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Treasury Secretary Testifies to the House Financial Services Committee

May 13, 2025

U.S. Treasury Secretary Scott Bessent offered his first annual testimony to Congress last week before the House Financial Services Committee. In a lively hearing, lawmakers debated a broad range of topics, including tariffs and cryptocurrency.

The big picture: 

• Republicans, led by Chairman French Hill (R-AR), praised Bessent’s “America First” strategy that aims to bring jobs back to the U.S. through tariffs, tax cuts, and efforts to reduce red tape. They called for tough stances on China, stricter rules on American investments going abroad, and reforms to global institutions like the International Monetary Fund and the World Bank.
• Democrats led by Rep. Maxine Waters (D-CA) slammed the administration’s tariffs, blaming them for shrinking the economy and driving up prices. Rep. Nydia Velázquez (D-NY) demanded more transparency on trade negotiations. Bessent responded, saying:

• Bessent promised changes that would level the playing field for U.S. financial institutions and signaled he would take significant industry feedback to inform any re-written endgame proposal: 

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NCREIF - CREFC Debt Fund Aggregate Announcement

May 13, 2025

As you know, we have been producing the NCREIF / CREFC Open-end Debt Fund Aggregate for approximately two years. Today, the Aggregate includes funds with sharply different styles and strategies of debt investing, making it useful for understanding the overall risk and return characteristics of the open-end debt fund market. Currently, the Aggregate is too varied to serve as an index or a benchmarking tool. Nevertheless, it represents a crucial first step in developing a more targeted index of funds operating within a specific style or strategy.

Introducing Open-End Debt Fund Investment Styles and Criteria

We are seeking NCREIF and CREFC member feedback on both the naming of the three style indices and the related inclusion criteria parameters.

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House Releases Tax Bill Text 

May 13, 2025

The House Ways and Means Committee on Monday released 400 pages of text detailing the tax portion of the reconciliation bill, titled “One Big Beautiful Bill.” 

• The committee will hold a markup today at 2:30 pm, but it is likely the legislation will continue to evolve as it advances. 

Why it matters: This is the first draft of legislative text for the tax bill that broadly reauthorizes the 2017 Tax Cuts and Jobs Act, raises SALT caps, and delivers on a number of President Donald Trump’s tax priorities. 

• Treasury also released an updated “X date” in mid-August for the debt ceiling, which adds pressure to lawmakers to pass the bill by July. 

By the numbers: Of interest to CREFC members, the following provisions represent neutral or lower tax liability, as written: 

• $30,000 Individual SALT Cap: The bill raises the cap to $30,000 for all taxpayers with a phase-out for incomes above $400,000.
  • Raising the state and local tax deduction (SALT) limit from $10,000 is a red line for at least five blue state Republicans. A $30,000 cap was floated last week, which several members of the caucus rejected.
  • However, the Senate and other Republicans are opposed to too much relief for SALT.
• No Business SALT Cap: There are no provisions to cap business state and local income or property taxes. 
• 199A Passthrough: Qualified business income deduction increases to 23% from 20% and is made permanent.
• No Carried Interest Rollback: President Trump had reiterated his push to close this “loophole” in a call last week with Speaker Mike Johnson (R-LA). The bill does not change carried interest treatment. 
• Low-Income Housing Tax Credit (LIHTC) Boost: The bill would increase the state housing credit ceiling and lower the tax-exempt bond requirements, similar to the 2024 Wyden-Smith Bill.
• Renews Opportunity Zones: The bill authorizes a new round of Opportunity Zone designations, starting on Jan. 1, 2027, and ending on Dec. 31, 2033. Some tweaks were made to various low-income definitions. 
• Bonus Depreciation Made Permanent: Allows full expensing of qualifying property.
• Interest Expense Deduction: Increases the cap on the deductibility of business interest expense for taxable years beginning after 2024 and before 2030 by allowing the EBITDA definition of taxable income.

Additional tax cuts: The TCJA provisions are largely made permanent with some minor adjustments to brackets. Lawmakers delivered on the White House’s priorities. 

• No Top Tax Bracket Increase: In a call with Speaker Mike Johnson (R-LA), President Trump renewed his effort to increase the top tax bracket on earners taking home more than $2.5 million. This provision is not in the bill.
• White House Individual Tax Priorities: The bill eliminates taxes on tips, overtime, auto loan interest, and adds an enhanced standard deduction for seniors (+$4,000). The provisions expire after four years, unless renewed. 
• Factory Expensing: The bill allows 100% expensing of certain real property used for manufacturing. 
• Tax Bracket and Standard Deduction Boost: All tax bracket amounts, except the top rate, will receive an upward inflation adjustment of 2%. The standard deduction increases by $2,000 for joint filers and $1,000 for individual filers. 
• Child Tax Credit: Increases from $2,000 to $2,500. 
• Estate Tax Exemption: Permanently increases to $15 million and is tied to inflation adjustments going forward. 

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CRE Securitized Debt Update

Private-Label CMBS and CRE CLOs

One transaction priced last week:

• GSTNE 2025-FL4, a $901.3 million CRE CLO sponsored by Greystone Senior Debt Fund. The managed transaction is comprised of 13 whole loans and 15 loan participations secured by 28 multifamily properties in 16 states.

Transaction flow was subdued in April after a strong first quarter of issuance due to President Trump’s tariff announcement. 

• However, with volatility easing, issuers are bringing back sidelined deals and talking to borrowers about new ones. 
• According to Commercial Mortgage Alert, several transactions are in the market, including another CRE CLO and multiple conduit and SASB offerings.

By the numbers: Year-to-date private-label CMBS and CRE CLO issuance totaled $52.5 billion, representing a 76% increase from the $29.8 billion recorded for same-period 2024. 

Senior Benchmark Spreads Tighten Sharply

• Conduit AAA and A-S spreads were tighter by 11 bps and 15 bps to +92 and +135, respectively. YTD, they are wider by 17 bps and 30 bps.
• Conduit AA and A spreads were unchanged at +205 and +265. YTD, they are wider by 70 bps and 100 bps, respectively.
• Conduit BBB- spreads were unchanged at +615. YTD, they are wider by a significant 190 bps.
• SASB AAA spreads were tighter by 10 bps to a range of +127 to +150, depending on property type. YTD, they are wider by 20 – 35 bps.
• CRE CLO AAA and BBB- spreads were unchanged at +165 and +425, respectively.

Agency CMBS

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Energy Star Program May be Shut Off

May 13, 2025

The Trump administration’s fiscal year 2026 “skinny” budget, released on May 2, proposes to cut funding for Energy Star, a voluntary, market-based program run by the Environmental Protection Agency (EPA).

As reported by the Real Estate Roundtable, Energy Star is commercial real estate’s “most relied-upon public-private partnership with the federal government.” 

• In an April letter to EPA Administrator Lee Zeldin, real estate trade groups, including CREFC, noted that nearly 25% of U.S. commercial building floor space used Portfolio Manager, EPA’s secure, open-source, online software:

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Financial Regulations Update

May 13, 2025

The Trump administration continues to round out leadership in the financial regulatory landscape. 

• The panel advanced Bowman's nomination in a 13-11 vote. According to American Banker, Bowman “is expected to sail through the full Senate vote relatively easily as both the industry and Republicans have stood behind her nomination.”

On May 9, President Donald Trump nominated Jonathan McKernan, a former Federal Deposit Insurance Corporation (FDIC) board member, to serve as Treasury’s undersecretary for domestic finance. 

• McKernan's previous nomination to serve as director of the Consumer Financial Protection Board, which was submitted in February and approved by the Senate Banking Committee in March, has been withdrawn.
• According to the Treasury Department’s statement, McKernan “has become an integral part of the Secretary’s senior team” while awaiting Senate confirmation for CFPB director. 

As reported in previous CREFC Policy and Capital Markets Briefings, Treasury Secretary Scott Bessent has stated that Treasury will play a key role in financial regulatory rulemaking. According to Politico, “if confirmed to the Treasury role, McKernan would be a central part of the Trump administration’s efforts to roll back and reshape regulations on the financial industry.” 

• During the May 7 Annual Testimony of the Secretary of the Treasury on the State of the International Financial System, Bessent signaled he would take significant industry feedback to inform any rewritten Basel capital endgame proposal. He also criticized the “one-size-fits-all” approach to capital requirements and said that Treasury will “weigh in heavily” at the Bank for International Settlements (BIS) and other rulemaking entities:

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Economy, the Fed, and Rates…

May 13, 2025

• U.S. tariffs on Chinese goods to 30% from 145% and 
• China's tariffs on U.S. goods to 10% from 125%. 

Why it matters: This eases immediate concerns about severe supply disruptions and sparked a market rally. However, Fed's Goolsbee and Kugler warn significant economic impact and uncertainty persist even with the deal.

Inflation: Calm before the Storm. April CPI (due Tuesday) is expected at 0.3% m/m and 2.4% y/y, but BofA flags holds that "core goods inflation likely accelerated… owing in part to tariffs," and BNP Paribas sees core CPI peaking around 4.4 % by late 2026.

Labor Still Looks Sturdy…for Now. 

• Payrolls added 177k in April, with the unemployment rate stable at 4.2%. 
• Yet, this could reverse if tariffs lead to widespread layoffs. 
• Chicago Fed's Goolsbee warns that even after Monday's truce, the tariff regime is "three-to-five times higher than before" and will still "make growth slower and prices rise."

Federal Reserve Policy

• Stuck on hold, staring down stagflation. The FOMC kept the fed funds rate at 4.25 – 4.50 %, highlighting "rising stag-flationary risks." Fed Chair Powell emphasized patience, using the term "wait and see" 11 times during his press conference, noting: 

• Dual-mandate dilemma. Powell says sustained tariffs could "generate a rise in inflation, a slowdown in growth, and an increase in unemployment," forcing the Fed to choose which target to wound.
• No rate-cut chorus. A barrage of Fed speakers (Williams, Kugler, Barr, Cook) echoed: wait for data; keep inflation expectations anchored. Barr bluntly warns tariffs could deliver "persistent inflation… and higher unemployment."
• Political heat rising. Trump's public jabs – Powell a "Fool" – renew debate over Fed independence, yet GOP lawmakers largely defend the chair, seeing him as a "stabilizing force."
• Rate-cut odds repriced lower. Futures now embed two quarter-point cuts for 2025, down from four in April, as optimism about less aggressive tariffs and inflation persistence has scaled back bets on the extent of easing.

• 5% Line in the Sand. BofA's Michael Hartnett argues that a durable move above 5% on Treasuries would "jeopardize the deficit-funding machine," likely forcing tariff roll-backs; foreign investors already hold $8.5 trillion of Treasuries, and CBO chief Swagel calls recent volatility a possible "tipping point" for their appetite.

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Tax Update: House Delays Action on Bill

May 6, 2025

Republicans delayed the rollout and consideration of key elements of the reconciliation legislation, including hearings on tax policy legislation and changes to Medicaid.

Why it matters: The House leadership still wants to pass a bill by Memorial Day, yet competing priorities among members of Congress and the White House are proving to be challenging. 

• SALT: Raising the individual state and local tax (SALT) deduction cap, currently $10,000, is still under debate. New York, New Jersey, and California Republicans have made raising this cap their “red line.” With a five-vote majority, they have enough votes to tank any bill without SALT relief. 
• Business SALT Cap: Colloquially known as B-SALT or corporate C-SALT, this provision has been under active consideration in House discussions. No details have emerged on what specifically would be covered, but conflicting reports indicate it would be pared down or potentially not included.
• Clean Energy Tax Credits: House Republicans have been targeting Inflation Reduction Act (IRA) tax programs as a way to reduce spending or offset some of the new tax cuts. But a group of 21 Republicans sent a letter in March urging leadership that any changes be “targeted and pragmatic” with a mind to future private-sector investment. Another group of 38 House Republicans sent a letter last week asking for a full repeal of the credits. 
• White House Priorities: While the President made no taxes on tips, overtime, and social security key campaign priorities, the White House continues to offer additional items. Last week, the White House told congressional leaders it would seek immediate and full expensing treatment for factory construction, both the buildings and the equipment. 

The big picture: The many loose ends on the tax front may contribute to a delay, but House leaders remain confident of meeting a May deadline. Challenges remain, however.

• The brewing fight on Medicaid, which Democrats are focusing their energy on highlighting, is raising political alarms for some Republicans and even the White House.
• Deficit hawks in the House continue to saber-rattle on spending cuts. Rep. Chip Roy (R-TX) and 20 House members sent a letter urging a number of “meaningful reforms” to Medicaid. 
• The Senate is not planning to mark up legislation, but it will likely have a heavy hand in moderating taxes or cuts once a bill passes the House. 
• The debt ceiling deadlines continue to loom over the entire legislation. Treasury is expected to clarify the “X date” in the next week or two. 

Contact David McCarthy (dmccarthy@crefc.org) with any questions. 

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Legislation to Raise FHA Multifamily Income Limits 

May 6, 2025

Two freshmen senators unveiled a bipartisan bill last week that would raise the loan limit caps for Federal Housing Administration (FHA) multifamily loans administered by the Department of Housing and Urban Development (HUD). 

Click here for the legislative text.

Why it matters: FHA multifamily programs insure loans for construction, rehabilitation, repair, refinancing, and purchase of multifamily rental housing properties. 

• Senator Ruben Gallego (D-AZ) and Senator Dave McCormick (R-PA) introduced the legislation. 
• If enacted, the bill would raise the base FHA multifamily unit income limits that determine eligibility. Those income limits have not been updated since 2004, though they have been subject to annual inflation adjustments and high cost-of-living multipliers. 

By the numbers: The bill would raise the base income thresholds and adjust the index for inflation: 

• The inflationary adjustment index would change from the Consumer Price Index (CPI) to the Price Deflator Index of Multifamily Residential Units Under Construction (published by the Census Bureau).
• Statutory threshold changes would impact the following HUD programs:
  • Section 207 – Multifamily Housing Insurance
  • Section 213 – Cooperative Housing
  • Section 220 – Urban Renewal Housing
  • Section 221 – Low- and Moderate-Income Rental and Cooperative Housing; 
  • Section 231 – Housing for Elderly Persons
  • Section 234 – Blanket Mortgage Insurance for Condos

What’s next: Republicans and Democrats continue to be interested in lowering the cost of housing, both single-family and multifamily. 

• If lawmakers find enough areas of bipartisan agreement, a larger housing-focused bill could move through Congress in the next year and a half. 
• However, methods lowering the costs of housing through subsidies, direct assistance, or supply incentives can provoke sharp disagreements. 
• While there are plenty of areas of bipartisan opportunity, the enactment of any housing policy, on a standalone basis or as a larger bill, will be challenging.

Contact David McCarthy (dmccarthy@crefc.org) with any questions. 

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