Mixed Bag — Fed Holds Rates, Corporate Earnings Falter, but CRE Outlook Sentiment Rises

While the Fed held rates steady as expected, the bigger story may be what's underneath:

Corporate earnings show tariffs are starting to bite.  Economic data prints are increasingly mixed. And the labor market is still holding out. But for how long? Manus takes a minute to assess the Fed funds rate stalemate. And he provides a thought about why a rate cut might be prudent right now. Dianne sees 2025 shaping up like déjà vu: rate cuts always just out of reach, as the market tiptoes through cooling demand and growing consumer strain.

CRE, though, keeps humming. July deal volume jumped. LightBox’s own market sentiment survey shows steady to strong expectations for the second half. Phase I ESA activity rose 13% year over year. Multifamily is leading with major trades in New York City and the South Bronx. Even office is moving, with buyers chasing discounts and pricing finally settling. The team also flags a growing concern that data centers are starting to monopolize power, labor, and capital, which may potentially strain resources for other projects.

The episode close reflecting on the loss of Blackstone’s Wesley LePatner. A respected leader and fierce advocate for women in commercial real estate, her passing is a profound loss for the entire CRE finance community. Our condolences to all the victims of the tragedy.

00:15 Federal Reserve's Decision and Economic Impacts

01:34 Tariffs and Their Economic Consequences

04:19 Labor Market Insights

11:05 LightBox Midyear CRE Market Sentiment Survey Results

20:17 Multifamily and Mixed-Use Transactions

26:51 Office Market Trends

33:44 Data Centers and Construction Resources

38:57 Tragedy in Midtown: Remembering Wesley LePatner

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

www.lightboxre.com

Transcript

The CRE Weekly Digest by LightBox

Episode 57: Mixed Bag — Fed Holds Rates, Corporate Earnings Falter, but CRE Outlook Sentiment Rises

August 1, 2025

Martha Coacher: This is the CRE Weekly Digest by LightBox, a firm transforming the commercial real estate landscape by connecting every step of the CRE process with comprehensive tools and data. I'm Martha Coacher with our experts, Manus Clancy and Dianne Crocker. For the week ending August 1st, investors have a full roster of economic and earnings data to sift through as well as another fed decision which left the Fed funds rate unchanged, but precedes inflation and jobs reports.

That will be important as we set the stage for any expectations of a cut in September. Manus, there really wasn't any surprise on Powell's continued cautious tone, but we did see dissenters in the committee for the first time since 1993. 

Manus Clancy: The Fed surprised no one this week with holding rates steady.

There were a few outliers that thought maybe the Fed would cut, and we did see those two dissents that you referred to, but the expectations were high that the Fed would remain vigilant against the threat of tariff related inflation, and the markets reacted accordingly, which was a, a big yawn. I do think that at some point this year we will see a fed.

Rate cut or two, uh, perhaps in September. But for now, the Fed has really held steady. They've decided that the risks of inflation coming from tariffs is real, and they're not gonna be bullied, perhaps that's the right word, into slashing rates, just because the president is leaning on them. But it was a very, very busy week for economic news in general.

We've been saying this for quite some time that, and we talked about it with Rebecca last week, that at some point this collection of tariffs. Has to have some kind of impact somewhere. We know that the receipts by the treasury are meaningful. They're on pace to collect between a hundred billion and 200 billion this year, and somebody has to be paying that.

It has to be either absorbed by companies who are not passing it on to consumers or it has to show up in the inflation rate. Or some combination of the two. And thus far we've seen very little evidence of either, which has been shocking. And it's led me to say that at some point in the second half of the year, we're gonna see some bumpiness in equities because the piper has to be paid at some point.

But we saw the first indication of this, I think yesterday with the Ford earnings. With Ford coming out and saying they were gonna have a billion dollar. Close to a billion dollar hit from Terrace this year. It wiped away a big chunk of their year over year earnings. And that may be the canary in the coal mine, the first company of many that will come out and say, yes, these are taking a bite out of our earnings.

And that's why I, I underscore the point I made a moment ago. I do think that at some point in the second half of the year, we do see some choppiness in the markets. 

Dianne Crocker: Yeah. Manus. I wanna go back to something you said about the Fed meeting this week. You know, I am I the only one getting deja vu on the interest rate front because I feel like.

2025 is, is starting to feel a lot like last year just in the sense that we're now five fed meetings in no cuts, just like last year. Once again, all eyes are on September for that long awaited drop, you know? And of, of course the backdrops different. This year we have federal policy shifts. Tariffs are new variables that we didn't have last year, but the rate trajectory just feels eerily familiar.

I think the, the current likelihood is around 50% that we'll see a rate cut in September. I don't think it'll be 50 basis points. I think if it happens, it'll be 25. But Ryan Severino, who has been a guest in our podcast, just came out with his weekly commentary and he noted what you just said, which is the Fed is caught between a rock and a hard place with its dual mandate because inflation has slowed down considerably over three years.

But as Rebecca said last week in the podcast. There is a widespread expectation that inflation will start to re-accelerate. And simultaneously the labor market, along with the overall economy is starting to slow down. So the Fed's in a tough spot. And the other thing that Rebecca brought to the surface that really kind of stuck with me is that.

The thing that she's watching is the labor market. She said, you know, the labor market's king, so watch what's happening with things like job growth with what employers are saying about their intentions around labor. And her reasoning was that ultimately it's the consumers that are sitting in the driver's seat.

And if they don't spend. That starts to ripple through the rest of the economy, and if they don't have a job, they're gonna curtail their spending. So her perception was that the labor market's kind of like a light switch, and if it starts to dim, it gives us an early read into where things might be headed.

So I am taking notice of a lot of July headlines about layoffs. It's not a surge, but it's something to keep an eye on. You know, Merck and Company announced in their Q2 report. That they have immediate layoffs in July. Moderna is cutting 10% of its global workforce. Microsoft in early July announced that they're laying off 9,000 employees.

Intel's layoffs exceed 5,000 across the us So it's definitely starting to happen. And to Rebecca's point, it's, it's important to keep an eye on what's happening in the labor market. 

Manus Clancy: It's certainly an important metric, and we'll get a number. On the July jobs report soon, that will be indicative to some degree of where we're headed.

But let me say, I'm kind of spitballing here a little bit talking off the top of my head, but I think that both sides have this wrong. Honestly, I think they're both dug in and I think they're both dug in. Incorrectly, and let me see if I can explain this. It's really just dawning on me. Now let's take the president on one side.

I've said before, I don't think the bullying is helpful. Uh, I think it's incredibly. Unconstructive, so let's leave that there. But beyond that, the idea that we should be three percentage points lower than where we are today, that we should have a 1% Fed funds rate is absurd. Right? That would just trigger a new wave of bubble like we saw in 2022.

Nobody needs that. On the other hand, I do think that the Fed in not cutting rates is also dug in, but for all the wrong reasons, and let me see if this makes sense. Normally in trying to cool off the US economy, it's done because people have too much cash in their pocket or because the economy is overheating, that's why the Fed is called upon to raise interest rates to.

Tapered down the acceleration. The velocity of the economy. But if you say that inflation is coming from tariffs or will be coming from tariffs, then it's coming from taking money out of people's pockets. That's not an accelerator, that's a decelerate. And if your thesis is that we're gonna see 10% higher costs of electronics, durable goods.

Clothing and so forth, that is a tax. And if that's the case, the Fed has no reason not to cut. This is not an overheating economy. This will be an economy that is taxed. And accordingly, the Fed should cut periodically to make sure that we don't run into a brick wall because of tariffs. I think they have this all wrong right now.

Dianne Crocker: That's why I nominate you Manus for the next, uh, fed chair position when it opens up in May or earlier. 

Manus Clancy: I'm not sure I could stand up to the slings and arrows that I see on social media or coming from the talking heads on Bloomberg and CNBC and. Fox business. I, I don't know. I don't think I have that kind of constitution.

Martha Coacher: Well, a couple points that I want to highlight here that I think underscore some of the things you're talking about, Manus and Dianne, we see a number of earnings calls that are highlighting some of the impact of tariffs already. Last week it was GM that had more than a billion dollar chunk taken out of its profits as a result of tariffs.

We have seen UPS, Whirlpool, Stanley Black and Decker, p and g, all report weak quarterly results, all impacted by tariffs. And you know, we talk about the consumer health. There are signs that the consumer is dealing with financial stress. More homeowners are tapping their home equity. In the last year, and they're, they're doing it for debt consolidation, not necessarily for home improvement projects, which have fallen off since the height of 2022 and more upper income Americans are increasingly falling behind on their credit card and auto loan payments.

Manus Clancy: I think that dovetails with what I was just saying. There's no reason for the Fed not to. Post some modest cuts between now and the end of the year. I think perhaps stubbornness is taking over reason at this point, but the tariff effect is starting to show up. As you pointed out, it will continue to show up and that will tax both the consumer and US businesses, and accordingly, the Fed should not be hawkish.

At this point, they don't have to be dovish, but they could be more accommodative than they've been over the last couple months. And I do think, you know, I use this term frequently whistling past graveyards. I do think that we have gone from complete panic in April to we're not just whistling past graveyards.

This is a chorus of kazoos right now. We are seeing two companies now with $4 trillion. Market caps. We are seeing the s and p 500 trade at near all time PE ratios at a time when we are expecting rates to go up, or I should say inflation to go up and the US economy to slow. This is a recipe for people to have real buyer's remorse if they're buying into this.

FOMO thought right now that if I don't get it now, I'm gonna miss out on the next wave of stock market gains. That's my 2 cents. I'm not really a stock market predictor, but the market seems very, very frothy right now. 

Martha Coacher: And all of this is a backdrop to investment sentiment for commercial real estate, and we decided that we needed to take the pulse of those that are market participants.

So Dianne, walk us through some of the findings of our mid-year. Market sentiment survey. 

Dianne Crocker: Yeah, let's talk sentiment. So we are just closing out the LightBox midyear CRE sentiment survey, which closed, um, a week ago Friday. It also coincided with K Crafty's Q2 sentiment index, and they both paint kind of a consistent picture and not that far away from what you just talked about.

Manus, you know, the market's far from booming, but. The soft data on sentiment is pointing to a market that's stabilizing, that's adjusting to widespread uncertainty, and even showing flickers of optimism as, uh, as we go deeper into the second half. So first of all, Martha, I wanted to thank the 237 professionals across brokerage, investment lending, appraisal, and environmental due diligence.

Who took our survey from the results, you know. Say it's kind of a, a classic case of muddling in the middle. You know, we asked them about their expectations for the second half and nearly three quarters of the survey sample expect their deal activity to either hold steady or increase slightly. I didn't see a lot at either end.

Um, no one's extremely bullish. No one's extremely bearish. And I think that's because uncertainty is the backdrop. The industry is not blind to that, and it's not going away anytime soon, but they're pushing forward and those findings dovetail with CREs sentiment index. Which jumped nearly 28% in Q2. And what struck me about that is I remember when Kre these's Q1 survey came out, their index fell dramatically from a high in Q4 and in Q1 it went below 100.

And that was the first time since COVID that it did. Now they're reporting that they're members who are on the CRA lending side. Only 27% expect conditions to worsen in the next quarter. So that's a huge improvement. Over 80% that we're expecting worsening conditions when they surveyed them after Q1. So, you know, we're seeing both the LightBox sentiment survey and the krey data move in the same direction.

So it's giving me more confidence that we're on this kind of low and steady shift in sentiment after the unrest that followed the tariff announcements in early April. So the market's kind of lying in weight for that first interest rate cut. They're waiting for policy clarity. They're waiting for, uh, more certainty to come out in terms of how tariffs will impact the market.

Uh, the overall expectation that we see is for higher CRE investment and lending activity in the second half compared to what we saw in the first. 

Manus Clancy: I think the sentiment matches the data that we're seeing, and I think it's one of the most remarkable aspects of the first seven months of 2025 that we saw no meaningful.

Downdraft in economic activity for CRE after April 2nd. We saw that huge swoon in stocks, 20% dip in the major indices right after the terrorists were announced. That never really coincided with a slowdown in CRE transactions. So April, may, June. Very, very consistent numbers in what we track in terms of announced sales per week.

Really nothing deviating from the norm during those. But I will point out, and this is a, a bullish sign, that over the last two weeks we have seen a meaningful uptick in the number of announced transactions we've seen weekly. So what is meaningful? We bounce around at about 200 transactions a week, give or take, give or take 25 week over week.

From the data that we see, the last couple of weeks have seen a 30 and 35% uptick from our average. And when you consider this is the last two weeks of July when we normally don't see a lot of transactions taking place. This is a remarkable number for me. People are just getting deals done. People are putting risk on.

Lenders are lending and the CRE market has just not missed a beat thus far, and whereas I am modestly bearish on equities. Only because of valuations and because of the impact on profits. I remain bullish on CRE because I think people are confident right now. People are putting shovels in the ground.

They're buying properties to reposition, they are expanding their portfolios. The buyer pool is deep and all four pillars of the lending community, CMBS, banks, insurance companies, and non-banks are lending full steam ahead right now, and it feels good. It 

Dianne Crocker: does feel good. I'll also say Manus, that since we're at the end of July, that means that we'll have our monthly CRE activity index next week.

June's was the highest of the year, so we'll have to see if July's is as heated as the temps have been this week. But based on the transaction data that you just mentioned, I think there's a pretty good chance that we'll be at June's levels, if not even higher. 

Manus Clancy: Well, I think I'm on record as saying, well, we would be 25 points higher on the index between June of.

2025 and December of 2025. I stick with that. We made some big progress last month in that 25 point uptick. I think we're gonna see some gains in July too. I think this will be a pretty good month for the index. I haven't seen any numbers yet, so I'm not foreshadowing this yet, but it's a prediction and I do feel pretty good about the rest of the year for CRE.

Martha Coacher: We also are about to release our quarterly market snapshot report for environmental due diligence, and it's an early indicator of sales transaction activity looking at due diligence reports. Dianne, what did it show? 

Dianne Crocker: It is. Yep. Next up in our snapshot series is our check-in on the phase one ESA sector and environmental site assessments are the essential step, but they typically happen at the end of the underwriting process.

So there's some good news in the Q2 report, and that is that activity picked up. Solidly in Q2. So the LightBox phase one ESA activity index rose to 96.9 in Q2. That was 13% higher than this time last year it was 12% above Q1. So in my mind, that's a strong signal that deals are making it to the finish line more consistently than they were one year ago.

And then looking ahead to Q3, the mood is, is relatively upbeat, similar to what you just said, man. We have 12 new market council members that we queried at the closes of Q2. None of them are expecting a decline. In Q3, 44% expect a modest uptick in activity. And I'll note that historically, the third quarter, especially September, when we all come back from our summer vacations, it's typically a ramp up.

To increase transactions that will close in the fourth quarter. So we're already hearing from consultants whose clients are expecting more projects to surface at the end of Q3, and we'll see that, especially if we see a rate drop in September. So the phase one snapshot report drops next week. So if you wanna a deeper dive, definitely stay tuned for that.

And I wanna pause here, Martha, also, and give a shout out to Sarah Fight at a EI Consultants. She is a loyal listener and she, uh, mentioned the episode with David Tro at Morningstar. She said that she had to listen to it twice because there was so much data to absorb. So thank you Sarah for that. 

Manus Clancy: Turning this from a numbers thing to a.

Personal thing. So many of the people we know in the industry struggled in 20, 23 and 24 brokers, environmental professionals, engineers, appraisers, business was down. And that hurts when you're not seeing the activity that you see in prior years. It means you're tightening your belt, you're trying to do more with less, and.

It's just wonderful to see our friends now seeing the other side of that mountain right now and seeing businesses activity picking up, getting back to those normal days of 2018, 19 and 20, where you could expect consistency month over month. So just on a very personal note, this is very satisfying. 

Martha Coacher: And our did you know, takes us back to our environmental data.

Dianne Crocker: It is, so nationwide the total volume of phase one reports hit nearly 70,000 in Q2, and that was an 11% year over year increase. And if it continues Manus, this is good news for the environmental consultants who have struggled over the past couple of years. If the trend continues, that means that 2025 could be the second consecutive year of growth after three years of a downturn. So that would also be good news. 

Manus Clancy: Before we get to the transactions, Martha, I have to give a shout out to our friend Matthew Osborne. He was a guest to the pod, longtime listener friend. He knows the Boston market inside and out. Uh, he goes by the nickname Oz, and our condolences to him, he went into music, which is his real passion in life.

After having listened to Ozzy Osborne, our listeners all probably know at this point, uh, the Great Oz passed away. Ozzy Osborne passed away last week at the age of 76, and Matthew Osborne wanted us to give a shout out on behalf of the founder of Black Sabbath and a real innovator when it comes to. Heavy metal, right?

One of the real trailblazers of that genre of music. So that's for you. Matthew Osborne, 

Martha Coacher: who by the way, is no relation to the Ozzy Osborne. 

Manus Clancy: Martha, it was a tough week for boomers, right? We lost one of the Cosby kids, we lost Hulk Hogan, Ozzy Osborne, and Chuck Mangione. Not exactly a weak for the, uh, average Boomer like me.

Martha Coacher: They do come in waves and shifting over to some noteworthy transactions. Let's start with some multifamily mixed use transactions. 

Manus Clancy: There are plenty of them, uh, as, as there seem to be every single month. Multifamily is really the, the bellwether, if you will, in commercial real estate. It makes up the vest.

Plurality of transactions that get done week over week or or month over month. And we saw some big ones as we normally do. One of the big ones last week was JP Morgan acquiring a big. We'll call it mixed use, but it's primarily multifamily project on Manhattan's Midtown West. This is really close to the West Side Highway.

They pay $243 million for that property, which includes some street level retail. It just goes to show that the velocity in multifamily sales continues and people are willing to really pay high prices for Class A, class A minus properties really throughout the country. 

Dianne Crocker: It's also a big sign, Manus, that JP Morgan's deepening its footprint in multifamily.

It follows its recent acquisition in Atlanta and now its in-house rental portfolio is closer to $2 billion. So it's a lot of confidence in multifamily and they're, they're definitely pushing forward to expand their footprint there. 

Manus Clancy: I'll highlight two other multifamily notes here. This is kind of more in the development side than it is transactions, but I thought.

That these were important ones, and I apologize for being so New York centric in my stories today, but these all jumped out at me. JLL arranged a $123 million construction financing for a Brooklyn multifamily project. Why did that jump out at me for the reason I really talk about every week, and that is.

The first things to fall by the wayside when cracks start to come in the market are the ability to find construction financing and the ability to find financing for conversion projects, offices to multifamily offices, to hotel, et cetera. We are seeing really no. Downdraft at all in the amount of money available for people who wanna put shovels in the ground here, a $123 million loan for a Brooklyn apartment project.

Also in New York. The Lightstone Group finalized the sale of 3 55. Exterior street in the South Bronx. This comes after the buyer secured. A $300 million construction loan by Tel Group was the purchaser of the development site. They're planning two residential towers and that will place a bus depot and an empty lot.

They acquired those sites for $84 million. And this is like the JLL story. Nobody. Puts up $84 million unless they know that they're gonna find construction financing unless they know that they can develop a project successfully. And here what you're seeing is one of the few really neglected areas of New York City until the last couple years, the South Bronx getting a lot of money to see that get built up.

For a long time, the South Bronx was really. A wasteland, not even industrial would develop in the South Bronx. It was really just extremely old multifamily or empty lots. And what we've seen, I think it was started with RXR is a renaissance in the South Bronx with. Large, 20 and 30 and 40 story apartment buildings going up just over the edge of Manhattan, right at the southernmost point of the Bronx.

And this is another one here, Lightstone Lending by tell buying and putting up more, uh, high-end housing in the South Bronx, is, is there a more significant sign of confidence in this market than that? 

Dianne Crocker: Agreed. Madison, I just wanted to mention that in the South Bronx project, it's a mix of affordable units, so 25% of them will be affordable units.

So they're looking definitely to appeal to a broader demographic in a borough That's really grappling with housing access and cost pressures, and I think those stories that you mentioned really demonstrate that there's been this resurgence of institutional capital flowing into urban housing assets.

Even amid the, the macroeconomic uncertainty that we've been talking about and certainly demand for housing options outside of Manhattan, which a lot of people can no longer afford. 

Manus Clancy: I love the affordable housing angle. I love the fact that a big chunk of this will be set aside from that and for. New York expats, people that haven't been back to New York, I think you'd be blown away by just how much development there has gone into that area.

You get on that Metro North Commuter railroad and you go from Westchester to Grand Central Station. The amount of development in the South Bronx is really extraordinary. It's a a great sign of a revitalization of a really beaten down neighborhood. 

Martha Coacher: Shifting into office, we saw a report coming out of Commercial Mortgage Alert that office sales have soared by 40% in the first half, which is very upbeat for those of us that are watching the office market closely.

Manus Clancy: The office sale, the office sale velocity has been really extraordinary.

People can complain about. The fact that prices that they're seeing are miserable and they are. We are seeing 50, 60, 70% discounts on sales. So the losses are meaningful and they're very, very painful. For those that bought in, let's say 2012 to 2020, those losses are really big, but nobody can really complain about.

Transparency of data. There is so much buying and selling of office right now that really in any major US city, you can see a boatload of comps really across the class spectrum. So at least in that regard. People know what things are buying and selling for. You know, what the price per square foot is in San Francisco and Chicago and New York for Class A, class B, class C.

And at least that will help this market clear sooner. And by clear we mean find its bottom start to restore value. Start to see prices firm up a little bit. They won't firm up. Anywhere near where they were in 2019, that's for sure. At least not for anything that's not completely, completely class A trophy.

But we will see this market clear and continue to, um, stabilize. But a couple of office stories I'll point out to get away from my New York. Centricity Bradford Commercial Real Estate acquired a 250,000 square foot office in uptown Dallas. The article I, I think it's commercial observer, just points out that there's continued investor appetite for urban office locations in major Sunbelt cities, and this kind of talks about.

Or talks to the fact that there is really a tale of two markets in office right now. If you have a great location and a highly amenitized building, and if you can complete the hat trick by it being really new, right? Built in the last two or three years, you will get premium rents. You will get premium valuations.

This is really true across the country. There is no crisis in the class. Triple A. Newly built highly amenitized office market. It's everything below that. That is in a complete crisis. And that's true in Dallas. It's true in San Francisco. It's true in New York. Going to San Francisco. Our other sale here, uh, Redco will acquire Wells Fargo's San Francisco headquarters at four 20 Montgomery Street.

Uh, there had been a previous deal for housing there that fell apart. Redco is now stepping in to buy the building. Uh, the story behind it is Wells Fargo was the dominant tenant at that property for a long time. They announced a couple years ago that they would be exiting this 400,000 square foot complex and relocating to 3 33 Market Street.

They were also gonna consolidate a large number of other local offices in San Francisco. So this is another example of. Somebody coming in, buying at a dirt cheap price, hoping to refurbish the office and restore value, and that's happening across the country, albeit at just really, really low prices. 

Dianne Crocker: It's interesting, Manus, the office sector just strikes me as kind of like a big flywheel.

You know, a few years ago nobody was moving. There was no price clarity. And now with every story, like the ones you just highlighted, it just signals that the, the thaws on and investors maybe are getting a little bit of a sense of fomo, that they better move in now, um, or miss out on deals and you can't.

Underestimate the impact that that price clarity is having on this sector. You know, with every transaction it makes it easier to do valuations. It makes it easier to close the gap between bid and ask prices that really kind of thwarted transactions in the past few years. So it's really great to see that momentum's building and.

Brokers are, are busy again, that capital markets are, are slowly opening up. I agree with what you said about Dallas. I think that always rises to the top when we look at metros that are attracting the highest demand for things like environmental due diligence and appraisals. And then last, you know, I thought it was interesting with Wells Fargo that, you know, they made the decision to leave that property, but they're staying within the same submarket, so it reinforces that while their space needs are shrinking, um, San Francisco remains central to their operations.

Manus Clancy: I'm gonna come up with an imperfect comparison here to contrast two really. Down markets over our lifetime. The first is when we went through the great financial crisis, we saw AAA rated bonds, and in particular, I'm talking about AAA rated what are known as junior aas or Mez aaas. So these were kind of the second level of AAA within the CMBS market.

And when that market tanked, we saw things selling for. 15 cents on the dollar. 20 cents on the dollar. 30 cents on the dollar. And when that market started to clear, there was really only one buyer and that was appaloosa. They came in and started acquiring these assets for those. Extraordinarily deep discounts and many of these bonds paid off at par.

They ended up posting incredible profits for making this bet back in 2010, 2011. The difference, now the discounts are similar for office, we are seeing sometimes 85% discounts, 80%, 75%. The difference now is the buyer pool is quite deep when we see. 30 or 40 office transactions in a given month. It's rare to see a repeat buyer.

This is not the Appaloosa story where there was only one buyer. There's a lot of buyers dipping their toes right now trying to make this bet that they can turn a $50 million investment back into a hundred million dollars value. At the risk of repeating myself, this is just another sign of a confident market that there's so many people out there making this bet right now.

Martha Coacher: We've seen tech earnings this week and they are not stopping on their AI investments, and we've been talking week after week about the investment in data centers. Well, apparently the development of data centers is starting to monopolize construction resources. 

Manus Clancy: The headline from Commercial Observer was.

Labor costs, water and power needs, timelines. The asset du jour is starting to strain building development across the board. I've been very upbeat in office. I've been upbeat on market velocity so far. This does concern me this headline that when you talk about. How much financing is going into data centers right now?

You ask, will that crowd out or will that pause or will that push up the cost of financing on other less sexy investments Right now? Are we going to over. Emphasize that at the expense of something else. Will these power needs drive up the cost of others in areas where data centers are being built? Will it drive up the cost of multifamily operators or retail operators for those that are putting shovels in the ground?

Will it be harder to find labor because so many data centers are being put up? All those are good questions and. We have a lot of tailwinds right now for CRE. This could be a headwind. What do you think, Dianne? 

Dianne Crocker: I think you might be right. I mean, there's definitely cause for a concern. Imagine penciling out a, a data center project and trying to incorporate what tariffs could mean on things like steel and electrical components, you know, which are gonna, they'll push data center project budgets even higher and.

To your point, these, you know, these shocks could make financing and timing not just challenging on data centers, but challenging on other projects who may also see a, a related increase in costs. Harder time finding labor for construction if everything is gravitating toward data centers. And I, I wonder too, bigger picture, like, where's the end point?

You know, everybody's scrambling for data centers. They're, you know, as you said this. Sexiest sector of commercial real estate, but is it sustainable? You know, how long can this go on? I don't disagree that there will be ripple effects, certainly, or possibly in other sectors like industrial and, and office and multifamily that may in response face longer timelines, face higher costs, and constrained access to skilled labor, which is already constrained.

Manus Clancy: Two thoughts on that. My first is of the three things that the commercial observer article pointed out, labor financing, power generation. It's the third that concerns me the most when you talk about how much power they are anticipating using that they were going to un mothball nuclear power plants.

That tells me. Buckle up if you are a renter. Buckle up. If you're a multifamily operator. Buckle up if you're a homeowner that if you live in one of these areas where data center is coming, you are looking at severely higher energy costs down the road. Could I be wrong? Certainly. I hope I'm wrong. Maybe these developers create their own energy sources.

They create new nuclear power plants that run their own data centers and so forth. Something tells me that this is gonna have a long tail and it's not gonna be a happy tale for people that live in those, those neighborhoods. The other thing I would say, which is a little bit off the beaten path, I was saying at the very top of the hour that I am a little bit concerned about equities being overvalued.

Part of my thesis there, in addition to the fact that PE ratios are just so high right now, is that the numbers being bandied about by Google Meta. Microsoft and others in their AI spend is so enormous that someday this has to tweak their earnings. Right? They are talking tens if not hundreds of billions of dollars in AI investment.

And at that kind of level. At some point you would think that investors would say, well, future growth will have to come. At the expense of all this CapEx, right? At least in the short term we'll see. 

Martha Coacher: We would be remiss if we didn't talk about the event. That obviously has gotten everyone focused on the absolute tragedy we witnessed in Midtown Manhattan with the shooting of a number of people, including those in the real estate world.

And it's raised the topic of office safety in addition to just being an outright senseless tragedy.

Dianne Crocker: Yeah. I, I wanna just mention Martha, um, the loss of Wesley LePatner. She was one of the top ranking female executives at Blackstone.

She was the CEO of BREIT, which is Blackstone's $53 billion. Real estate fund for retail investors. It's a tragic loss, not just for the firm, but for the broader CRE community, because beyond her leadership role, she was such a powerful advocate for diversity. She was a true champion for women in commercial real estate, and she really paved the way for others in the industry through mentorship by her example.

So her loss is felt not just by her colleagues at Blackstone, but across our industry. So our thoughts are with everybody who's. Mourning the loss of Wesley as well as the three other victims. And like Martha said, it's, you know, it's also raised the topic of, of office safety and, and put the spotlight on security measures.

Manus Clancy: By all accounts, Wesley was a wonderful person, a great leader. We're seeing all the tributes pour out and she just seemed, to your point, Dianne, to be such a great human being for those that are not fully engaged in the CRE markets. Not only are we talking about a, a wonderful human being, we're talking about somebody who was at the absolute top of their profession.

Blackstone, one of their truly great companies in the commercial real estate space, and to be the CEO of their flagship operation puts you at the very top of the CRE profession and are. Thoughts just go out to her family, her coworkers, Blackstone in general, and everybody in New York who was touched by this senseless tragedy.

Martha Coacher: Our thoughts are with all the victims and their families, and as always, thank you for listening and be well.