427. Inflation Revisions, Refinancing Decisions: $78B in Hard Maturities, Negative Leverage, & a $508M Retail Bet

Haley Keane (0:06)

Welcome to The TreppWire Podcast, the show where commercial real estate meets data and insights. This is our Week in Review for the week ending October 9th, 2026

I'm Haley Keane with Trepp, a data modeling and analytics firm for the CMBS, commercial real estate and CLO markets. I'm with Lonnie Hendry, Chief Product Officer and Stephen Bushbomb, Head of Applied Research and Analytics.

We're recording a little earlier this week, so today we'll be connecting the latest headlines to a question running through commercial real estate. What do higher financing costs mean for borrowers and investors?

On the macro side, September payrolls increased by just 29,000, while unemployment stood at 4.2 percent. But softer hiring didn't deliver lasting relief in the bond market, with the 10-year Treasury trading around 5.3 percent in Friday's update. Manufacturing continued to expand, and its prices index moved higher, keeping inflation in the conversation. And in digging through the data, we'll examine roughly $78 billion of private label CMBS hard maturities over the next five quarters, including where low debt yields could make refinancing particularly challenging. And as a tie-in to our refinancing theme, we'll also revisit positive and negative leverage, how debt can affect an investment's total return differently from its current cash distributions, and why the mortgage constant matters alongside the interest rate. And in commercial real estate, we'll discuss lenders' warnings about refinancing pressure and a large multifamily construction loan takeout. So Stephen, let's start with the financing environment. We talked a lot last week about where rates have moved. What does that actually mean now for borrowers trying to refinance?

Stephen Bushbomb (1:53)

Well, fortunately, we can boil it down to something fairly simple. For borrowers, it comes down to how much debt the property can support today. Not under yesterday's conditions, but today. And higher financing costs can reduce refinancing proceeds even when occupancy and income are improving. And we've seen that over the last couple of episodes with some properties having occupancy in the low to mid 90s, but still struggling materially with their DSCR. So if the new loan falls short of the existing balance, the borrower needs additional equity, a sale, or another resolution. And that becomes especially pressing at these hard maturities that we talk about when contractual extension options have been exhausted. So for investors, we need to distinguish the return over the full holding period from the cash distributed along the way.

Debt can increase an investment's equity IRR or reducing its current cash-on-cash return. This is a really uncomfortable place to live within the leverage universe. When your leverage return can be increased, but you're doing it at the cost of today's cash yield, that's a very precarious position of positive overall leverage, but negative cash-on-cash leverage. And one thing that helps bridge this difference is, well, amortization. That helps explain why we sometimes will see these differences. Because principal payments are used as cash today to reduce the loan balance, and that reduces the amount of debt you owe at sale, and increases the equity distribution. So especially when you have amortization introduced into the structure, that's an exceptionally common case when you can enter that positive overall leverage, but negative cash on cash leverage. So we'll work through some examples showing when financing improves return, but when it also can become a drag, and why comparing the cap rate with the interest rate alone can miss part of the story. Because that is an incredibly common misconception you'll see out there on social media, when people talk about negative leverage. They're only looking at the cap rate, and they're only looking at the loan interest rate.

They're missing a number of different factors. And so we're going to try and unpack these terms, what they mean, and walk through the various scenarios that you can encounter within the levered CRE universe. So let's revisit some of the big macro headlines that have hit recently, and walk through what they've meant for bond yields. Because that's tying into today's theme of, well, financing costs. What it means for CRE.

I would say one of the biggest news items that hit last week was the Friday payrolls number. Now, we didn't have that when we recorded last week. September payrolls increased by 29,000 following a revised gain of 133,000 in August. July's previously reported 21,000 increase was revised to a 10,000 decline. Together, the July and August revisions reduced employment gains by 60,000, reinforcing the picture of modest hiring.

Now, unemployment maybe was the more important number that impacted trading, instead of, say, Treasury trading. Unemployment stood at 4.2% within that 4.1 to 4.3% range recorded since March. But here's where it gets interesting. Labor force participation was 61.8% and the employment to population ratio was 59.2%.