Mark Bonner: 00:10

Hey. Welcome to First Draft Live. It's Friday, June 27. We're coming to you just one week after a major European real estate lender called it quits on The US real estate market. They called America's economic policy poisonous and announced a full exit, a $5,000,000,000 property portfolio.

Mark Bonner: 00:28

Poof. Gone. We're thrilled to have so many of you tuning in from across North America and Europe. I'm your host, Mark Bonner, business editor in chief, and I'm coming to you live from New York. On today's episode, where exactly is global capital taking commercial real estate next?

Mark Bonner: 00:45

Foreign investors are pulling back, portfolio shifts are accelerating, and global players are no longer treating The US as the default landing zone. Sovereign wealth funds are pivoting away from America, and after years of buy the dip, global capital is suddenly getting quite selective, and it's not liking what it sees in The United States. So what's driving this shift? Is The US losing its edge? Is there still a path forward for foreign capital in The US?

Mark Bonner: 01:14

Or is America's property market in a new global pecking order? Joining us today to unpack it all, Tom Taylor, senior research manager at Trempe. Tom brings nearly a decade of experience across underwriting, asset management, origination and market research. At Trepp, he leads the charge on real estate analytics and insights, powering everything from his fantastic rundown newsletter and TreppWire. Tom, welcome to the show.

Mark Bonner: 01:43

I know you're joining us from New 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 about foreign capital pulling back, but the details are pretty murky. Latin American groups remain active.

Mark Bonner: 02:01

Middle Eastern sovereigns are still hunting industrial, and not every region is exiting at the 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 are trying to make sense as as you're describing of of who is stopping, who's starting, who's pulling back. And I think the word that keeps coming to mind is caution, is selectiveness versus retreat as a whole. I think that the Canadian pension funds, the Middle East sovereigns, as you mentioned, Singaporean sovereigns like GIC, some Japanese REITs and sovereign managers, the Nordisk Bank out of Norway, Australian super funds, and many big playing family offices have maintained and even about to increase their US investments. There's been some big deals lately. We've definitely seen some retreating capital out of China.

Tom Taylor: 02:53

There's lots of capital controls there that are obviously being imposed to give them some leverage in the the ongoing trade war, even though we've seen some positive developments in the last day or two out of our out of an announcement from our commerce secretary. We've seen obviously some caution out of Germany, very, very long term, very cautious investing thesis, mostly out of those financial institutions. So it wasn't a tremendous surprise to see one of their largest CRE investors and lenders start the pullback. And then some Gulf and Asian funds have, you know, across the board, been more selective with their allocations. But when you flip over the table and try to start implementing some trade war policies, I think, that are more interested in making it easier to sell cars in Mainland Europe and throughout Asia versus attracting commercial or discouraging commercial real estate investment in The US.

Tom Taylor: 03:48

You're gonna see some change in policy. But overall, we're definitely still seeing a lot of buying activity, and we've got some pretty good examples of that so far this year.

Mark Bonner: 03:56

So which countries or capital pools are actually in retreat, and which ones are still active here?

Tom Taylor: 04:02

So the ones that are still active, I mean, we saw a Japanese Mori Trust take a large stake in one Vanderbilt at the end of last year. We think Japan has received, generally speaking, favorable treatment from The US. They seem to still be very interested in allocating to LP funds, to taking big stakes in trophy assets. We saw Nordisk banks on Norway and kind of Northern European funds that have really stayed out of the sites as it were of the president Trump's trade war. Took a big stake in a mostly West Coast 48 building logistics portfolio earlier this year.

Tom Taylor: 04:38

We've seen The UAE announce a lot of data center funds, about 20,000,000,000 in US investments that have been promised. And then Singapore's GIC is obviously one of the largest foreign investors in The US. They've been very strong. But again, the German and the Chinese funds are definitely taking a step back on the other side of the spectrum.

Mark Bonner: 04:58

Look. And as you all know, foreign direct investment in The US, in particular to the commercial real estate markets, it's fallen in in 2025 to its lowest q one level since 2022. At the same time, the dollar's down nearly 10% year to date. The White House has been hammering China and other countries on tariffs, although with China specifically this morning, perhaps there's a little bit of a headwind to solve that. You know, when you combine all of that with 5% base rates, it's a cocktail that Global Capital doesn't wanna drink anymore.

Mark Bonner: 05:30

What's happened here? I mean, what do you think is the single biggest policy or macro trigger that's been pushing sentiment away from US real estate this year?

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 of these investment decisions. The value of the US dollar declining about 10% on on year to date across a basket of of other major US other major global currencies is a very underrated element of these investment decisions. That means that sovereign wealth funds, other large asset allocators throughout the world have to increase their hedging costs by on average two to 3% for a move like that. Parking your your capital in US dollars has historically been a fantastic investment.

Tom Taylor: 06:19

That doesn't necessarily have to change, but it does become more expensive. And every couple of percentage points does take some returns off of the back end of a deal. Now, the policy that I think is the most impactful, even though it didn't end up being a part of whatever the final big beautiful bill is going to be is section eight ninety nine. The threat of that policy is almost impossible to quantify. And again, while I do believe that the intent of that policy is probably more about decreasing costs for US vendors to sell goods and services throughout the world.

Tom Taylor: 06:57

It definitely had a chilling effect on investment in The US. And we've already seen, I think, a lot of a lot of pullbacks specifically due to the uncertainty, which is also the big word of the year that that that threat has caused.

Mark Bonner: 07:14

Right. That's the so called revenge tax, which was stripped from the budget yesterday after pushback from real estate lobbying groups and global allies within the G7. And what you're talking about is that even though it's not out there anymore and it's now been stripped from the one big beautiful bill, are you saying, Tom, that that kept foreign capital out of The US even before it came into effect? And does it further chill capital in inbound foreign capital flows because of that threat? Basically, bottom line is that US policy is uncertain and that it carries risk.

Mark Bonner: 07:49

Is are you saying that that'll still have an effect?

Tom Taylor: 07:52

I think that it'll definitely lead to more friction. I mean, there is a very universal truism that capital goes where it's treated the best. Historically, that has been United States markets. You know, there was about ten years ago, I was just talking to the editor of our publication, commercial real estate director, Trepp. He mentioned that about ten years ago, RioCan, one of the largest and oldest REITs in Canada, announced that they were going to allocate more capital to US retail investments because there simply wasn't enough in Canada.

Tom Taylor: 08:23

The US is a huge market of real assets, of secondary markets that allow more liquidity. And many institutional investors, and whether they be pension funds, whether they be sovereign wealth funds, or other asset managers, simply don't have enough places to go find yield. So The US has always been a source for that. The US has also been very favorable in terms of capital treatment. When those dynamics change, when there is more friction applied, that's going to lead to more conversations in investment committees in those rooms.

Tom Taylor: 08:52

I don't think that the calculus has changed permanently. And that even if you increase the cost of capital to enter foreign dollars into The US, even if there's a bit more uncertainty about how long the hold period is going to be, it's probably still a better investment to park your dollars in US trophy assets or US CMBS than in many of these markets. But a certain point, that will break and that will lead to slower decisions and then more of the cautious investors simply choosing to 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 as we were talking about earlier. From what you're seeing, how are these 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 development so far this year. So far in the in The US CMBS market, we've seen over $62,000,000,000 of issuance. And last year, we got up to about 108,000,000,000. So even though there was a period during March and April and May when issuance really slowed down as a result of upheaval in in markets and, you know, the announcement of trade war policies that really caused a lot of especially US capital to sit on the sidelines, we've seen a large amount of deals getting done.

Tom Taylor: 10:13

Now I went ahead and looked into perhaps new issuance database and broke out foreign book runners, like the banks you mentioned versus all book runners. And the composition is very interesting. Now, generally speaking, you know, for those who aren't CMBS, you know, specific folks, there's two different major kinds of commercial mortgage backed security issuance. You've got your conduit pools, which are what you probably think about when you think of CMBS diversified pools, 50 to 100 loans up to about a billion dollars. And the point of these is to give, you know, investors some topical and broad exposure to different regions and different property types.

Tom Taylor: 10:47

Now one would expect European banks, especially, to be focusing on trophy assets during this time and a flight to quality. That would be SASB or single asset, single borrower issuance, which has actually represented the majority of the overall new issuance pool. The overall SASB composition versus conduit has been about seventy five twenty five so far this year. So we've seen lots of trophy assets like Rockefeller Center, where Trepp's offices are located, securitized. Things like one Vanderbilt.

Tom Taylor: 11:17

Things like the resort in Hawaii. Multibillion dollar deals. However, if you look at the European banks and that are book running these deals, they're actually doing over two thirds of their issuance in the conduit space, which is kind of surprising. If you break that down further by the property type mix for CRE, some of it's surprising and some of it's not. I think the largest property type is over one third of the conduit pools have been multifamily.

Tom Taylor: 11:45

So still a lot of allocation to US apartment projects. Just under 30% is retail. And just short of 25% is the other category, which mostly includes data centers. So you noticed that there was almost no office and almost no industrial or hotels in there. I think that's very thematically on point, but it was kind of refreshing to see European banks allocating and offering to their investors, which can include US and other foreign entities, exposure to US multifamily markets, data center markets, and not just the trophy assets.

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 negative energy that's out there, you know, from the White House or from the tariffs or anything else, that America is still the biggest sandbox in the world. Right? So do you think it's just that we've gotten into a moment where it's a little bit harder for foreign capital to punch through? They're a little bit more cautious, but that they're gonna do it anyway because America is so big.

Mark Bonner: 12:53

And just when you zoom out for historical 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 the whole picture, there are asset managers who need to park capital somewhere. You can't buy gold bars and bury them in the backyard. Right?

Tom Taylor: 13:09

So where are you going to look if you're if you have a mandate to allocate to real estate assets? I mean, there are other markets throughout the world, but the capital treatment in those countries, even with these US developments is usually even worse. And if you look at the macro environment within The US, I think that like you put it very well. It's harder. Doesn't mean it's impossible.

Tom Taylor: 13:30

And the folks who are making the investment decisions, right, or packaging securitized commercial real estate investments so that investors can get access to that paper. They're all compensated very well to find solutions to these problems. Right? And what we had in the twenty twenty two to 2023 period in The US, when the fed raised the risk free rate by 500 basis points within a year. And following the twenty twenty COVID shock that changed the office paradigm, the retail paradigm, It is absolutely impossible to fully understand the fallout of those two developments in the time that we've had.

Tom Taylor: 14:07

Right? So they're still working their way through the system. We've seen some uptick in distress in the office market. Obviously, our CMBS office rate is currently sitting around 10 or 11%. But that still means 90% or so of the balance of office securitized debt is still making payments, still reaching maturity, and securing takeouts to pay down that principal balance.

Tom Taylor: 14:29

Now that 10% of delinquent debt, especially 75% of it being due to maturity distress versus current payment distress, means that there's opportunities for investors. So I think that one group's distress is another group's opportunity. And we're seeing really great pockets of opportunity for investments pop up all over the place. Our chief product officer, Lani Hendrie, just wrote a great report. I encourage everybody to check it out at trep.com research and insights, where we broke down from our tools different pockets of office property investments throughout the country that have low in place interest rates, low in place debt yields.

Tom Taylor: 15:05

And for value add investors, we have some older vintages. And for core investors, we have some high we have some more recent vintages that are just mostly a capital markets problem. The underlying fundamentals of the market are still pretty strong. We're adjusting to the new paradigm. And I do think that the fundamental return profile for foreign capital, for domestic capital, is still very strong here.

Tom Taylor: 15:28

I'm unaware of any other markets that offer the opportunities that United States does, even if the 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 like London, London office, Eurogistix, into anything but American risk. With us is Tom Taylor, Senior Managing Director at Trep. Okay, Tom, let's talk about some canaries in the coal mine. One of the biggest news stories this week on this front was from PBB, one of Germany's largest real estate lenders.

Mark Bonner: 16:03

It announced that it's exiting The US entirely and selling a $4,600,000,000 loan book, calling American economic policy poisonous. Is this just is this just a one off retreat, or do you think it's the early signal of 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 be tracking this very closely. But what I can say is that it's not terribly unexpected. Right? There is a general, I suppose, cultural and in the financial sphere of the nation of Germany, deep conservatism.

Tom Taylor: 16:38

When you have, like we just described, a change in the sticks and bricks office dynamic, where in the post COVID paradigm, the demand for office space, particularly class B and C office space, which is what I suspect a good portion of their loan portfolio is, that simply does not require does not have the tenancy base that it once did. And the expectation that folks across the country are going to be in the office five days a week, that is an entirely different paradigm to adjust to. Now, there has been a large concentration of exposure to just that kind of CRE investment in among these German banks. So not again, not terribly surprising that they would be the first to exit. If you look across US banks, if you look across, you know, the different types of balance sheet lenders, they're following a similar pattern there.

Tom Taylor: 17:29

Slamming the door on the way out and calling The US political environment poisonous, I do think is also telling. Because the one thing that foreign investors have exposure to that US investors and lenders have a little bit less exposure to are the capital controls, are things like section eight ninety nine. So that is an outsized risk. The fundamentals, again, I think are very strong. But there's an added layer of risk.

Tom Taylor: 17:54

If you look at, you know, some of the recent electoral developments in large markets like New York, if you look at the different downstream effects of federal trade policy, that's something that cannot be ignored. I don't think it's terribly surprising that a heavily office allocated and conservative investment thesis would be the first to call it quits on a $5,000,000,000 portfolio.

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 recent time to pull out, they're far from alone. Tom, where does this begin 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 the securitized realm, and we're also trying to make more progress in the balance sheet realm. We track loan spreads. We track a consortium of about 20 regional and larger banks constituting about $200,000,000,000 of current outstanding balance called TOLAR, anonymized loan level repository. And what we found is that as opposed to securitized lenders, which are very reactive to both the needs of their borrowers and the needs of note buyers on the other end of the market, Banks are not incentivized to get dollars out the door in the same way.

Tom Taylor: 19:08

They don't necessarily make fees their fee structures in the same way as securitized lenders. They're incentivized to preserve capital. Right? So that fundamental conservatism shows up in a couple of different ways. One, it shows up in a very rapid pullback in originations whenever there's distress brewing in the market.

Tom Taylor: 19:28

Right? So as soon as, again, the fed began to raise rates, as soon as the cracks began to show in a lot of the office markets that were overbuilt, that had a large concentrations of class B and C space, we saw very, very harsh pullbacks in bank originations. We've seen in the last two quarters, those actually tick back up. I encourage everyone to check out Trepp's latest dollar report from Q1 twenty twenty five, where we saw originations again begin to reemerge, especially in the multifamily space. And also following the sale of a few different rent regulated multifamily portfolios like signature banks that that finally kind of cleared off of their books.

Tom Taylor: 20:06

The other ways that it shows up in the data include things like internal risk ratings. So there's you know, banks have internal criticisms. They have internal delinquency measures that function a little bit differently than the securitized market. They don't have to report them with the same level of see through scrutiny that securitized lenders have to and servicers in that realm. But that's why we're trying to bring that information to the market.

Tom Taylor: 20:29

We've seen an increase in criticized loans in office markets like Atlanta and Washington, DC, where there has not been as much of a return to office mandate in effect. In New York, some sources are now saying that the office visit level is back to almost pre COVID levels. We do not see the same thing going on in places like Atlanta and places like Washington, DC. Obviously, the latter.

Mark Bonner: 20:55

We have a little bit of interference here with Tom. Give him a second to hopefully 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 was reported today between the g seven, the US State Department, and the US Senate. How does that affect your evaluation of the situation?

Tom Taylor: 21:16

I I mean, that's kind of that's a great development. It's a great development to see the g seven, mostly Western European nations and other major economic powers, some of the same members of the UN Security Council, to get on the same page about mutual goals and to allow the free flowing of capital should be the goal. I do think that's the goal of the administration. I do think that they're trying to change some of the priorities of The US capital treatment regime. But that means that the incentives of foreign lenders and investors will be more aligned with US ones.

Tom Taylor: 21:56

If they are working toward a similar goal versus The US kind of enacting a protectionism. I think that that is what increases that friction I was talking about. That hesitancy and impacts their returns negatively. Again, fundamentals on the ground, very strong. People shopping, people going to the office, living in apartment buildings, new supply is pulling back, the values of existing properties are likely to increase in many places.

Tom Taylor: 22:24

There's a bifurcation very much going on a lot of these markets. Trophy assets are performing very well. Older stock that has not had investment in recent years is going to either be demolished, repurposed, or sold at heavy discounts, and then hopefully renovated. And if foreign investors and lenders can work in the same direction as American ones, then that's a fantastic development and increases liquidity in the market.

Mark Bonner: 22:49

Okay. Just looking at The US map here, you know, we're seeing some selective resilience. Data centers, REITs, iOS, cold storage. Meanwhile, coastal condos and highly levered hotels are under pressure. Underwriting across the board is demanding deeper equity.

Mark Bonner: 23:05

What sectors and cities still pencil today? What does the data tell us, Tom?

Tom Taylor: 23:11

I think that think that's a great question, Mark. I think that, you know, we so I just put together a report trying to look at specifically in the multifamily space. And as I mentioned, our chief product officer, Alani, put together one in the office space. We'll have the rest of the property types coming out over the coming weeks. Historically speaking, the gateway cities, meaning New York, LA, San Francisco, have been places to park capital for core, maybe some core plus investors with the intention of preserving capital.

Tom Taylor: 23:38

Maybe there's not going to be outsized growth and returns. But generally speaking, those are safe places. The dynamic has shifted where I think that the Midwest, cities like Indianapolis, that have had a lot of really, really organic economic growth of places like Minneapolis that have a lot of homegrown businesses, a lot of major corporations headquartered there, a lot of very good jobs, highly educated, high household income demographics, good immigration numbers. Those are places for kind of core and core plus investments. Whereas the gateway cities, they have large segments of this class b and c office space and multifamily that's in need of value add investment.

Tom Taylor: 24:19

There's a lot of places in the Sunbelt as well that have a tremendous amount of growth in the zero interest rate environment that now, yes, some syndicators kind of lost their shirts. But for the most part, they bought properties, they renovated them, they raised rents, those rent raises have kind of peaked, but they're still very good value. So I think that Sunbelt Multifamily is a good long term kind of core, core plus investment. Midwest, very good core. And then the gateway cities in the office space.

Tom Taylor: 24:48

So Pacific Regions, Northeast Region, Middle Atlantic Region, places like New York, Philadelphia, Chicago, you know, LA, San Francisco are very good opportunities for value add investments.

Mark Bonner: 24:59

So, Tom, if you were advising a foreign capital source right now, is it time to sell into the noise, double down on a niche play, or just stay patient 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 is institutional buyers are probably going to sit on the sidelines. They're gonna hold cash. They're gonna try to find those core stable investments to preserve capital. They're gonna underwrite very conservatively.

Tom Taylor: 25:28

And that's exactly what I recommend. However, I do think that there's a lot of opportunistic investments right now in those pockets, those combinations of regions and sectors that I was talking about. So, I mean, if I was a capital allocator with a value add strategy that has a belief in my ability to renovate well, to find good entry points, to rely on very solid data, to price my investments, and to budget, then I'm allocating capital to a lot of the high growth markets, especially kind of the investors that currently own properties are a bit out over 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 thank you 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 can also find today's episode and all of our past episodes in your favorite podcast app.

Mark Bonner: 26:25

You can also check out biznow.com. This is First Draft Live. Have a great weekend, y'all.