Welcome to our deep dive. We’re looking at commercial real estate trends today. You’ve given us a lot to work with news articles, economic analyses, even some interesting retail developments. Yeah, quite the mix. We’re going to break it all down, help you understand where commercial real estate is headed, especially as we get closer to 2025.

Right. A big question is this whole. Extend and pretend thing, is it really coming to an end? It’s a big question. A lot of folks are wondering. Your sources actually give us a lot to consider. We see stuff about loan modifications, delinquency rates, and even some political and economic factors at play.

Yeah, it’s all connected. Plus, we’ve got those specific examples, like the McKinney National Airport expansion and Bloomingdale strategy in Texas. Always good to have those real world examples. Makes it more tangible. Absolutely. Let’s start with McKinney, actually. That airport story is fascinating. They’re moving forward with a commercial terminal, but it’s smaller than what they originally proposed.

Voters rejected a bigger bond measure last year. Yeah, back in 2023, residents voted down a 200 million bond. Now the city council is moving forward with a 70 million plan. So, smaller scale. Yeah, it’ll be smaller. Three gates, five parking positions for the planes. But still a big addition. Significant. And they got federal funding for it, right?

That’s right. They secured some federal funding, low interest infrastructure loans and grants. Interesting. It seems like there’s a lot of faith in the airport’s potential. Definitely. The airport already brings in 29 million a year for the region. And with commercial flights on the horizon That number’s only going up.

Exactly. Plus, they’re working on a separate runway expansion. Another 24 million going into that. McKinney’s really investing in their future. It’s a great example of how things can work out, even when the first plan hits a roadblock. They adapted, found another way. But let’s step back a bit. Look at the bigger picture of lending in commercial real estate.

Your sources point to a lot of loan modifications happening, especially for those non owner occupied borrowers. Yeah, that’s a trend we’re watching closely. In the first 9 months of 24, the median percentage of those modifications jumped 65 basis points. That’s significant. It is. Any idea what’s behind that?

Well, one thing that really sticks out is what’s happening with the smaller banks. They’ve seen a huge increase in modifications. A 217 percent jump. 217%? Wow, that’s a massive increase. What’s driving that, do you think? It seems like those smaller banks are feeling the heat. They’ve got all these underperforming commercial real estate loans.

The modifications are a way to buy time, hoping things turn around, they’re trying to avoid foreclosures if they can. So it’s kind of a temporary fix, kicking the can down the road a bit. You could say that, yeah. It delays things. For some properties, though, it’s just delaying the inevitable, and we see this happening in the office CMBS market, too.

Only 11 percent of the loans maturing in September were actually paid off in full. Almost half got short term extensions. It’s a big difference from what we used to see. So, lenders are getting less and less patient with just extending things. Seems like it. Does this tie into that extend and pretend question?

Definitely. It’s all connected. These short term extensions have helped prevent a total market meltdown. But for how long? The clock’s ticking, lenders are starting to get picky, especially about assets that aren’t performing well. Makes sense. They can’t just keep extending forever. So what’s the timeline here?

When do we think things might hit a breaking point? Well, from what the sources suggest, 2025 could be a turning point. We’ll likely see more properties in distress hitting the market. That often leads to prices going down. Which can create opportunities for some. But challenges for others. Exactly.

Especially when it comes to financing. That’s a crucial point. We’ve been talking about these big market trends. But how does all this affect someone like you who’s actually making decisions about commercial real estate right now? Well, you gotta understand the current situation. But you also have to look ahead.

Anticipate these potential shifts. Lenders might get stricter. Certain sectors like office headwinds. All of that has to factor into your strategy. It’s not just about finding a good deal. It’s about finding a deal that makes sense in this changing environment. Okay, before we go too deep there, I want to touch on something else that popped up in your sources.

These smaller stores popping up everywhere. Ah, yes. That’s an interesting trend, isn’t it? It is. Starbucks, Tim Hortons, even Bloomingdale’s are getting in on the act. Everyone seems to be embracing smaller spaces. It seems counterintuitive though, right? Why make your store smaller when you could have more space for merchandise or customers?

It’s not just about size. It’s about efficiency and adapting to how people shop these days. These smaller formats often help retailers cut costs, streamline their operations, and cater to customers who want things fast and easy. So it’s about keeping up with the times. Exactly. And we’re seeing this with Bloomingdale’s, right?

They’ve got their Bloomy’s concept. Smaller stores, a more curated selection, a focus on the in person experience. Right on. And they’re opening one of those Bloomy’s stores in Frisco, Texas. Part of a bigger mixed use development. Bye. And speaking of Texas, it’s booming with new retail space, especially what they call first generation space.

Brand new construction, never been occupied. Houston alone has added almost 25 million square feet of it since 2020. That’s incredible. Seems like developers are pretty optimistic about Texas. They are. A lot of activity there, a lot of growth. But even within Texas, you see different trends playing out depending on the sector.

Retail might be thriving, but the Dallas Fort Worth multifamily market tells a different story. Yeah, your sources show rents actually going down in Dallas Fort Worth. Yeah. For the second year in a row, that’s kind of surprising given how strong the Texas economy is overall. It is. And these declines are across the board.

All property classes, even those fancy four and five star rentals, they’ve dropped by 2. 1 percent over the past year. So what’s causing those rent declines? The main thing seems to be a mismatch between supply and demand. They’re building more units than the market can absorb. That puts downward pressure on rents.

So Advantage Renters in Dallas Fort Worth right now. For now, yeah. But the predictions say rents could stabilize in 2025, maybe even start going up again in 2026. Of course, that’s just a prediction. Things change. They do. Speaking of changing trends, there’s that story about data centers taking off in Irving, Texas.

Oh yeah. Microsoft and QTS Realty Trust, they’re planning seven data centers there. Seven. And the city council is giving them some pretty sweet deals to make it happen. Like cutting their property taxes in half for the next decade. That’s right. A 50 percent reduction for 10 years. That’s a big commitment.

But cities are really fighting to attract those tech giants. Data centers bring jobs, investments, you know, a certain prestige. It’s all part of Irving’s bigger plan to grow their economy. It reminds us that real estate isn’t just about buildings. It’s about the economic forces that shape those buildings.

The communities around them. And while we’re on the topic of transformation, there’s that interesting story about the old Raytheon manufacturing plant in Dallas, the one that’s becoming a Porsche dealership. That’s the one park place dealerships bought the 15 acre site planning a big redevelopment, A great example of how old industrial spaces can find new life.

Could be retail, entertainment, even housing. Absolutely. It shows how adaptable real estate is. Needs change. Markets change. We’re seeing this across the country. Old factories are becoming all sorts of things. It’s fascinating. And in this case, it really highlights how strong the luxury car market is in Dallas.

An aerospace factory becomes prime real estate for a high end car dealership. But now, let’s zoom out again. Consider the bigger economic and political picture. Okay. Because your sources had some insights there as well. Yeah, there’s a lot going on. The Fed’s been cutting interest rates. But they’re also hinting that they might slow down those cuts in 2025.

Right. They just lowered the benchmark rate by 25 basis points. Right. But their message is clear. They’re going to be more careful moving forward and that combined with some uncertainty about the new Trump administration’s policies. Yeah. Well, it’s making the stock market a bit jittery. Yeah, there’s definitely some anxiety.

Investors are trying to figure out how those policies will play out, especially when it comes to taxes and tariffs could have good and bad effects. depending on the sector. It’s a lot to take in. Hard to predict what will happen, but it’s important to stay informed. Understand how these big economic and political trends might affect the commercial real estate market.

Absolutely. Everything’s connected. Creates both opportunities and challenges. Okay, so we’ve covered a lot in this first part of our deep dive. We talked about specific developments like the airport and that Raytheon plant. We looked at broader trends in lending and retail. We even touched on the economic and political landscape.

We did. A lot to digest. It is. But the key question is, what does all this mean for you, the listener? How do you make sense of it all? How do you apply it to your own decisions? That’s what we’ll dive into in the next part of our deep dive. We’ll connect these dots, explore what it all means for someone navigating commercial real estate in 2025 and beyond.

Okay, so we’ve laid out some pretty big trends that are shaping commercial real estate, but let’s get more specific now. What does this all mean for someone who’s actually out there trying to navigate this market in 2025? Right, let’s try to connect these dots. We were talking about the potential end of extend and pretend, which could mean, More distressed assets hitting the market.

That’s sounds kind of scary, but it could also be a good thing, right? Exactly. Could this be a chance to pick up some properties at a discount? I mean, that would be pretty appealing for someone who’s looking to get into the market or maybe expand their portfolio. It could be, but there’s a trade off.

Remember those alternative capital sources we discussed, the private equity firms, credit funds, they’re stepping in to fill the gap left by the traditional banks. But they’re not doing it out of the goodness of their hearts, right? They want higher returns, stricter terms, that kind of thing. Exactly. So it’s not just about finding a good deal It’s about finding a deal that works with this new Piter financing environment You might need to get a little creative a little more resourceful to make things happen.

So opportunities Yes, but with some added challenges What else should someone be thinking about as they’re looking at commercial real estate in 2025? One thing to remember is that not all property types are created equal We talked about the challenges in the office sector, and even some weakness in the multifamily market, at least in certain areas like Dallas Fort Worth, those trends don’t just disappear overnight.

Right, all those empty office buildings aren’t suddenly going to fill up, even if extend and pretend does fade away. The multifamily market, well, maybe it’s stabilizing, but it’s still very much a renter’s market in a lot of places. Exactly. So, you need to be really careful about what type of property you’re investing in, and where, on the other hand, we’ve seen how strong industrial properties can be, particularly in markets like Texas, where the data center boom is driving a lot of demand.

And let’s not forget about retail. It feels like things have shifted away from that retail apocalypse, doom and gloom we were hearing a few years ago. It has. The retail landscape is definitely changing, but it’s not dying. The success of these smaller format stores, the continued demand for first generation space, especially in Texas, Those are all good signs.

It’s all about adaptation, right? Both for the retailers themselves and for anyone looking to invest in retail properties. Absolutely. Understanding the specifics of each market and property type is essential. What works in Houston might not work in New York City. The key is to look beyond the headlines.

Really dig into the data, talk to local experts, and develop a deep understanding of the market you’re interested in. So due diligence is more crucial than ever. Don’t just jump into something based on a gut feeling. Take the time to really vet the opportunity, and speaking of the bigger picture, we can’t ignore those economic and political uncertainties looming out there.

Right, those play a role too. The Fed’s rate cuts give borrowers some breathing room, but they also raise concerns about inflation down the road, and then there’s the wild card of the incoming Trump administration, and how their policies might impact everything from taxes to trade. It’s a lot to keep track of and honestly it can feel a bit overwhelming.

How does someone even begin to make sense of all this and translate it into something actionable? That’s a great question. I think the main takeaway is that the commercial real estate market is in a state of change. The old rules might not apply anymore. Those who can adapt, innovate, and be proactive will be the ones who come out on top.

It’s not about riding the waves. It’s about learning how to surf, so to speak. Okay, so we’ve talked about the need for adaptability, the importance of due diligence, and being aware of these broader economic and political forces. What are some concrete steps someone can take to prepare for 2025 and beyond?

Well, first and foremost, research. Don’t just rely on gut feelings or what you hear from your buddies. Immerse yourself in the data, analyze the trends, and connect with experts in the specific markets you’re interested in. So go beyond just reading a few articles, really dive deep and develop a solid understanding of what’s happening in the market.

Exactly. There are some great resources out there like CoStar that provide tons of data and analysis on the commercial real estate market industry, publications, research reports, networking events. Those can all be valuable sources of information. And don’t underestimate the power of networking. Building relationships with other professionals in the field can give you a real advantage.

Absolutely. Networking allows you to tap into the collective wisdom of the industry. Learn from other people’s mistakes and stay ahead of the curve. You can get insights that you won’t find in any report or database. Okay, so research, data analysis, and networking are key. What about the financial side of things, especially given that tighter lending environment we talked about?

That’s crucial. Having a strong financial foundation is essential. This means maintaining a good credit score, getting pre approved for financing if you’re planning to borrow, and being realistic about your investment goals and your risk tolerance. So don’t jump into a deal just because it seems like a good price.

Make sure you understand the financial implications and that you’re comfortable with the level of risk. Exactly. And remember, flexibility is key in this market. Be open to considering different types of properties, exploring alternative financing options, and adjusting your strategy if things change. Be adaptable.

Be responsive. Don’t get stuck with a rigid plan that might not work in this fluid environment. Right. And finally, I would add patience and discipline to that list. The commercial real estate market is cyclical. There will be ups and downs. Don’t let the short term noise distract you from your long term goals.

It’s about having a clear vision and sticking to it even when things get a little rough. Exactly. By combining thorough research, sound financial planning flexibility, and a patient approach, you can set yourself up for success in this ever changing world of commercial real estate. Great advice. So much to think about.

It really comes down to being proactive, informed, and adaptable. Now I have one final thought before we wrap up this part of our deep dive. We’ve talked about the rise of those smaller format retail stores, and the increasing demand for first generation retail space, especially in Texas, and we’ve also discussed the data center boom happening in certain markets.

Yes, two seemingly separate trends. Where are you going with this? What if those trends could converge? What if data centers became anchors for new retail development? Data centers as retail hubs. That’s an interesting idea. Think about it. These data centers create a lot of high paying jobs, which attracts people who need services, amenities, places to shop and eat.

What if developers started incorporating those smaller format retail stores, maybe even some drive through only concepts, into those data center campuses? That’s not something we saw in your sources, but it’s definitely food for thought. It could be a win win, right? Data centers get the convenience of having these amenities on site for their employees and retailers tap into a built in customer base with money to spend.

It would definitely require some out of the box thinking and collaboration between developers, retailers, and the data center operators themselves. Yeah. But if done right, it could be a really innovative approach to mixed use development. It’s just a thought, but it highlights how important it is to think differently and explore those unconventional opportunities, especially in a market that’s changing as rapidly as this one now, with that idea in mind.

Let’s move on to the final part of our deep dive, where we’ll tie everything together and consider the key takeaways for you, our listener. Sounds good. Let’s do it. Alright, we’ve covered so much in this deep dive. Airport expansions, loan modifications, the rise of the smaller format stores, data centers booming, even talked about data center retail hubs, it’s a lot.

You initially came to us with a pretty specific question though. Right. Is the extend and pretend era truly over in commercial real estate? Yeah, that was the big question. And based on everything we’ve seen, it’s looking like the answer might be yes. The sources really point to lenders getting tired of this game.

Especially when it comes to those office properties that are struggling. It seems those short term extensions, the ones that have been keeping things afloat, might be hitting their limit. Exactly. And even big institutional investors are starting to lose patience. We saw that quote from Glenn Grimaldi, the CEO of Navtel Credit Partners.

He didn’t mince words. He was pretty clear. So, heading into 2025, it looks like lenders will be more careful about those extensions, more scrutiny, more demands from borrowers. Right. And for you, the listener, this means you need to be ready for a market that could be a bit wilder. More ups and downs. Might be some great deals coming out of distressed sales.

Getting the financing. That might be a whole other story. So what can our listeners do to prepare for this shifting market? Any advice? Sharpen those due diligence skills. Don’t just skim the surface. Dig deep into those financials. Really understand the local market. Make sure you’re comfortable with the risk you’re taking on.

So it’s more than just finding a property with a good price tag. Way more. You have to understand all the details. Make sure it fits with your plan and your risk tolerance. Absolutely. Good due diligence isn’t just about avoiding the bad deals, it can help you find hidden potential. Maybe that old Raytheon plant isn’t just for a Korsha dealership.

Maybe it’s a chance to build something totally new, a mixed use development that brings the whole area back to life. It’s about seeing the possibilities that other people miss. Having that vision, that entrepreneurial spirit. And speaking of possibilities, we were just talking about the data center boom and the rise of those smaller retail stores.

Hmm. What if someone put those two things together? You’re thinking about data centers becoming like anchor tenants for retail. Exactly. Imagine it. A data center campus with a bunch of those smaller stores around it. Maybe some drive thrusts. Serving the people who work there and live nearby. A whole new model.

Now that’s interesting. It’s different. For sure. But I like it. Could be a win for everyone. Developers, retailers, the data center companies themselves. Exactly. It shows how thinking outside the box, adapting to the changes, can lead to some really cool opportunities. And I think that’s the main takeaway from all of this.

The commercial real estate world is constantly changing. You have to embrace the change, stay informed, and be proactive. That’s how you thrive. Couldn’t have said it better myself. So, to our listener, we say embrace the change, stay informed, and never stop exploring. The future of commercial real estate is yours to create.

Well said. And with that, I think we’ve successfully navigated this deep dive into commercial real estate trends. We covered a lot, from airport expansions to those data center retail hubs. Hopefully you’re leaving here feeling more informed and inspired. Knowledge is power, right? The more you understand about this market, the better decisions you’ll make.

Absolutely. Keep learning, keep exploring, keep pushing the boundaries. Until next time, happy investing, everyone.