Good morning. It's Sunday, September 27, and in this week's edition, we're covering the $757 billion of apartment debt coming due by 2028 and why the buildings are fine but the loans are not, why the Fed may be the smaller story behind a 5% ten-year and a 6.95% mortgage, and a Blackstone video that sent me back to 1870 looking for what a productivity boom does to prices and rates.
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Apartment landlords have $1.8 trillion of debt coming due over the next decade, and $757 billion of it matures between now and 2028 - more than any other property type, per the Mortgage Bankers Association. Nearly $300 billion hits this year alone, after a record $310 billion in 2025. Most of it was written in 2020 and 2021 near 3%. Refinancing today means about 6%. TruAmerica's Bob Hart has a Raleigh property rolling from 3.5% to 6% and would rather sell than write the check. Multifamily CMBS delinquencies went from 1% in October 2023 to 7.1% this year. Lenders spent three years extending. They stopped.
My view: the opportunity is fixing the broken debt and buying assets that already cash flow. Most of these buildings are not broken. Occupancy is fine, management is fine, the roof is fine. The debt is broken, and it has to get fixed one way or another - a recap, a discounted note, or a sale. That is the opportunity.
"Why Buc-ee's Builds $50 Million Gas Stations": Tyler Cauble breaks down the Buc-ee's model - about $50 million a location, gas sold at almost no margin on purpose, and a 75,000-square-foot store behind the pumps running closer to 40% margins. Buc-ee's buys 30-plus acres at each interchange instead of franchising, so it owns the land it reprices. The play for us: the 18-to-24-month window between site announcement and opening day. Watch here
"Goldman Sachs President & COO John Waldron: Rooting for the English Majors": Skip to Blackstone's Winfield Sickles at 4:25. He reads 160,000 hotel keys across the portfolio: a year ago the low-income guest was pulling back, now spending is broadening again. His take on last week's hike is the one to remember - rates are rising because growth is strong and the capex cycle is competing for capital, not because something broke. Watch here
The Fed hiked to 3.9% last week, and the Fed may be the smaller story. The 10-year topped 5% this year for the first time since 2023, before the Fed moved. The 30-year mortgage hit 6.95%. Three forces are pushing: tech firms borrowing heavily to build data centers, federal deficits that are not shrinking, and consumers still spending enough for Bank of America to pencil 3% growth for the third quarter. RSM's Joe Brusuelas calls it a "regime change in inflation and interest rates." Chair Warsh said at Jackson Hole the post-2008 view that capital would "sit on the sidelines for a long, long time" is over.
CRE Impact: Stop underwriting to a cut. If the long end is being set by AI capex and Treasury supply, a 3% coupon is a memory, not a cycle. Buy at cap rates that work on today's debt, below replacement cost, with fixed-rate money for as long as a lender will give it.
This past week my friend Nikita sent me a video of Jon Gray, Blackstone's president, presenting to his LPs at their annual investor meeting. It is public, it is thirty minutes, and it is the best thing I watched all week. Watch it here. Here is what jumped off the page.
Gray's argument is that we are living in 1870, not 1900. In 1870 most Americans lived on a farm, every building was wood, you visited family by horse, and you read at night by candle. Thirty years later: cities, steel, rail and electric light. By his count, in that one window labor productivity doubled, GDP went up four times, manufacturing output six times, and the stock market seven times.
He is careful, too. About 200 railroads went bankrupt in those same thirty years. They built supply on heavy leverage ahead of demand, and the demand showed up after the lenders did. His distinction for today: demand is running ahead of supply, and the counterparties signing the leases, the hyperscalers, carry very little debt. "It doesn't mean there aren't going to be things that go poorly."
The money is real. Five hyperscalers will spend $820 billion on capex this year, about 2.5% of US GDP. Utilities spent $800 billion on the grid over the last five years and expect to nearly double that over the next five. And it is starting to show up in the numbers. US productivity growth has run 2.6% over the last two and a half years, against a 1.5% average for the decade before.
Here is where I went down the rabbit hole. I wanted to know what 1870 to 1900 did to prices and rates, and the answer surprised me. That period was deflationary. Consumer prices fell about a third over thirty years. Productivity grew so fast that everything got cheaper to make and cheaper to move. Steel rails went from $160 a ton to $80. And interest rates fell right along with prices: high-grade railroad bonds went from about 6.7% in 1870 to 3.2% in 1900, straight through the biggest construction boom the country had ever seen.
That lines up with what I found last week. Rates follow inflation, not the other way around.
So is this a counterargument to my view that inflation and higher rates are here for a while? Maybe. If we get 1870-style productivity gains from robotics, self-driving, and AI across white-collar work, that could turn into strong deflationary winds. It could. We will see. I am not ready to change my position. But I am watching this one closely.
One more line from Gray for anyone who owns buildings. His list of winners that AI cannot touch included the Rome airport and beachfront property. His words: "Nobody loves real estate, multiples are low, and yet these experiences aren't going away. These assets are irreplaceable." Keep that one on your desk.
Where do you land: does AI end up pushing rents and rates up, or does 1870 repeat and it all turns deflationary?
Hit reply and tell me which side you are on. I read and reply to your emails personally.
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Thank you for reading.
Until next Sunday.
Be well,
Saul
P.S. Missed my podcast with Gary Lipsky? Here is the full episode.
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