58):
I don't think the Fed fund rate is gonna matter at
all, to tell you the truth. I Idon't think that's the story. I
think that the only thing thatwill matter is, monetary policy
as pertains to, quantitativeeasing. I think that, if we
believe and if our Fed believesthat the economy is in tough
(05:21):
spots, what we've learned overthe last seventeen years is that
quantitative easing, theinjection of capital of new
money into our system, Fedbuying bonds and expanding its
balance sheet, that actuallyworks. I think that managing the
overnight borrowing rate tobanks won't matter at all.
Mark Bonner (05:44):
Okay. Let's move into the CMBS conversation. So
as we just discussed, more than$23,000,000,000 in CMBS loans
have owned past maturity withoutresolution. Assets are frozen in
place. Valuations are unclearand workouts are kind of slow to
materialize.
KBRA says delinquencies just hitseven and a half percent in July
(06:05):
with over 10% of loans eitherdelinquent or in special
servicing. Are these maturityextensions just kicking the can
or does this represent the earlystages of a reset?
Ethan Penner (06:17):
Well, I think that when look. You gotta go. You
brought me here. Obviously, I goback to the very, very beginning
of the creation ofsecuritization, and the word
securitization kind of needs tobe described here perhaps
better, which is really just theintroduction of an illiquid
asset class called real estateand real estate loans to the
(06:39):
liquid market of trading bondsminute by minute. Right?
And so you have this weirdmarriage of illiquid into liquid
or or kind of like an alchemythat happened. Right? And it's a
very unnatural and uncomfortablecombination. It it it was done
for existential reasons back inthe early nineties because the
(06:59):
lenders, the non you know, thetraditional lenders had
abandoned the market, andaccessing the bond market for
capital was what saved themarket. But but you have to
understand it's a naturally kindof weird combination of
naturally illiquid assets thatare clunky, in a bond structure
(07:21):
that trades minute by minute andhas fight has price discovery.
And I think that that's gonnacreate these kinds of questions
forever. Like, gee, you know, isthe pricing right? What's going
on? You know, becausehistorically, with illiquid
assets, and illiquid also meanspoor price discovery, you have
(07:41):
slow moving prices. You haveMhmm.
Arguments, and you haveconcealment, and you have the
let's wait and see what happensapproach to slow moving price
discovery assets like realestate. But then, of course, now
you've you've turned it into afast moving price discovery
asset, which is thesecuritization form, whether it
(08:02):
be REIT stocks and equity orCMBS and debt. And they're gonna
kind of tell different storiesat different times. The thing
that's interesting that kind ofI'd say throughout all the
questions that you wanna covertoday, is that CMBS and price
discovery of kind of asecuritized version of an
illiquid asset, it's not thatit's wrong or right. It's just
(08:27):
that it is.
And I think that that's the coolpart of it is that it's always
there, you know, and that's thetrue value proposition of
accessing the capital marketsunlike the traditional regulated
markets. The regulated lendermarkets are not always there,
and they move in lockstep. So,you know, the the response, the
creation of CMBS was in responseto a kind of a kind of across
(08:52):
the board abandonment of of bykind of regulatory edict of this
asset class, which was obviouslyextremely unhealthy for this
asset class and everybody in it.Securitization allowed for
everyday money to be there, justdifferent prices.
Mark Bonner (09:06):
But, I mean, are we that's the macro. But getting
into the moment we're in now,Ethan, again, are we kicking the
can on these maturity extensionsor we
Ethan Penner (09:15):
Well, there's no question. There's a natural kick
the can that is part of everykind of clunky asset class like
real estate. And and we can callit, whatever we wanna call it,
praying for a better future,lying to our investors. There's
a whole lot of ways tocharacterize what's going on and
what always goes on in marketdownturns. And then, you know, I
(09:36):
think there's a lot of hopeful,wishful thinking because there
are a lot of a lot of peoplehave made investments that jobs
are on the line and performanceis on the line and and real
losses are on line.
And I think that, you know,people say, it's not a realized
loss until you sell, and themark to market sometimes compel
(09:57):
sales. And so there's arguments.You know, there's arguments
about concealment of truth oneway or other. I grew up on a
bond trading floor. And so forme, concealment of truth meant
you get escorted out of thebuilding immediately, and maybe
you're, you find yourselfdefending, against a criminal
prosecution.
So I'm not very a big fan ofconcealment of the truth, and
(10:20):
there is clearly a concealmentof the truth going on today.
Mark Bonner (10:23):
What is that truth?
Ethan Penner (10:25):
Well, the truth is that there's massive, massive
losses in real estate, andthey're leaking out now. I mean,
you you probably saw the newsrecently on Worldwide Plaza in
New York and how that asset haslost, I don't know, 80% of its
value. It's lost, you know, justone asset. And, I think there
was another one on Lexingtonthat was announced recently that
(10:48):
lost 85% of its value. And andI'm talking about in the last
four or five years.
And so, you know, these arebreathtaking losses. And I think
that clearly the system hasn'trecognized that on any level.
And I think is afraid thatthere's existential issues for
many investors and evencompanies were those losses to
(11:12):
be realized. And so this is nota this is a big deal, right?
This is a very, very big deal.
And it cuts to, rippling throughthe economy that, Chairman
Powell spoke about today. Thelosses in commercial real estate
are so big that the ripplingeffect of those losses through
the economy once felt couldactually be very, very harmful
(11:35):
and show up in the nationaleconomy.
Mark Bonner (11:37):
Sure, and you talk about the ripple effects. For
the first time since the greatfinancial crisis, AAA tranches
have taken losses. The layerinvestors once assumed that was
untouchable. That shakes faithin securitization at its core.
Mhmm.
What do you what does it meanwhen even triple a is no longer
sacred in your view, Ethan?
Ethan Penner (11:56):
Well, you know, Mark, one of the things I've
noticed since the early nineteennineties is how a triple a from
one vintage is not the same as atriple a from another vintage.
And unfortunately, lenders getlax in bull markets with their
underwriting standards, andrating agencies are really just
(12:18):
proxy lenders. And they also getlax in bull markets, and they
have a history of looseningtheir standards. So a triple a
in one part of a cycle isactually not the same bond with
the same protections as a triplea from another part of a cycle.
And I remember most profoundlywhen the kind of financial
(12:39):
crisis happened in 2008 in thewake of a very lax underwriting
cycle, which always happens.
And so 02/1967, you saw acontinued decline in credit
standards applied by the wholemarket, including the rating
agencies. And AAA bonds and AAbonds and whatever else you
wanna call them from thatperiod, were underwritten to a
(13:02):
different standard than the samerating from the prior standard.
And they when they collapsed,they collapsed. But then in
02/2009, there was new issuance.And guess what?
The rating agencies, learnedtheir lesson and became chased
and started Mhmm. Underwritelike the rest of the market
ultra conservatively. And I wasrunning a fund at the time, and
(13:25):
I couldn't buy b pieces fastenough in 2009 because you're
buying from the most tightstandards of all time. So when
you're an investor in a market,it's incumbent upon you to
understand these things. I Idon't feel bad for people who
bought triple a's and are gonnalose money.
I think that they need to underpeople, they need to understand
(13:45):
their market. They need tounderstand that a triple a
that's underwritten in a laxunderwriting standard is not
really the same as a triple athat's gonna be underwritten
today or tomorrow in a time whenpeople or rating agencies and
lenders are are are muchtighter.
Mark Bonner (13:59):
So it sounds like you you think that the moment
we're in here is just simply thecycle running its course. It's
not a pricing problem. It's nota structural flaw in your view?
Ethan Penner (14:08):
No. No. Well, there are structural flaws in
CMBS that have been there sincethe beginning, and that has to
do with the incentives of thisand the controls associated with
trouble loans with a specialservicer and what and whose
whose interest they are supposedto be acting in the best
interest of, you know, and whoseinterests are prioritized.
(14:29):
That's a different conversation.But I think the, the trading,
the pricing, the pricediscovery, the beauty of it is
it's there in the market.
Go trade them. You know what Imean? That's fine. I think that
mistakes get made. That's partof people living their lives,
which includes buyingsecurities.
(14:50):
You know?
Mark Bonner (14:51):
And to complicate matters even further, an
issuance is booming. Treppreports nearly $60,000,000,000
in the 2025, the biggest firsthalf since 02/2007. Is this
resilience? Is this denial? Whatdo you make of this season?
Ethan Penner (15:07):
Look. I think that I think that there are smart,
experienced investors in everyfield. And I would bet the
smart, experienced investors inCMBS, and I'm not an active CMBS
investor, but if I was managinga CMBS fund, I would have not
been loading up the boat on thevintages that were
(15:28):
misunderwritten by the market,including the rating agencies.
And I would be ready to load upthe boat right now because
corrections, you know, thependulum doesn't stop in the
middle. When it swings, itswings to the other side.
And this is probably gonna be avery good time to buy.
Mark Bonner (15:45):
If you're just tuning in, this episode of First
Draft Live is presented byAgora. We're here with Ethan
Penner, the creator of the CMBSmarket, CEO of Mosaic Real
Estate Investors, now anindependent candidate for
governor of California. Let'stalk politics, Ethan. Your
career has been about rebuildingbroken systems. From creating
CMBS out of a collapsed realestate finance market to now
(16:07):
running for governor, You'vecalled California politics just
as broken as CRE finance was inthe early 90s.
Tell me, how does your outsidertrack record finance shape the
way you might govern the stateof California?
Ethan Penner (16:25):
Well, I I'm a systems person. Right? I I look
at systems. I I try to find kindof where they're working and
where they're not working as atrader, take advantage of where
they're not working as a, and asa repair or fixer, trying to,
you know, try to findopportunities where my skills
can be a value in repairing. Idid that in commercial real
(16:47):
estate.
I really came to commercial realestate in the early nineties as
a complete outsider fromstructured finance. And I come
to politics as a as a from anoperational standpoint as an
outsider, but, but we all livewith politics. You know, the
idea that none of us havepolitical experience means we're
not living in society. Politicalexperience is living in society.
(17:10):
When we when we are citizens andwe experience society, we are
involved in politics.
We know where the rubber in theroad are meeting because we're
in it. So the idea that we'recompletely inexperienced is
silly. I think that, I don'tknow where the toilets are in
the state house. That makes mean outsider. But I do know that,
(17:30):
you know, our systems are brokenon every level, and they
desperately need an outsider tobring kind of bring healing to
them.
Albert Einstein said, the peoplewho who, break things are never
the people who you turn to tofix them. And I think that's
true.
Mark Bonner (17:45):
California is one of the strongest economies on
the planet. Well, not. What'sbroken?
Ethan Penner (17:49):
It's actually one of the biggest economies. I I
would say it's not one of thestrongest economies. So we have,
for example
Mark Bonner (17:55):
Semantics. I mean, it's gigantic on the global
stage, even.
Ethan Penner (17:58):
Much more of that. We have so we have the it
depends on when you say abouteconomy, there's headline
numbers, and then there's kindof again rubber meets the road
number. So the headline numberis the GDP number. Right?
4,200,000,000,000.0 in GDP makesus by far the largest state, and
in fact, would be the largestthe fourth largest country were
we to be our own country.
(18:19):
So that's very, very impressive.But what's shocking is that
we're actually fiftieth out of50 states in a number of really
bad things. We're the fiftiethstate when it comes to
unemployment. We're the fiftiethstate when it comes to people
living at or near the povertyline, both on a percentage and
an absolute basis. We'refiftieth out of 50 state in
(18:39):
homelessness.
We're fiftieth out of 50 inaffordability, housing
affordability. So the economy isnot working for many, many, many
people. It's big for sure, and Ithink that gives a competent
leader and a competent team ofleaders an opportunity to turn
(19:00):
it around reasonably quickly,but it's definitely failing
right now. So that's the appealfor me. It's it's a big
monstrous, economy that justneeds professional management.
We don't have that today, and wehaven't had that for quite a
long time in California.
Mark Bonner (19:17):
You've said, quote, delete CEQA and even the Coastal
Commission. What does that meanfor housing and development
timelines?
Ethan Penner (19:24):
Well, that's a big part of it. So I think that we
have a couple of policies set upin our, in our state that repels
ambition, repels drive, repelsdevelopment of real estate or
companies and growth companies.I would say that there are three
problems. One is our taxstructure. Two is our
(19:46):
bureaucracy and the complianceand processes.
And, you know, those those arereally big deals. And the third
one is not as important as thefirst two, but there are the the
the legal process. We have a wehave a tort problem in our
country, in our state. And so soyou've got three big repellents
(20:07):
and that, those things havedriven, as as everyone knows,
driven business and driventaxpayers out. In fact, by the
way, I didn't mention this, butthe other worst thing that we're
fiftieth in is we're fiftiethand we've been each of the last
five years in net migration,which means that citizens are
choosing to move to any statebut California.
(20:28):
Now when anyone who's been inCalifornia knows, that's
astounding because people arechoosing North Dakota over over
California. That's that's howbad things have gotten, how
unpleasant with quality of lifeand how difficult it's been to
build businesses here. So when Isay delete CEQA or delete the
coastal commission, what'sinteresting is that both of
(20:49):
those were programs that wereintroduced as temporary
programs. So deleting them isactually consistent with with
their original construct. Thefact that they're still around
is the problem.
The fact that they they were notintended when they were brought
out to be permanent, programs.So deleting them is just going
back to the original intentionof both of those programs. And
(21:12):
when you look at the kind of wewe are the most I think the most
beautiful state naturally. It'skind of why I've chosen to live
here and make my life here. Ilove nature.
And in this zeal to protect ournature, which I think is fine,
it's consistent with how howimportant it is to our state,
we've, over, regulated. We'vecreated, I think I think by my
(21:35):
last count, 19 differentorganizations that are
environmental compliance relatedorganizations that a developer
would have to deal with in orderto get an apartment building
built. It it's like if I said toyou, Mark, let's go on a trip.
And and I said, but, you know,we have to go through the TSA
checking process. And you say,okay.
(21:55):
It's not a problem. What if Itold you that going to LaGuardia
involved going through 19consecutive TSA checks? You
know, you it might deter you toactually make the trip. Right?
And that's what's going on herein California is the the
processes to get something builtare long, arduous, costly, and
irrational, and it's adeterrent.
(22:16):
And that has translated into awhole lot of problems, including
affordability. So because wehave we don't have enough homes.
We have roughly the same amountof homes as we did when we were
a 20,000,000 person population.We're now 40,000,000. So just
anyone who knows anything aboutsupply and demand can infer that
that's going to create priceinflation, serious
Mark Bonner (22:36):
price Shortly after you announced your candidacy,
BizNum reported your proposal tobuild new towns for the
homelessness in ruralCalifornia. How do you respond
to critics who see that as a secas segregation rather than than
a real solution to that issue?
Ethan Penner (22:51):
Okay. Well, 0.4% of our population is homeless.
By the way, we have the largesthomeless population, as I said
before, of any state by far inthe country. So, but 0.4% of our
population is homeless. 99.6% ofus that are not homeless are
very kind.
(23:12):
We pay for the livelihoods ofthat 0.4%. And we pay a lot of
money, but we but we we pay itin a very inefficient way. And
and I believe that the endoutcome of of our generosity of
supporting the lives of these187,000 humans, which is
(23:32):
phenomenal. I'm so proud to be aCalifornian that we are in a
state where we care about ourweakest people, our most
vulnerable people. I thinkthat's a very important hallmark
of a great society.
Unfortunately, our kindness isgoing not only to naught, but
it's being preyed upon bypeople. So there's an industry
that makes money keeping peoplehomeless, believe it or not. And
(23:55):
there's a lot of people who makemoney keeping people homeless.
There is nothing kind aboutsleeping on the pavement. And if
you if you doubt that, go laydown on the pavement for half an
hour and tell me how that feels.
Can you imagine living on thepavement? Okay. Which is what we
have. That's what homeless is.So my solution is actually the
(24:16):
most kind.
This is the first kind solution,which is let's build let's build
proper housing for people. Let'stake the generosity of the 99.6%
of Californians, and let'sactually put it to good use.
Let's build proper housing,which we could have done, by the
way, already for all the money
Mark Bonner (24:34):
that we've How does that integrate those people back
into society? If you're puttingthem on because you're shipping
them out to a rural part
Ethan Penner (24:41):
Yeah. Of answer is clear. No. The answer is very
clear. They can't be integratedoff the pavement.
There's no there's no pathwayfrom the pavement to a
functional place in society. Butif they had a proper house, if
they had a place to sleep andgather themselves, take a
shower, and then also if theywere segregated from each other
(25:03):
based on their unique problems.Right? Some of them are
economically off the wagon.They've lost their way.
They should not be commingledwith people who are, have mental
illness or have drug addictionproblems. Each of these groups
deserve a need to be counseledin a way that will enhance the
(25:23):
best possibility of themreturning to a productive,
functional, fulfilling life. Theway it's set up right now is
absolutely a deterrent for that.So what I would do is create
separate housing based on theirunique problems, have counseling
for their unique problems, andcreate pathways for them back
into society. But that's gottacome from a bed and a shower and
(25:46):
proper treatment.
It's not coming from thepavement. Believe me.
Mark Bonner (25:50):
Look, there are any number of advocacy groups in
California that are dedicated totrying to help the homeless.
Ethan Penner (25:56):
Where do they make this idea? Hundreds of these
people.
Mark Bonner (25:58):
Hundreds, if not thousands. What do they make of
this idea that we're gonna scoopup people off the street and
bring them to some place in themiddle of California and away
from
Ethan Penner (26:08):
You have a hundreds or thousands of
Mark Bonner (26:10):
them. I just wanna get into the logistics either
because
Ethan Penner (26:12):
I I don't
Mark Bonner (26:12):
I think there's lot of miscommunication out there
about what this plan actuallyis, and I'd like you to explain
it.
Ethan Penner (26:17):
Right. The hundreds or thousands of those
organizations that are feedingoff of this problem and and have
done nothing for the homelesswith all the money that's been
directed to them and by them,the homeless population has
grown by 25% in the last fouryears. So they've done nothing.
And you know what? The onlypeople who have done okay is the
people in those organizationswho get paid.
(26:39):
So there's livelihoods beingmade off the backs of these
people sleeping on the pavement.They're gonna hate my idea
because my idea is gonna workand will put them out of
business. So, you know,unfortunately, self interest is
isn't is at work here as italways is in human nature. And
these people need better jobsthan preying upon, making a
living because it perpetuateshomelessness and perpetuates
(27:01):
people sleeping on pavement.That's just not gonna it's not
gonna persist in myadministration.
So I will fix homelessness. Iwill do everything in my power
because it's the kind thing todo. Okay.
Mark Bonner (27:13):
I'm getting the hook from my producer, Ethan. I
apologize, but that's all thetime we have today. I just wanna
remind our audience that EthanPenner is the author of
Greatness is a Choice andAwareness and Prayer. You can
learn more about his campaign atpennerforgovernor.com. Ethan,
thank you so much for joiningus.
Ethan Penner (27:31):
Thanks, Mark. It's a pleasure to be with you.
Mark Bonner (27:33):
And a big thank you to Agora for presenting another
episode of First Draft Live.We're off next week, but we'll
be back after Labor Day withanother conversation at the
intersection of real estatecapital and public policy. So
don't miss out. You can sign upnow on our event page. You can
also catch today's episode andevery past conversation on your
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This is First Draft Live. Have agreat weekend, y'all.
Hi. Welcome to First Draft Live. It's Friday,
August 22. I'm Mark Bonner,business editor in chief coming
to you live from New York. Thankyou to everyone for tuning in.
Today's episode of First DraftLive is presented by Agora.
Whether you're managing deals,raising capital, or growing your
portfolio, Agora is your trustedplatform for seamless real
(00:31):
estate investment management.Visit agorareal.com to learn
more. That's Agora, real.com.Okay.
Today, we're stepping into theeye of the storm in commercial
real estate finance. More than$23,000,000,000 in CMBS loans
have passed maturity withoutresolution. AAA bonds have taken
(00:52):
losses for the first time sincethe financial crisis. Yet, new
issuance is booming. Nearly$60,000,000,000 in the 2025
alone.
That is the busiest start since02/2007. Investors are flocking
to single asset deals. Conduitsare shrinking. Office is even
creeping back into favor. Sowhich is it?
(01:15):
A market on the brink or oneevolving into something
stronger? Our guest today knowsthis world better than anyone.
He's credited as the creator ofthe CMBS market in the 1990s,
and now he's aiming to remakeanother system he calls broken:
California politics. EthanPenner is the CEO of Mosaic Real
(01:35):
Estate Investors. He's chairmanof Revan Office REIT, an
independent candidate for thegovernor of California with
policy ideas on CEQUA,homelessness, affordability, and
wildfire prevention that couldreshape the state's real estate
future.
Before we get going, send yourquestions in the chat. We'll get
to as many as we can. Ethan,welcome to the show. Appreciate
(01:57):
you being here.
Ethan Penner (01:59):
Thank you, Mark. It's a pleasure to be here with
you.
Mark Bonner (02:01):
Look. Before we get into CMBS, let's talk about
this, speech that Jerome Powelljust delivered in Jackson Hole,
Wyoming this morning. You know,he is he the market was hoping
that he would give a clear greenlight for interest rates, but
instead he gave a little bit ofa warning shot. I'm quoting him
here. The chairman said, thebaseline outlook and the
(02:22):
shifting balance of risk maywarrant adjusting our policy.
That seems to be a clear hint torelief next month for the next,
FOMC meeting. The markets arereacting positively. Right now,
we're hovering around 900 gainon the Dow. But he said
decisions, quote, will be basedsolely on their assessment of
data and its implication for theeconomic outlook and the balance
(02:44):
of risk. Clearly, a rejection ofpresident Donald Trump's push to
slash rates for his ownpolitical gain.
His overall tone was a littlemurky. The bottom line, Ethan,
is that his outlook for The USeconomy is not looking good. Yet
we're seeing what the Dow isdoing this morning. What do you
make of it?
Ethan Penner (03:05):
Well, I think we always get mixed messages. I I I
would say that, Mark, hiscomments today absolutely
foreshadow interest rate cutsover the over the coming
periods. He's starting to set upthe argument for that, and he's
making sure that peopleunderstand that the argument is
(03:26):
not political. The argument iseconomic. And I think that is
very important.
I think that people have tobelieve, you know, we for better
or worse, the Fed is the Fed. Itis what it is. I I think that
there's arguments to be madethat is for better, and there
are arguments to be made that isfor the worse, but it is what it
is. It's an animal that existsideally, apart from the
(03:49):
political machinery of ournation, and I think that's part
of its important valueproposition. And I think he's
resisted the pressures from ourpresident.
And I think he doesn't want itseem as though, when he does cut
rates, that it's because ofpresident, and I think that's
important. So he's setting upthe arguments, and you could see
(04:11):
it. And it I think that thatportends lower rates going
forward. I think, in fact, hadthe president not publicly
pressured him over the last fewmonths, we would already seen
cuts in interest rates. I thinkthat he was fighting two fights.
He was fighting the fight toactually do what his he believes
his job is as the Fed chairman,with regards to the economy, and
(04:35):
he was also doing his job as theFed chairman to ensure that the
world sees the Fed continuing tobe an an entity independent of
economic of, political pressure.
Mark Bonner (04:46):
Assuming we get to mid September and the Fed lowers
rates by 50 basis points, thatdoesn't seem like a lot in the
grand scheme of things in thelast five or six years when we
were at near zero. How big of adifference do you think that's
gonna make for the commercialreal estate market?
Ethan Penner (04:58):
I don't think the Fed fund rate is gonna matter at
all, to tell you the truth. I Idon't think that's the story. I
think that the only thing thatwill matter is, monetary policy
as pertains to, quantitativeeasing. I think that, if we
believe and if our Fed believesthat the economy is in tough
(05:21):
spots, what we've learned overthe last seventeen years is that
quantitative easing, theinjection of capital of new
money into our system, Fedbuying bonds and expanding its
balance sheet, that actuallyworks. I think that managing the
overnight borrowing rate tobanks won't matter at all.
Mark Bonner (05:44):
Okay. Let's move into the CMBS conversation. So
as we just discussed, more than$23,000,000,000 in CMBS loans
have owned past maturity withoutresolution. Assets are frozen in
place. Valuations are unclearand workouts are kind of slow to
materialize.
KBRA says delinquencies just hitseven and a half percent in July
(06:05):
with over 10% of loans eitherdelinquent or in special
servicing. Are these maturityextensions just kicking the can
or does this represent the earlystages of a reset?
Ethan Penner (06:17):
Well, I think that when look. You gotta go. You
brought me here. Obviously, I goback to the very, very beginning
of the creation ofsecuritization, and the word
securitization kind of needs tobe described here perhaps
better, which is really just theintroduction of an illiquid
asset class called real estateand real estate loans to the
(06:39):
liquid market of trading bondsminute by minute. Right?
And so you have this weirdmarriage of illiquid into liquid
or or kind of like an alchemythat happened. Right? And it's a
very unnatural and uncomfortablecombination. It it it was done
for existential reasons back inthe early nineties because the
(06:59):
lenders, the non you know, thetraditional lenders had
abandoned the market, andaccessing the bond market for
capital was what saved themarket. But but you have to
understand it's a naturally kindof weird combination of
naturally illiquid assets thatare clunky, in a bond structure
(07:21):
that trades minute by minute andhas fight has price discovery.
And I think that that's gonnacreate these kinds of questions
forever. Like, gee, you know, isthe pricing right? What's going
on? You know, becausehistorically, with illiquid
assets, and illiquid also meanspoor price discovery, you have
(07:41):
slow moving prices. You haveMhmm.
Arguments, and you haveconcealment, and you have the
let's wait and see what happensapproach to slow moving price
discovery assets like realestate. But then, of course, now
you've you've turned it into afast moving price discovery
asset, which is thesecuritization form, whether it
(08:02):
be REIT stocks and equity orCMBS and debt. And they're gonna
kind of tell different storiesat different times. The thing
that's interesting that kind ofI'd say throughout all the
questions that you wanna covertoday, is that CMBS and price
discovery of kind of asecuritized version of an
illiquid asset, it's not thatit's wrong or right. It's just
(08:27):
that it is.
And I think that that's the coolpart of it is that it's always
there, you know, and that's thetrue value proposition of
accessing the capital marketsunlike the traditional regulated
markets. The regulated lendermarkets are not always there,
and they move in lockstep. So,you know, the the response, the
creation of CMBS was in responseto a kind of a kind of across
(08:52):
the board abandonment of of bykind of regulatory edict of this
asset class, which was obviouslyextremely unhealthy for this
asset class and everybody in it.Securitization allowed for
everyday money to be there, justdifferent prices.
Mark Bonner (09:06):
But, I mean, are we that's the macro. But getting
into the moment we're in now,Ethan, again, are we kicking the
can on these maturity extensionsor we
Ethan Penner (09:15):
Well, there's no question. There's a natural kick
the can that is part of everykind of clunky asset class like
real estate. And and we can callit, whatever we wanna call it,
praying for a better future,lying to our investors. There's
a whole lot of ways tocharacterize what's going on and
what always goes on in marketdownturns. And then, you know, I
(09:36):
think there's a lot of hopeful,wishful thinking because there
are a lot of a lot of peoplehave made investments that jobs
are on the line and performanceis on the line and and real
losses are on line.
And I think that, you know,people say, it's not a realized
loss until you sell, and themark to market sometimes compel
(09:57):
sales. And so there's arguments.You know, there's arguments
about concealment of truth oneway or other. I grew up on a
bond trading floor. And so forme, concealment of truth meant
you get escorted out of thebuilding immediately, and maybe
you're, you find yourselfdefending, against a criminal
prosecution.
So I'm not very a big fan ofconcealment of the truth, and
(10:20):
there is clearly a concealmentof the truth going on today.
Mark Bonner (10:23):
What is that truth?
Ethan Penner (10:25):
Well, the truth is that there's massive, massive
losses in real estate, andthey're leaking out now. I mean,
you you probably saw the newsrecently on Worldwide Plaza in
New York and how that asset haslost, I don't know, 80% of its
value. It's lost, you know, justone asset. And, I think there
was another one on Lexingtonthat was announced recently that
(10:48):
lost 85% of its value. And andI'm talking about in the last
four or five years.
And so, you know, these arebreathtaking losses. And I think
that clearly the system hasn'trecognized that on any level.
And I think is afraid thatthere's existential issues for
many investors and evencompanies were those losses to
(11:12):
be realized. And so this is nota this is a big deal, right?
This is a very, very big deal.
And it cuts to, rippling throughthe economy that, Chairman
Powell spoke about today. Thelosses in commercial real estate
are so big that the ripplingeffect of those losses through
the economy once felt couldactually be very, very harmful
(11:35):
and show up in the nationaleconomy.
Mark Bonner (11:37):
Sure, and you talk about the ripple effects. For
the first time since the greatfinancial crisis, AAA tranches
have taken losses. The layerinvestors once assumed that was
untouchable. That shakes faithin securitization at its core.
Mhmm.
What do you what does it meanwhen even triple a is no longer
sacred in your view, Ethan?
Ethan Penner (11:56):
Well, you know, Mark, one of the things I've
noticed since the early nineteennineties is how a triple a from
one vintage is not the same as atriple a from another vintage.
And unfortunately, lenders getlax in bull markets with their
underwriting standards, andrating agencies are really just
(12:18):
proxy lenders. And they also getlax in bull markets, and they
have a history of looseningtheir standards. So a triple a
in one part of a cycle isactually not the same bond with
the same protections as a triplea from another part of a cycle.
And I remember most profoundlywhen the kind of financial
(12:39):
crisis happened in 2008 in thewake of a very lax underwriting
cycle, which always happens.
And so 02/1967, you saw acontinued decline in credit
standards applied by the wholemarket, including the rating
agencies. And AAA bonds and AAbonds and whatever else you
wanna call them from thatperiod, were underwritten to a
(13:02):
different standard than the samerating from the prior standard.
And they when they collapsed,they collapsed. But then in
02/2009, there was new issuance.And guess what?
The rating agencies, learnedtheir lesson and became chased
and started Mhmm. Underwritelike the rest of the market
ultra conservatively. And I wasrunning a fund at the time, and
(13:25):
I couldn't buy b pieces fastenough in 2009 because you're
buying from the most tightstandards of all time. So when
you're an investor in a market,it's incumbent upon you to
understand these things. I Idon't feel bad for people who
bought triple a's and are gonnalose money.
I think that they need to underpeople, they need to understand
(13:45):
their market. They need tounderstand that a triple a
that's underwritten in a laxunderwriting standard is not
really the same as a triple athat's gonna be underwritten
today or tomorrow in a time whenpeople or rating agencies and
lenders are are are muchtighter.
Mark Bonner (13:59):
So it sounds like you you think that the moment
we're in here is just simply thecycle running its course. It's
not a pricing problem. It's nota structural flaw in your view?
Ethan Penner (14:08):
No. No. Well, there are structural flaws in
CMBS that have been there sincethe beginning, and that has to
do with the incentives of thisand the controls associated with
trouble loans with a specialservicer and what and whose
whose interest they are supposedto be acting in the best
interest of, you know, and whoseinterests are prioritized.
(14:29):
That's a different conversation.But I think the, the trading,
the pricing, the pricediscovery, the beauty of it is
it's there in the market.
Go trade them. You know what Imean? That's fine. I think that
mistakes get made. That's partof people living their lives,
which includes buyingsecurities.
(14:50):
You know?
Mark Bonner (14:51):
And to complicate matters even further, an
issuance is booming. Treppreports nearly $60,000,000,000
in the 2025, the biggest firsthalf since 02/2007. Is this
resilience? Is this denial? Whatdo you make of this season?
Ethan Penner (15:07):
Look. I think that I think that there are smart,
experienced investors in everyfield. And I would bet the
smart, experienced investors inCMBS, and I'm not an active CMBS
investor, but if I was managinga CMBS fund, I would have not
been loading up the boat on thevintages that were
(15:28):
misunderwritten by the market,including the rating agencies.
And I would be ready to load upthe boat right now because
corrections, you know, thependulum doesn't stop in the
middle. When it swings, itswings to the other side.
And this is probably gonna be avery good time to buy.
Mark Bonner (15:45):
If you're just tuning in, this episode of First
Draft Live is presented byAgora. We're here with Ethan
Penner, the creator of the CMBSmarket, CEO of Mosaic Real
Estate Investors, now anindependent candidate for
governor of California. Let'stalk politics, Ethan. Your
career has been about rebuildingbroken systems. From creating
CMBS out of a collapsed realestate finance market to now
(16:07):
running for governor, You'vecalled California politics just
as broken as CRE finance was inthe early 90s.
Tell me, how does your outsidertrack record finance shape the
way you might govern the stateof California?
Ethan Penner (16:25):
Well, I I'm a systems person. Right? I I look
at systems. I I try to find kindof where they're working and
where they're not working as atrader, take advantage of where
they're not working as a, and asa repair or fixer, trying to,
you know, try to findopportunities where my skills
can be a value in repairing. Idid that in commercial real
(16:47):
estate.
I really came to commercial realestate in the early nineties as
a complete outsider fromstructured finance. And I come
to politics as a as a from anoperational standpoint as an
outsider, but, but we all livewith politics. You know, the
idea that none of us havepolitical experience means we're
not living in society. Politicalexperience is living in society.
(17:10):
When we when we are citizens andwe experience society, we are
involved in politics.
We know where the rubber in theroad are meeting because we're
in it. So the idea that we'recompletely inexperienced is
silly. I think that, I don'tknow where the toilets are in
the state house. That makes mean outsider. But I do know that,
(17:30):
you know, our systems are brokenon every level, and they
desperately need an outsider tobring kind of bring healing to
them.
Albert Einstein said, the peoplewho who, break things are never
the people who you turn to tofix them. And I think that's
true.
Mark Bonner (17:45):
California is one of the strongest economies on
the planet. Well, not. What'sbroken?
Ethan Penner (17:49):
It's actually one of the biggest economies. I I
would say it's not one of thestrongest economies. So we have,
for example
Mark Bonner (17:55):
Semantics. I mean, it's gigantic on the global
stage, even.
Ethan Penner (17:58):
Much more of that. We have so we have the it
depends on when you say abouteconomy, there's headline
numbers, and then there's kindof again rubber meets the road
number. So the headline numberis the GDP number. Right?
4,200,000,000,000.0 in GDP makesus by far the largest state, and
in fact, would be the largestthe fourth largest country were
we to be our own country.
(18:19):
So that's very, very impressive.But what's shocking is that
we're actually fiftieth out of50 states in a number of really
bad things. We're the fiftiethstate when it comes to
unemployment. We're the fiftiethstate when it comes to people
living at or near the povertyline, both on a percentage and
an absolute basis. We'refiftieth out of 50 state in
(18:39):
homelessness.
We're fiftieth out of 50 inaffordability, housing
affordability. So the economy isnot working for many, many, many
people. It's big for sure, and Ithink that gives a competent
leader and a competent team ofleaders an opportunity to turn
(19:00):
it around reasonably quickly,but it's definitely failing
right now. So that's the appealfor me. It's it's a big
monstrous, economy that justneeds professional management.
We don't have that today, and wehaven't had that for quite a
long time in California.
Mark Bonner (19:17):
You've said, quote, delete CEQA and even the Coastal
Commission. What does that meanfor housing and development
timelines?
Ethan Penner (19:24):
Well, that's a big part of it. So I think that we
have a couple of policies set upin our, in our state that repels
ambition, repels drive, repelsdevelopment of real estate or
companies and growth companies.I would say that there are three
problems. One is our taxstructure. Two is our
(19:46):
bureaucracy and the complianceand processes.
And, you know, those those arereally big deals. And the third
one is not as important as thefirst two, but there are the the
the legal process. We have a wehave a tort problem in our
country, in our state. And so soyou've got three big repellents
(20:07):
and that, those things havedriven, as as everyone knows,
driven business and driventaxpayers out. In fact, by the
way, I didn't mention this, butthe other worst thing that we're
fiftieth in is we're fiftiethand we've been each of the last
five years in net migration,which means that citizens are
choosing to move to any statebut California.
(20:28):
Now when anyone who's been inCalifornia knows, that's
astounding because people arechoosing North Dakota over over
California. That's that's howbad things have gotten, how
unpleasant with quality of lifeand how difficult it's been to
build businesses here. So when Isay delete CEQA or delete the
coastal commission, what'sinteresting is that both of
(20:49):
those were programs that wereintroduced as temporary
programs. So deleting them isactually consistent with with
their original construct. Thefact that they're still around
is the problem.
The fact that they they were notintended when they were brought
out to be permanent, programs.So deleting them is just going
back to the original intentionof both of those programs. And
(21:12):
when you look at the kind of wewe are the most I think the most
beautiful state naturally. It'skind of why I've chosen to live
here and make my life here. Ilove nature.
And in this zeal to protect ournature, which I think is fine,
it's consistent with how howimportant it is to our state,
we've, over, regulated. We'vecreated, I think I think by my
(21:35):
last count, 19 differentorganizations that are
environmental compliance relatedorganizations that a developer
would have to deal with in orderto get an apartment building
built. It it's like if I said toyou, Mark, let's go on a trip.
And and I said, but, you know,we have to go through the TSA
checking process. And you say,okay.
(21:55):
It's not a problem. What if Itold you that going to LaGuardia
involved going through 19consecutive TSA checks? You
know, you it might deter you toactually make the trip. Right?
And that's what's going on herein California is the the
processes to get something builtare long, arduous, costly, and
irrational, and it's adeterrent.
(22:16):
And that has translated into awhole lot of problems, including
affordability. So because wehave we don't have enough homes.
We have roughly the same amountof homes as we did when we were
a 20,000,000 person population.We're now 40,000,000. So just
anyone who knows anything aboutsupply and demand can infer that
that's going to create priceinflation, serious
Mark Bonner (22:36):
price Shortly after you announced your candidacy,
BizNum reported your proposal tobuild new towns for the
homelessness in ruralCalifornia. How do you respond
to critics who see that as a secas segregation rather than than
a real solution to that issue?
Ethan Penner (22:51):
Okay. Well, 0.4% of our population is homeless.
By the way, we have the largesthomeless population, as I said
before, of any state by far inthe country. So, but 0.4% of our
population is homeless. 99.6% ofus that are not homeless are
very kind.
(23:12):
We pay for the livelihoods ofthat 0.4%. And we pay a lot of
money, but we but we we pay itin a very inefficient way. And
and I believe that the endoutcome of of our generosity of
supporting the lives of these187,000 humans, which is
(23:32):
phenomenal. I'm so proud to be aCalifornian that we are in a
state where we care about ourweakest people, our most
vulnerable people. I thinkthat's a very important hallmark
of a great society.
Unfortunately, our kindness isgoing not only to naught, but
it's being preyed upon bypeople. So there's an industry
that makes money keeping peoplehomeless, believe it or not. And
(23:55):
there's a lot of people who makemoney keeping people homeless.
There is nothing kind aboutsleeping on the pavement. And if
you if you doubt that, go laydown on the pavement for half an
hour and tell me how that feels.
Can you imagine living on thepavement? Okay. Which is what we
have. That's what homeless is.So my solution is actually the
(24:16):
most kind.
This is the first kind solution,which is let's build let's build
proper housing for people. Let'stake the generosity of the 99.6%
of Californians, and let'sactually put it to good use.
Let's build proper housing,which we could have done, by the
way, already for all the money
Mark Bonner (24:34):
that we've How does that integrate those people back
into society? If you're puttingthem on because you're shipping
them out to a rural part
Ethan Penner (24:41):
Yeah. Of answer is clear. No. The answer is very
clear. They can't be integratedoff the pavement.
There's no there's no pathwayfrom the pavement to a
functional place in society. Butif they had a proper house, if
they had a place to sleep andgather themselves, take a
shower, and then also if theywere segregated from each other
(25:03):
based on their unique problems.Right? Some of them are
economically off the wagon.They've lost their way.
They should not be commingledwith people who are, have mental
illness or have drug addictionproblems. Each of these groups
deserve a need to be counseledin a way that will enhance the
(25:23):
best possibility of themreturning to a productive,
functional, fulfilling life. Theway it's set up right now is
absolutely a deterrent for that.So what I would do is create
separate housing based on theirunique problems, have counseling
for their unique problems, andcreate pathways for them back
into society. But that's gottacome from a bed and a shower and
(25:46):
proper treatment.
It's not coming from thepavement. Believe me.
Mark Bonner (25:50):
Look, there are any number of advocacy groups in
California that are dedicated totrying to help the homeless.
Ethan Penner (25:56):
Where do they make this idea? Hundreds of these
people.
Mark Bonner (25:58):
Hundreds, if not thousands. What do they make of
this idea that we're gonna scoopup people off the street and
bring them to some place in themiddle of California and away
from
Ethan Penner (26:08):
You have a hundreds or thousands of
Mark Bonner (26:10):
them. I just wanna get into the logistics either
because
Ethan Penner (26:12):
I I don't
Mark Bonner (26:12):
I think there's lot of miscommunication out there
about what this plan actuallyis, and I'd like you to explain
it.
Ethan Penner (26:17):
Right. The hundreds or thousands of those
organizations that are feedingoff of this problem and and have
done nothing for the homelesswith all the money that's been
directed to them and by them,the homeless population has
grown by 25% in the last fouryears. So they've done nothing.
And you know what? The onlypeople who have done okay is the
people in those organizationswho get paid.
(26:39):
So there's livelihoods beingmade off the backs of these
people sleeping on the pavement.They're gonna hate my idea
because my idea is gonna workand will put them out of
business. So, you know,unfortunately, self interest is
isn't is at work here as italways is in human nature. And
these people need better jobsthan preying upon, making a
living because it perpetuateshomelessness and perpetuates
(27:01):
people sleeping on pavement.That's just not gonna it's not
gonna persist in myadministration.
So I will fix homelessness. Iwill do everything in my power
because it's the kind thing todo. Okay.
Mark Bonner (27:13):
I'm getting the hook from my producer, Ethan. I
apologize, but that's all thetime we have today. I just wanna
remind our audience that EthanPenner is the author of
Greatness is a Choice andAwareness and Prayer. You can
learn more about his campaign atpennerforgovernor.com. Ethan,
thank you so much for joiningus.
Ethan Penner (27:31):
Thanks, Mark. It's a pleasure to be with you.
Mark Bonner (27:33):
And a big thank you to Agora for presenting another
episode of First Draft Live.We're off next week, but we'll
be back after Labor Day withanother conversation at the
intersection of real estatecapital and public policy. So
don't miss out. You can sign upnow on our event page. You can
also catch today's episode andevery past conversation on your
favorite podcast app.
This is First Draft Live. Have agreat weekend, y'all.
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