June 27, 2025 • 26 mins
U.S. foreign policy these days is a sea of uncertainty — CRE investors’ least favorite thing. From whipsaw tariffs to taxes seen as “revenge” against international players who don’t fall in line with Trump administration goals, money managers are increasingly tentative to put their money on American soil.
This week, Trepp Senior Research Manager Tom Taylor discussed why it makes sense that some global investors are pulling back from the U.S., why it doesn’t worry him too much and who is still investing and in what.
Register on Bisnow.com to join our next conversation live on Friday, July 11, 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 (00:10):
Hey. Welcome to First Draft Live. It's Friday,
June 27. We're coming to youjust one week after a major
European real estate lendercalled it quits on The US real
estate market. They calledAmerica's economic policy
poisonous and announced a fullexit, a $5,000,000,000 property
portfolio.
Poof. Gone. We're thrilled tohave so many of you tuning in
(00:32):
from across North America andEurope. I'm your host, Mark
Bonner, business editor inchief, and I'm coming to you
live from New York. On today'sepisode, where exactly is global
capital taking commercial realestate next?
Foreign investors are pullingback, portfolio shifts are
accelerating, and global playersare no longer treating The US as
the default landing zone.Sovereign wealth funds are
(00:54):
pivoting away from America, andafter years of buy the dip,
global capital is suddenlygetting quite selective, and
it's not liking what it sees inThe United States. So what's
driving this shift? Is The USlosing its edge? Is there still
a path forward for foreigncapital in The US?
Or is America's property marketin a new global pecking order?
(01:19):
Joining us today to unpack itall, Tom Taylor, senior research
manager at Trempe. Tom bringsnearly a decade of experience
across underwriting, assetmanagement, origination and
market research. At Trepp, heleads the charge on real estate
analytics and insights, poweringeverything from his fantastic
rundown newsletter andTreppWire. Tom, welcome to the
(01:43):
show.
I know you're joining us fromNew York.
Tom Taylor (01:45):
Yes, sir. Great to be here with you, Mark. Very
excited.
Mark Bonner (01:49):
Awesome. So let's jump on in. Table stakes. We've
seen sweeping headlines aboutforeign capital pulling back,
but the details are prettymurky. Latin American groups
remain active.
Middle Eastern sovereigns arestill hunting industrial, and
not every region is exiting atthe same pace. So, Tom, who's
still buying?
Tom Taylor (02:10):
So, Mark, we've seen across all the different
coverage, you know, people aretrying to make sense as as
you're describing of of who isstopping, who's starting, who's
pulling back. And I think theword that keeps coming to mind
is caution, is selectivenessversus retreat as a whole. I
think that the Canadian pensionfunds, the Middle East
(02:31):
sovereigns, as you mentioned,Singaporean sovereigns like GIC,
some Japanese REITs andsovereign managers, the Nordisk
Bank out of Norway, Australiansuper funds, and many big
playing family offices havemaintained and even about to
increase their US investments.There's been some big deals
lately. We've definitely seensome retreating capital out of
(02:52):
China.
There's lots of capital controlsthere that are obviously being
imposed to give them someleverage in the the ongoing
trade war, even though we'veseen some positive developments
in the last day or two out ofour out of an announcement from
our commerce secretary. We'veseen obviously some caution out
of Germany, very, very longterm, very cautious investing
(03:13):
thesis, mostly out of thosefinancial institutions. So it
wasn't a tremendous surprise tosee one of their largest CRE
investors and lenders start thepullback. And then some Gulf and
Asian funds have, you know,across the board, been more
selective with theirallocations. But when you flip
over the table and try to startimplementing some trade war
(03:35):
policies, I think, that are moreinterested in making it easier
to sell cars in Mainland Europeand throughout Asia versus
attracting commercial ordiscouraging commercial real
estate investment in The US.
You're gonna see some change inpolicy. But overall, we're
definitely still seeing a lot ofbuying activity, and we've got
some pretty good examples ofthat so far this year.
Mark Bonner (03:56):
So which countries or capital pools are actually in
retreat, and which ones arestill active here?
Tom Taylor (04:02):
So the ones that are still active, I mean, we saw a
Japanese Mori Trust take a largestake in one Vanderbilt at the
end of last year. We think Japanhas received, generally
speaking, favorable treatmentfrom The US. They seem to still
be very interested in allocatingto LP funds, to taking big
stakes in trophy assets. We sawNordisk banks on Norway and kind
(04:23):
of Northern European funds thathave really stayed out of the
sites as it were of thepresident Trump's trade war.
Took a big stake in a mostlyWest Coast 48 building logistics
portfolio earlier this year.
We've seen The UAE announce alot of data center funds, about
(04:43):
20,000,000,000 in US investmentsthat have been promised. And
then Singapore's GIC isobviously one of the largest
foreign investors in The US.They've been very strong. But
again, the German and theChinese funds are definitely
taking a step back on the otherside of the spectrum.
Mark Bonner (04:58):
Look. And as you all know, foreign direct
investment in The US, inparticular to the commercial
real estate markets, it's fallenin in 2025 to its lowest q one
level since 2022. At the sametime, the dollar's down nearly
10% year to date. The WhiteHouse has been hammering China
and other countries on tariffs,although with China specifically
this morning, perhaps there's alittle bit of a headwind to
(05:21):
solve that. You know, when youcombine all of that with 5% base
rates, it's a cocktail thatGlobal Capital doesn't wanna
drink anymore.
What's happened here? I mean,what do you think is the single
biggest policy or macro triggerthat's been pushing sentiment
away from US real estate thisyear?
Tom Taylor (05:42):
So I've got two thoughts on that. And I'm glad
you mentioned the dollar,because I think that is the
overlooked element to a lot ofthese investment decisions. The
value of the US dollar decliningabout 10% on on year to date
across a basket of of othermajor US other major global
currencies is a very underratedelement of these investment
decisions. That means thatsovereign wealth funds, other
(06:04):
large asset allocatorsthroughout the world have to
increase their hedging costs byon average two to 3% for a move
like that. Parking your yourcapital in US dollars has
historically been a fantasticinvestment.
That doesn't necessarily have tochange, but it does become more
expensive. And every couple ofpercentage points does take some
(06:26):
returns off of the back end of adeal. Now, the policy that I
think is the most impactful,even though it didn't end up
being a part of whatever thefinal big beautiful bill is
going to be is section eightninety nine. The threat of that
policy is almost impossible toquantify. And again, while I do
(06:46):
believe that the intent of thatpolicy is probably more about
decreasing costs for US vendorsto sell goods and services
throughout the world.
It definitely had a chillingeffect on investment in The US.
And we've already seen, I think,a lot of a lot of pullbacks
(07:07):
specifically due to theuncertainty, which is also the
big word of the year that thatthat threat has caused.
Mark Bonner (07:14):
Right. That's the so called revenge tax, which was
stripped from the budgetyesterday after pushback from
real estate lobbying groups andglobal allies within the G7. And
what you're talking about isthat even though it's not out
there anymore and it's now beenstripped from the one big
beautiful bill, are you saying,Tom, that that kept foreign
capital out of The US evenbefore it came into effect? And
(07:37):
does it further chill capital ininbound foreign capital flows
because of that threat?Basically, bottom line is that
US policy is uncertain and thatit carries risk.
Is are you saying that that'llstill have an effect?
Tom Taylor (07:52):
I think that it'll definitely lead to more
friction. I mean, there is avery universal truism that
capital goes where it's treatedthe best. Historically, that has
been United States markets. Youknow, there was about ten years
ago, I was just talking to theeditor of our publication,
commercial real estate director,Trepp. He mentioned that about
ten years ago, RioCan, one ofthe largest and oldest REITs in
(08:14):
Canada, announced that they weregoing to allocate more capital
to US retail investments becausethere simply wasn't enough in
Canada.
The US is a huge market of realassets, of secondary markets
that allow more liquidity. Andmany institutional investors,
and whether they be pensionfunds, whether they be sovereign
wealth funds, or other assetmanagers, simply don't have
(08:37):
enough places to go find yield.So The US has always been a
source for that. The US has alsobeen very favorable in terms of
capital treatment. When thosedynamics change, when there is
more friction applied, that'sgoing to lead to more
conversations in investmentcommittees in those rooms.
I don't think that the calculushas changed permanently. And
that even if you increase thecost of capital to enter foreign
(09:00):
dollars into The US, even ifthere's a bit more uncertainty
about how long the hold periodis going to be, it's probably
still a better investment topark your dollars in US trophy
assets or US CMBS than in manyof these markets. But a certain
point, that will break and thatwill lead to slower decisions
and then more of the cautiousinvestors simply choosing to
(09:23):
exit like PPP.
Mark Bonner (09:25):
Right. I mean, and look, while some equity might be
pausing, some foreign banks,Deutsche, UBS, Barclays, they
remain quite active in CMBS aswe were talking about earlier.
From what you're seeing, how arethese banks behaving right now
on those lines?
Tom Taylor (09:41):
I'm glad you brought that up, Mark. Mean, it's a
really interesting developmentso far this year. So far in the
in The US CMBS market, we'veseen over $62,000,000,000 of
issuance. And last year, we gotup to about 108,000,000,000. So
even though there was a periodduring March and April and May
when issuance really slowed downas a result of upheaval in in
(10:02):
markets and, you know, theannouncement of trade war
policies that really caused alot of especially US capital to
sit on the sidelines, we've seena large amount of deals getting
done.
Now I went ahead and looked intoperhaps new issuance database
and broke out foreign bookrunners, like the banks you
mentioned versus all bookrunners. And the composition is
(10:22):
very interesting. Now, generallyspeaking, you know, for those
who aren't CMBS, you know,specific folks, there's two
different major kinds ofcommercial mortgage backed
security issuance. You've gotyour conduit pools, which are
what you probably think aboutwhen you think of CMBS
diversified pools, 50 to 100loans up to about a billion
dollars. And the point of theseis to give, you know, investors
(10:43):
some topical and broad exposureto different regions and
different property types.
Now one would expect Europeanbanks, especially, to be
focusing on trophy assets duringthis time and a flight to
quality. That would be SASB orsingle asset, single borrower
issuance, which has actuallyrepresented the majority of the
overall new issuance pool. Theoverall SASB composition versus
(11:06):
conduit has been about seventyfive twenty five so far this
year. So we've seen lots oftrophy assets like Rockefeller
Center, where Trepp's officesare located, securitized. Things
like one Vanderbilt.
Things like the resort inHawaii. Multibillion dollar
deals. However, if you look atthe European banks and that are
book running these deals,they're actually doing over two
(11:28):
thirds of their issuance in theconduit space, which is kind of
surprising. If you break thatdown further by the property
type mix for CRE, some of it'ssurprising and some of it's not.
I think the largest propertytype is over one third of the
conduit pools have beenmultifamily.
So still a lot of allocation toUS apartment projects. Just
(11:51):
under 30% is retail. And justshort of 25% is the other
category, which mostly includesdata centers. So you noticed
that there was almost no officeand almost no industrial or
hotels in there. I think that'svery thematically on point, but
it was kind of refreshing to seeEuropean banks allocating and
offering to their investors,which can include US and other
(12:12):
foreign entities, exposure to USmultifamily markets, data center
markets, and not just the trophyassets.
Mark Bonner (12:22):
You know, we had Mark Rose, CEO of Avinson Young
on the show a few last week,actually. And he was saying that
despite all of this negativeenergy that's out there, you
know, from the White House orfrom the tariffs or anything
else, that America is still thebiggest sandbox in the world.
Right? So do you think it's justthat we've gotten into a moment
(12:45):
where it's a little bit harderfor foreign capital to punch
through? They're a little bitmore cautious, but that they're
gonna do it anyway becauseAmerica is so big.
And just when you zoom out forhistorical purposes that it has
been so reliable.
Tom Taylor (12:59):
Absolutely, Mario. I think you put it very well. When
you zoom out and you look at thewhole picture, there are asset
managers who need to parkcapital somewhere. You can't buy
gold bars and bury them in thebackyard. Right?
So where are you going to lookif you're if you have a mandate
to allocate to real estateassets? I mean, there are other
markets throughout the world,but the capital treatment in
those countries, even with theseUS developments is usually even
(13:22):
worse. And if you look at themacro environment within The US,
I think that like you put itvery well. It's harder. Doesn't
mean it's impossible.
And the folks who are making theinvestment decisions, right, or
packaging securitized commercialreal estate investments so that
investors can get access to thatpaper. They're all compensated
very well to find solutions tothese problems. Right? And what
(13:43):
we had in the twenty twenty twoto 2023 period in The US, when
the fed raised the risk freerate by 500 basis points within
a year. And following the twentytwenty COVID shock that changed
the office paradigm, the retailparadigm, It is absolutely
impossible to fully understandthe fallout of those two
(14:04):
developments in the time thatwe've had.
Right? So they're still workingtheir way through the system.
We've seen some uptick indistress in the office market.
Obviously, our CMBS office rateis currently sitting around 10
or 11%. But that still means 90%or so of the balance of office
securitized debt is still makingpayments, still reaching
(14:24):
maturity, and securing takeoutsto pay down that principal
balance.
Now that 10% of delinquent debt,especially 75% of it being due
to maturity distress versuscurrent payment distress, means
that there's opportunities forinvestors. So I think that one
group's distress is anothergroup's opportunity. And we're
seeing really great pockets ofopportunity for investments pop
(14:47):
up all over the place. Our chiefproduct officer, Lani Hendrie,
just wrote a great report. Iencourage everybody to check it
out at trep.com research andinsights, where we broke down
from our tools different pocketsof office property investments
throughout the country that havelow in place interest rates, low
in place debt yields.
And for value add investors, wehave some older vintages. And
(15:08):
for core investors, we have somehigh we have some more recent
vintages that are just mostly acapital markets problem. The
underlying fundamentals of themarket are still pretty strong.
We're adjusting to the newparadigm. And I do think that
the fundamental return profilefor foreign capital, for
domestic capital, is still verystrong here.
I'm unaware of any other marketsthat offer the opportunities
(15:32):
that United States does, even ifthe dynamics have shifted a
little bit.
Mark Bonner (15:38):
Okay. If you're just tuning in, we're tracking
the great global capital pivot,why billions are flowing out of
The US and into places likeLondon, London office,
Eurogistix, into anything butAmerican risk. With us is Tom
Taylor, Senior Managing Directorat Trep. Okay, Tom, let's talk
about some canaries in the coalmine. One of the biggest news
stories this week on this frontwas from PBB, one of Germany's
(16:01):
largest real estate lenders.
It announced that it's exitingThe US entirely and selling a
$4,600,000,000 loan book,calling American economic policy
poisonous. Is this just is thisjust a one off retreat, or do
you think it's the early signalof a broader pullback by other
foreign lenders?
Tom Taylor (16:19):
So I think it's too soon to tell if this is a signal
or if it's just noise. We'll betracking this very closely. But
what I can say is that it's notterribly unexpected. Right?
There is a general, I suppose,cultural and in the financial
sphere of the nation of Germany,deep conservatism.
When you have, like we justdescribed, a change in the
(16:42):
sticks and bricks officedynamic, where in the post COVID
paradigm, the demand for officespace, particularly class B and
C office space, which is what Isuspect a good portion of their
loan portfolio is, that simplydoes not require does not have
the tenancy base that it oncedid. And the expectation that
(17:02):
folks across the country aregoing to be in the office five
days a week, that is an entirelydifferent paradigm to adjust to.
Now, there has been a largeconcentration of exposure to
just that kind of CRE investmentin among these German banks. So
not again, not terriblysurprising that they would be
the first to exit. If you lookacross US banks, if you look
across, you know, the differenttypes of balance sheet lenders,
(17:26):
they're following a similarpattern there.
Slamming the door on the way outand calling The US political
environment poisonous, I dothink is also telling. Because
the one thing that foreigninvestors have exposure to that
US investors and lenders have alittle bit less exposure to are
the capital controls, are thingslike section eight ninety nine.
(17:47):
So that is an outsized risk. Thefundamentals, again, I think are
very strong. But there's anadded layer of risk.
If you look at, you know, someof the recent electoral
developments in large marketslike New York, if you look at
the different downstream effectsof federal trade policy, that's
something that cannot beignored. I don't think it's
(18:09):
terribly surprising that aheavily office allocated and
conservative investment thesiswould be the first to call it
quits on a $5,000,000,000portfolio.
Mark Bonner (18:20):
Right. And Germany is going through its own
economic and political issues.But to be fair, PBV, while it
may be the largest of recenttime to pull out, they're far
from alone. Tom, where does thisbegin to show up in the data?
Tom Taylor (18:34):
Yeah. So I think we track at Trep a bunch of
different data sets in thesecuritized realm, and we're
also trying to make moreprogress in the balance sheet
realm. We track loan spreads. Wetrack a consortium of about 20
regional and larger banksconstituting about
$200,000,000,000 of currentoutstanding balance called
TOLAR, anonymized loan levelrepository. And what we found is
(18:56):
that as opposed to securitizedlenders, which are very reactive
to both the needs of theirborrowers and the needs of note
buyers on the other end of themarket, Banks are not
incentivized to get dollars outthe door in the same way.
They don't necessarily make feestheir fee structures in the same
way as securitized lenders.They're incentivized to preserve
capital. Right? So thatfundamental conservatism shows
(19:19):
up in a couple of differentways. One, it shows up in a very
rapid pullback in originationswhenever there's distress
brewing in the market.
Right? So as soon as, again, thefed began to raise rates, as
soon as the cracks began to showin a lot of the office markets
that were overbuilt, that had alarge concentrations of class B
and C space, we saw very, veryharsh pullbacks in bank
(19:41):
originations. We've seen in thelast two quarters, those
actually tick back up. Iencourage everyone to check out
Trepp's latest dollar reportfrom Q1 twenty twenty five,
where we saw originations againbegin to reemerge, especially in
the multifamily space. And alsofollowing the sale of a few
different rent regulatedmultifamily portfolios like
(20:02):
signature banks that thatfinally kind of cleared off of
their books.
The other ways that it shows upin the data include things like
internal risk ratings. Sothere's you know, banks have
internal criticisms. They haveinternal delinquency measures
that function a little bitdifferently than the securitized
market. They don't have toreport them with the same level
of see through scrutiny thatsecuritized lenders have to and
(20:25):
servicers in that realm. Butthat's why we're trying to bring
that information to the market.
We've seen an increase incriticized loans in office
markets like Atlanta andWashington, DC, where there has
not been as much of a return tooffice mandate in effect. In New
York, some sources are nowsaying that the office visit
level is back to almost preCOVID levels. We do not see the
(20:47):
same thing going on in placeslike Atlanta and places like
Washington, DC. Obviously, thelatter.
Mark Bonner (20:55):
We have a little bit of interference here with
Tom. Give him a second tohopefully come back in. Tom,
you'd be sloshy for a second.
Tom Taylor (21:01):
Oh, apologies. I've got you now.
Mark Bonner (21:04):
It's good. Well, I'm gonna go to a question from
the audience. A compromise wasreported today between the g
seven, the US State Department,and the US Senate. How does that
affect your evaluation of thesituation?
Tom Taylor (21:16):
I I mean, that's kind of that's a great
development. It's a greatdevelopment to see the g seven,
mostly Western European nationsand other major economic powers,
some of the same members of theUN Security Council, to get on
the same page about mutual goalsand to allow the free flowing of
capital should be the goal. I dothink that's the goal of the
(21:39):
administration. I do think thatthey're trying to change some of
the priorities of The US capitaltreatment regime. But that means
that the incentives of foreignlenders and investors will be
more aligned with US ones.
If they are working toward asimilar goal versus The US kind
(21:59):
of enacting a protectionism. Ithink that that is what
increases that friction I wastalking about. That hesitancy
and impacts their returnsnegatively. Again, fundamentals
on the ground, very strong.People shopping, people going to
the office, living in apartmentbuildings, new supply is pulling
back, the values of existingproperties are likely to
(22:20):
increase in many places.
There's a bifurcation very muchgoing on a lot of these markets.
Trophy assets are performingvery well. Older stock that has
not had investment in recentyears is going to either be
demolished, repurposed, or soldat heavy discounts, and then
hopefully renovated. And ifforeign investors and lenders
(22:41):
can work in the same directionas American ones, then that's a
fantastic development andincreases liquidity in the
market.
Mark Bonner (22:49):
Okay. Just looking at The US map here, you know,
we're seeing some selectiveresilience. Data centers, REITs,
iOS, cold storage. Meanwhile,coastal condos and highly
levered hotels are underpressure. Underwriting across
the board is demanding deeperequity.
What sectors and cities stillpencil today? What does the data
(23:09):
tell us, Tom?
Tom Taylor (23:11):
I think that think that's a great question, Mark. I
think that, you know, we so Ijust put together a report
trying to look at specificallyin the multifamily space. And as
I mentioned, our chief productofficer, Alani, put together one
in the office space. We'll havethe rest of the property types
coming out over the comingweeks. Historically speaking,
the gateway cities, meaning NewYork, LA, San Francisco, have
been places to park capital forcore, maybe some core plus
(23:35):
investors with the intention ofpreserving capital.
Maybe there's not going to beoutsized growth and returns. But
generally speaking, those aresafe places. The dynamic has
shifted where I think that theMidwest, cities like
Indianapolis, that have had alot of really, really organic
economic growth of places likeMinneapolis that have a lot of
(23:58):
homegrown businesses, a lot ofmajor corporations headquartered
there, a lot of very good jobs,highly educated, high household
income demographics, goodimmigration numbers. Those are
places for kind of core and coreplus investments. Whereas the
gateway cities, they have largesegments of this class b and c
office space and multifamilythat's in need of value add
investment.
(24:19):
There's a lot of places in theSunbelt as well that have a
tremendous amount of growth inthe zero interest rate
environment that now, yes, somesyndicators kind of lost their
shirts. But for the most part,they bought properties, they
renovated them, they raisedrents, those rent raises have
kind of peaked, but they'restill very good value. So I
(24:40):
think that Sunbelt Multifamilyis a good long term kind of
core, core plus investment.Midwest, very good core. And
then the gateway cities in theoffice space.
So Pacific Regions, NortheastRegion, Middle Atlantic Region,
places like New York,Philadelphia, Chicago, you know,
LA, San Francisco are very goodopportunities for value add
investments.
Mark Bonner (24:59):
So, Tom, if you were advising a foreign capital
source right now, is it time tosell into the noise, double down
on a niche play, or just staypatient and wait to cycle out?
Tom Taylor (25:12):
So that's I mean, I think that it really depends on
the size of your institution,your investment strategy. But
generally speaking, I'd say isinstitutional buyers are
probably going to sit on thesidelines. They're gonna hold
cash. They're gonna try to findthose core stable investments to
preserve capital. They're gonnaunderwrite very conservatively.
And that's exactly what Irecommend. However, I do think
that there's a lot ofopportunistic investments right
(25:33):
now in those pockets, thosecombinations of regions and
sectors that I was talkingabout. So, I mean, if I was a
capital allocator with a valueadd strategy that has a belief
in my ability to renovate well,to find good entry points, to
rely on very solid data, toprice my investments, and to
budget, then I'm allocatingcapital to a lot of the high
(25:56):
growth markets, especially kindof the investors that currently
own properties are a bit outover their skis and are gonna
have trouble refinancing.
Mark Bonner (26:05):
K. Well, look, Tom, I think that's all the time we
have today. I really wanna thankyou for being here.
Tom Taylor (26:12):
It's great to be here, Thank
Mark Bonner (26:13):
you. Look. We'll be back with another episode of
First Draft Live in two weeks,so don't miss out. You can sign
up now at biznow.com. You canalso find today's episode and
all of our past episodes in yourfavorite podcast app.
You can also check outbiznow.com. This is First Draft
Live. Have a great weekend,y'all.
Hey. Welcome to First Draft Live. It's Friday,
June 27. We're coming to youjust one week after a major
European real estate lendercalled it quits on The US real
estate market. They calledAmerica's economic policy
poisonous and announced a fullexit, a $5,000,000,000 property
portfolio.
Poof. Gone. We're thrilled tohave so many of you tuning in
(00:32):
from across North America andEurope. I'm your host, Mark
Bonner, business editor inchief, and I'm coming to you
live from New York. On today'sepisode, where exactly is global
capital taking commercial realestate next?
Foreign investors are pullingback, portfolio shifts are
accelerating, and global playersare no longer treating The US as
the default landing zone.Sovereign wealth funds are
(00:54):
pivoting away from America, andafter years of buy the dip,
global capital is suddenlygetting quite selective, and
it's not liking what it sees inThe United States. So what's
driving this shift? Is The USlosing its edge? Is there still
a path forward for foreigncapital in The US?
Or is America's property marketin a new global pecking order?
(01:19):
Joining us today to unpack itall, Tom Taylor, senior research
manager at Trempe. Tom bringsnearly a decade of experience
across underwriting, assetmanagement, origination and
market research. At Trepp, heleads the charge on real estate
analytics and insights, poweringeverything from his fantastic
rundown newsletter andTreppWire. Tom, welcome to the
(01:43):
show.
I know you're joining us fromNew York.
Tom Taylor (01:45):
Yes, sir. Great to be here with you, Mark. Very
excited.
Mark Bonner (01:49):
Awesome. So let's jump on in. Table stakes. We've
seen sweeping headlines aboutforeign capital pulling back,
but the details are prettymurky. Latin American groups
remain active.
Middle Eastern sovereigns arestill hunting industrial, and
not every region is exiting atthe same pace. So, Tom, who's
still buying?
Tom Taylor (02:10):
So, Mark, we've seen across all the different
coverage, you know, people aretrying to make sense as as
you're describing of of who isstopping, who's starting, who's
pulling back. And I think theword that keeps coming to mind
is caution, is selectivenessversus retreat as a whole. I
think that the Canadian pensionfunds, the Middle East
(02:31):
sovereigns, as you mentioned,Singaporean sovereigns like GIC,
some Japanese REITs andsovereign managers, the Nordisk
Bank out of Norway, Australiansuper funds, and many big
playing family offices havemaintained and even about to
increase their US investments.There's been some big deals
lately. We've definitely seensome retreating capital out of
(02:52):
China.
There's lots of capital controlsthere that are obviously being
imposed to give them someleverage in the the ongoing
trade war, even though we'veseen some positive developments
in the last day or two out ofour out of an announcement from
our commerce secretary. We'veseen obviously some caution out
of Germany, very, very longterm, very cautious investing
(03:13):
thesis, mostly out of thosefinancial institutions. So it
wasn't a tremendous surprise tosee one of their largest CRE
investors and lenders start thepullback. And then some Gulf and
Asian funds have, you know,across the board, been more
selective with theirallocations. But when you flip
over the table and try to startimplementing some trade war
(03:35):
policies, I think, that are moreinterested in making it easier
to sell cars in Mainland Europeand throughout Asia versus
attracting commercial ordiscouraging commercial real
estate investment in The US.
You're gonna see some change inpolicy. But overall, we're
definitely still seeing a lot ofbuying activity, and we've got
some pretty good examples ofthat so far this year.
Mark Bonner (03:56):
So which countries or capital pools are actually in
retreat, and which ones arestill active here?
Tom Taylor (04:02):
So the ones that are still active, I mean, we saw a
Japanese Mori Trust take a largestake in one Vanderbilt at the
end of last year. We think Japanhas received, generally
speaking, favorable treatmentfrom The US. They seem to still
be very interested in allocatingto LP funds, to taking big
stakes in trophy assets. We sawNordisk banks on Norway and kind
(04:23):
of Northern European funds thathave really stayed out of the
sites as it were of thepresident Trump's trade war.
Took a big stake in a mostlyWest Coast 48 building logistics
portfolio earlier this year.
We've seen The UAE announce alot of data center funds, about
(04:43):
20,000,000,000 in US investmentsthat have been promised. And
then Singapore's GIC isobviously one of the largest
foreign investors in The US.They've been very strong. But
again, the German and theChinese funds are definitely
taking a step back on the otherside of the spectrum.
Mark Bonner (04:58):
Look. And as you all know, foreign direct
investment in The US, inparticular to the commercial
real estate markets, it's fallenin in 2025 to its lowest q one
level since 2022. At the sametime, the dollar's down nearly
10% year to date. The WhiteHouse has been hammering China
and other countries on tariffs,although with China specifically
this morning, perhaps there's alittle bit of a headwind to
(05:21):
solve that. You know, when youcombine all of that with 5% base
rates, it's a cocktail thatGlobal Capital doesn't wanna
drink anymore.
What's happened here? I mean,what do you think is the single
biggest policy or macro triggerthat's been pushing sentiment
away from US real estate thisyear?
Tom Taylor (05:42):
So I've got two thoughts on that. And I'm glad
you mentioned the dollar,because I think that is the
overlooked element to a lot ofthese investment decisions. The
value of the US dollar decliningabout 10% on on year to date
across a basket of of othermajor US other major global
currencies is a very underratedelement of these investment
decisions. That means thatsovereign wealth funds, other
(06:04):
large asset allocatorsthroughout the world have to
increase their hedging costs byon average two to 3% for a move
like that. Parking your yourcapital in US dollars has
historically been a fantasticinvestment.
That doesn't necessarily have tochange, but it does become more
expensive. And every couple ofpercentage points does take some
(06:26):
returns off of the back end of adeal. Now, the policy that I
think is the most impactful,even though it didn't end up
being a part of whatever thefinal big beautiful bill is
going to be is section eightninety nine. The threat of that
policy is almost impossible toquantify. And again, while I do
(06:46):
believe that the intent of thatpolicy is probably more about
decreasing costs for US vendorsto sell goods and services
throughout the world.
It definitely had a chillingeffect on investment in The US.
And we've already seen, I think,a lot of a lot of pullbacks
(07:07):
specifically due to theuncertainty, which is also the
big word of the year that thatthat threat has caused.
Mark Bonner (07:14):
Right. That's the so called revenge tax, which was
stripped from the budgetyesterday after pushback from
real estate lobbying groups andglobal allies within the G7. And
what you're talking about isthat even though it's not out
there anymore and it's now beenstripped from the one big
beautiful bill, are you saying,Tom, that that kept foreign
capital out of The US evenbefore it came into effect? And
(07:37):
does it further chill capital ininbound foreign capital flows
because of that threat?Basically, bottom line is that
US policy is uncertain and thatit carries risk.
Is are you saying that that'llstill have an effect?
Tom Taylor (07:52):
I think that it'll definitely lead to more
friction. I mean, there is avery universal truism that
capital goes where it's treatedthe best. Historically, that has
been United States markets. Youknow, there was about ten years
ago, I was just talking to theeditor of our publication,
commercial real estate director,Trepp. He mentioned that about
ten years ago, RioCan, one ofthe largest and oldest REITs in
(08:14):
Canada, announced that they weregoing to allocate more capital
to US retail investments becausethere simply wasn't enough in
Canada.
The US is a huge market of realassets, of secondary markets
that allow more liquidity. Andmany institutional investors,
and whether they be pensionfunds, whether they be sovereign
wealth funds, or other assetmanagers, simply don't have
(08:37):
enough places to go find yield.So The US has always been a
source for that. The US has alsobeen very favorable in terms of
capital treatment. When thosedynamics change, when there is
more friction applied, that'sgoing to lead to more
conversations in investmentcommittees in those rooms.
I don't think that the calculushas changed permanently. And
that even if you increase thecost of capital to enter foreign
(09:00):
dollars into The US, even ifthere's a bit more uncertainty
about how long the hold periodis going to be, it's probably
still a better investment topark your dollars in US trophy
assets or US CMBS than in manyof these markets. But a certain
point, that will break and thatwill lead to slower decisions
and then more of the cautiousinvestors simply choosing to
(09:23):
exit like PPP.
Mark Bonner (09:25):
Right. I mean, and look, while some equity might be
pausing, some foreign banks,Deutsche, UBS, Barclays, they
remain quite active in CMBS aswe were talking about earlier.
From what you're seeing, how arethese banks behaving right now
on those lines?
Tom Taylor (09:41):
I'm glad you brought that up, Mark. Mean, it's a
really interesting developmentso far this year. So far in the
in The US CMBS market, we'veseen over $62,000,000,000 of
issuance. And last year, we gotup to about 108,000,000,000. So
even though there was a periodduring March and April and May
when issuance really slowed downas a result of upheaval in in
(10:02):
markets and, you know, theannouncement of trade war
policies that really caused alot of especially US capital to
sit on the sidelines, we've seena large amount of deals getting
done.
Now I went ahead and looked intoperhaps new issuance database
and broke out foreign bookrunners, like the banks you
mentioned versus all bookrunners. And the composition is
(10:22):
very interesting. Now, generallyspeaking, you know, for those
who aren't CMBS, you know,specific folks, there's two
different major kinds ofcommercial mortgage backed
security issuance. You've gotyour conduit pools, which are
what you probably think aboutwhen you think of CMBS
diversified pools, 50 to 100loans up to about a billion
dollars. And the point of theseis to give, you know, investors
(10:43):
some topical and broad exposureto different regions and
different property types.
Now one would expect Europeanbanks, especially, to be
focusing on trophy assets duringthis time and a flight to
quality. That would be SASB orsingle asset, single borrower
issuance, which has actuallyrepresented the majority of the
overall new issuance pool. Theoverall SASB composition versus
(11:06):
conduit has been about seventyfive twenty five so far this
year. So we've seen lots oftrophy assets like Rockefeller
Center, where Trepp's officesare located, securitized. Things
like one Vanderbilt.
Things like the resort inHawaii. Multibillion dollar
deals. However, if you look atthe European banks and that are
book running these deals,they're actually doing over two
(11:28):
thirds of their issuance in theconduit space, which is kind of
surprising. If you break thatdown further by the property
type mix for CRE, some of it'ssurprising and some of it's not.
I think the largest propertytype is over one third of the
conduit pools have beenmultifamily.
So still a lot of allocation toUS apartment projects. Just
(11:51):
under 30% is retail. And justshort of 25% is the other
category, which mostly includesdata centers. So you noticed
that there was almost no officeand almost no industrial or
hotels in there. I think that'svery thematically on point, but
it was kind of refreshing to seeEuropean banks allocating and
offering to their investors,which can include US and other
(12:12):
foreign entities, exposure to USmultifamily markets, data center
markets, and not just the trophyassets.
Mark Bonner (12:22):
You know, we had Mark Rose, CEO of Avinson Young
on the show a few last week,actually. And he was saying that
despite all of this negativeenergy that's out there, you
know, from the White House orfrom the tariffs or anything
else, that America is still thebiggest sandbox in the world.
Right? So do you think it's justthat we've gotten into a moment
(12:45):
where it's a little bit harderfor foreign capital to punch
through? They're a little bitmore cautious, but that they're
gonna do it anyway becauseAmerica is so big.
And just when you zoom out forhistorical purposes that it has
been so reliable.
Tom Taylor (12:59):
Absolutely, Mario. I think you put it very well. When
you zoom out and you look at thewhole picture, there are asset
managers who need to parkcapital somewhere. You can't buy
gold bars and bury them in thebackyard. Right?
So where are you going to lookif you're if you have a mandate
to allocate to real estateassets? I mean, there are other
markets throughout the world,but the capital treatment in
those countries, even with theseUS developments is usually even
(13:22):
worse. And if you look at themacro environment within The US,
I think that like you put itvery well. It's harder. Doesn't
mean it's impossible.
And the folks who are making theinvestment decisions, right, or
packaging securitized commercialreal estate investments so that
investors can get access to thatpaper. They're all compensated
very well to find solutions tothese problems. Right? And what
(13:43):
we had in the twenty twenty twoto 2023 period in The US, when
the fed raised the risk freerate by 500 basis points within
a year. And following the twentytwenty COVID shock that changed
the office paradigm, the retailparadigm, It is absolutely
impossible to fully understandthe fallout of those two
(14:04):
developments in the time thatwe've had.
Right? So they're still workingtheir way through the system.
We've seen some uptick indistress in the office market.
Obviously, our CMBS office rateis currently sitting around 10
or 11%. But that still means 90%or so of the balance of office
securitized debt is still makingpayments, still reaching
(14:24):
maturity, and securing takeoutsto pay down that principal
balance.
Now that 10% of delinquent debt,especially 75% of it being due
to maturity distress versuscurrent payment distress, means
that there's opportunities forinvestors. So I think that one
group's distress is anothergroup's opportunity. And we're
seeing really great pockets ofopportunity for investments pop
(14:47):
up all over the place. Our chiefproduct officer, Lani Hendrie,
just wrote a great report. Iencourage everybody to check it
out at trep.com research andinsights, where we broke down
from our tools different pocketsof office property investments
throughout the country that havelow in place interest rates, low
in place debt yields.
And for value add investors, wehave some older vintages. And
(15:08):
for core investors, we have somehigh we have some more recent
vintages that are just mostly acapital markets problem. The
underlying fundamentals of themarket are still pretty strong.
We're adjusting to the newparadigm. And I do think that
the fundamental return profilefor foreign capital, for
domestic capital, is still verystrong here.
I'm unaware of any other marketsthat offer the opportunities
(15:32):
that United States does, even ifthe dynamics have shifted a
little bit.
Mark Bonner (15:38):
Okay. If you're just tuning in, we're tracking
the great global capital pivot,why billions are flowing out of
The US and into places likeLondon, London office,
Eurogistix, into anything butAmerican risk. With us is Tom
Taylor, Senior Managing Directorat Trep. Okay, Tom, let's talk
about some canaries in the coalmine. One of the biggest news
stories this week on this frontwas from PBB, one of Germany's
(16:01):
largest real estate lenders.
It announced that it's exitingThe US entirely and selling a
$4,600,000,000 loan book,calling American economic policy
poisonous. Is this just is thisjust a one off retreat, or do
you think it's the early signalof a broader pullback by other
foreign lenders?
Tom Taylor (16:19):
So I think it's too soon to tell if this is a signal
or if it's just noise. We'll betracking this very closely. But
what I can say is that it's notterribly unexpected. Right?
There is a general, I suppose,cultural and in the financial
sphere of the nation of Germany,deep conservatism.
When you have, like we justdescribed, a change in the
(16:42):
sticks and bricks officedynamic, where in the post COVID
paradigm, the demand for officespace, particularly class B and
C office space, which is what Isuspect a good portion of their
loan portfolio is, that simplydoes not require does not have
the tenancy base that it oncedid. And the expectation that
(17:02):
folks across the country aregoing to be in the office five
days a week, that is an entirelydifferent paradigm to adjust to.
Now, there has been a largeconcentration of exposure to
just that kind of CRE investmentin among these German banks. So
not again, not terriblysurprising that they would be
the first to exit. If you lookacross US banks, if you look
across, you know, the differenttypes of balance sheet lenders,
(17:26):
they're following a similarpattern there.
Slamming the door on the way outand calling The US political
environment poisonous, I dothink is also telling. Because
the one thing that foreigninvestors have exposure to that
US investors and lenders have alittle bit less exposure to are
the capital controls, are thingslike section eight ninety nine.
(17:47):
So that is an outsized risk. Thefundamentals, again, I think are
very strong. But there's anadded layer of risk.
If you look at, you know, someof the recent electoral
developments in large marketslike New York, if you look at
the different downstream effectsof federal trade policy, that's
something that cannot beignored. I don't think it's
(18:09):
terribly surprising that aheavily office allocated and
conservative investment thesiswould be the first to call it
quits on a $5,000,000,000portfolio.
Mark Bonner (18:20):
Right. And Germany is going through its own
economic and political issues.But to be fair, PBV, while it
may be the largest of recenttime to pull out, they're far
from alone. Tom, where does thisbegin to show up in the data?
Tom Taylor (18:34):
Yeah. So I think we track at Trep a bunch of
different data sets in thesecuritized realm, and we're
also trying to make moreprogress in the balance sheet
realm. We track loan spreads. Wetrack a consortium of about 20
regional and larger banksconstituting about
$200,000,000,000 of currentoutstanding balance called
TOLAR, anonymized loan levelrepository. And what we found is
(18:56):
that as opposed to securitizedlenders, which are very reactive
to both the needs of theirborrowers and the needs of note
buyers on the other end of themarket, Banks are not
incentivized to get dollars outthe door in the same way.
They don't necessarily make feestheir fee structures in the same
way as securitized lenders.They're incentivized to preserve
capital. Right? So thatfundamental conservatism shows
(19:19):
up in a couple of differentways. One, it shows up in a very
rapid pullback in originationswhenever there's distress
brewing in the market.
Right? So as soon as, again, thefed began to raise rates, as
soon as the cracks began to showin a lot of the office markets
that were overbuilt, that had alarge concentrations of class B
and C space, we saw very, veryharsh pullbacks in bank
(19:41):
originations. We've seen in thelast two quarters, those
actually tick back up. Iencourage everyone to check out
Trepp's latest dollar reportfrom Q1 twenty twenty five,
where we saw originations againbegin to reemerge, especially in
the multifamily space. And alsofollowing the sale of a few
different rent regulatedmultifamily portfolios like
(20:02):
signature banks that thatfinally kind of cleared off of
their books.
The other ways that it shows upin the data include things like
internal risk ratings. Sothere's you know, banks have
internal criticisms. They haveinternal delinquency measures
that function a little bitdifferently than the securitized
market. They don't have toreport them with the same level
of see through scrutiny thatsecuritized lenders have to and
(20:25):
servicers in that realm. Butthat's why we're trying to bring
that information to the market.
We've seen an increase incriticized loans in office
markets like Atlanta andWashington, DC, where there has
not been as much of a return tooffice mandate in effect. In New
York, some sources are nowsaying that the office visit
level is back to almost preCOVID levels. We do not see the
(20:47):
same thing going on in placeslike Atlanta and places like
Washington, DC. Obviously, thelatter.
Mark Bonner (20:55):
We have a little bit of interference here with
Tom. Give him a second tohopefully come back in. Tom,
you'd be sloshy for a second.
Tom Taylor (21:01):
Oh, apologies. I've got you now.
Mark Bonner (21:04):
It's good. Well, I'm gonna go to a question from
the audience. A compromise wasreported today between the g
seven, the US State Department,and the US Senate. How does that
affect your evaluation of thesituation?
Tom Taylor (21:16):
I I mean, that's kind of that's a great
development. It's a greatdevelopment to see the g seven,
mostly Western European nationsand other major economic powers,
some of the same members of theUN Security Council, to get on
the same page about mutual goalsand to allow the free flowing of
capital should be the goal. I dothink that's the goal of the
(21:39):
administration. I do think thatthey're trying to change some of
the priorities of The US capitaltreatment regime. But that means
that the incentives of foreignlenders and investors will be
more aligned with US ones.
If they are working toward asimilar goal versus The US kind
(21:59):
of enacting a protectionism. Ithink that that is what
increases that friction I wastalking about. That hesitancy
and impacts their returnsnegatively. Again, fundamentals
on the ground, very strong.People shopping, people going to
the office, living in apartmentbuildings, new supply is pulling
back, the values of existingproperties are likely to
(22:20):
increase in many places.
There's a bifurcation very muchgoing on a lot of these markets.
Trophy assets are performingvery well. Older stock that has
not had investment in recentyears is going to either be
demolished, repurposed, or soldat heavy discounts, and then
hopefully renovated. And ifforeign investors and lenders
(22:41):
can work in the same directionas American ones, then that's a
fantastic development andincreases liquidity in the
market.
Mark Bonner (22:49):
Okay. Just looking at The US map here, you know,
we're seeing some selectiveresilience. Data centers, REITs,
iOS, cold storage. Meanwhile,coastal condos and highly
levered hotels are underpressure. Underwriting across
the board is demanding deeperequity.
What sectors and cities stillpencil today? What does the data
(23:09):
tell us, Tom?
Tom Taylor (23:11):
I think that think that's a great question, Mark. I
think that, you know, we so Ijust put together a report
trying to look at specificallyin the multifamily space. And as
I mentioned, our chief productofficer, Alani, put together one
in the office space. We'll havethe rest of the property types
coming out over the comingweeks. Historically speaking,
the gateway cities, meaning NewYork, LA, San Francisco, have
been places to park capital forcore, maybe some core plus
(23:35):
investors with the intention ofpreserving capital.
Maybe there's not going to beoutsized growth and returns. But
generally speaking, those aresafe places. The dynamic has
shifted where I think that theMidwest, cities like
Indianapolis, that have had alot of really, really organic
economic growth of places likeMinneapolis that have a lot of
(23:58):
homegrown businesses, a lot ofmajor corporations headquartered
there, a lot of very good jobs,highly educated, high household
income demographics, goodimmigration numbers. Those are
places for kind of core and coreplus investments. Whereas the
gateway cities, they have largesegments of this class b and c
office space and multifamilythat's in need of value add
investment.
(24:19):
There's a lot of places in theSunbelt as well that have a
tremendous amount of growth inthe zero interest rate
environment that now, yes, somesyndicators kind of lost their
shirts. But for the most part,they bought properties, they
renovated them, they raisedrents, those rent raises have
kind of peaked, but they'restill very good value. So I
(24:40):
think that Sunbelt Multifamilyis a good long term kind of
core, core plus investment.Midwest, very good core. And
then the gateway cities in theoffice space.
So Pacific Regions, NortheastRegion, Middle Atlantic Region,
places like New York,Philadelphia, Chicago, you know,
LA, San Francisco are very goodopportunities for value add
investments.
Mark Bonner (24:59):
So, Tom, if you were advising a foreign capital
source right now, is it time tosell into the noise, double down
on a niche play, or just staypatient and wait to cycle out?
Tom Taylor (25:12):
So that's I mean, I think that it really depends on
the size of your institution,your investment strategy. But
generally speaking, I'd say isinstitutional buyers are
probably going to sit on thesidelines. They're gonna hold
cash. They're gonna try to findthose core stable investments to
preserve capital. They're gonnaunderwrite very conservatively.
And that's exactly what Irecommend. However, I do think
that there's a lot ofopportunistic investments right
(25:33):
now in those pockets, thosecombinations of regions and
sectors that I was talkingabout. So, I mean, if I was a
capital allocator with a valueadd strategy that has a belief
in my ability to renovate well,to find good entry points, to
rely on very solid data, toprice my investments, and to
budget, then I'm allocatingcapital to a lot of the high
(25:56):
growth markets, especially kindof the investors that currently
own properties are a bit outover their skis and are gonna
have trouble refinancing.
Mark Bonner (26:05):
K. Well, look, Tom, I think that's all the time we
have today. I really wanna thankyou for being here.
Tom Taylor (26:12):
It's great to be here, Thank
Mark Bonner (26:13):
you. Look. We'll be back with another episode of
First Draft Live in two weeks,so don't miss out. You can sign
up now at biznow.com. You canalso find today's episode and
all of our past episodes in yourfavorite podcast app.
You can also check outbiznow.com. This is First Draft
Live. Have a great weekend,y'all.
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