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Section 899 Retaliatory Tax Withdrawn 

July 1, 2025

Treasury Secretary Scott Bessent on June 26 posted on X.com that he has asked Congress to remove the Section 899 retaliatory tax from the One Big Beautiful Bill (OBBB).

• CREFC and other real estate trade groups raised concerns that the provision could chill investment in U.S. real estate debt and equity through a combination of increased costs and uncertainty as to whether the tax will apply to certain countries. Click here for the letter.
• The global tax deal agreement helps accomplish policymakers’ goals of fair international tax treatment while avoiding negative consequences to inbound U.S. investment.
• Over the weekend, Canada announced it was suspending its digital services tax as a way to help restart U.S. and Canadian trade negotiations. The tax, which President Trump was critical of recently, was also one of Section 899’s targets.

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New York Legislation Could Limit Loan Agreement Language

July 1, 2025

Legislation on New York Governor Kathy Hochul’s (D-NY) desk would prohibit rent minimums in mortgage loan agreements. 

• The bills A174 and S1163 passed both chambers in mid-June, but the Governor has yet to sign the legislation. 

Why it matters: There are concerns that the broad language in the bill could have unintended consequences for lenders’ rights, such as lease approvals. 

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Tax Bill Update: Senate on the Brink

July 1, 2025

Congressional Republicans are pressing to deliver the One Big Beautiful Bill (OBBB) for President Donald Trump to sign by July 4. Leaders have been optimistic about meeting the deadline, but vote-counting challenges remain, and the bill continues to evolve. 

• As of 9:00 AM on July 1, the Senate is still in its vote-a-rama, but lawmakers aim for a final vote soon. 
• Reported GOP holdouts include Sen. Susan Collins (R-ME), Sen. Lisa Murkowski (R-AK), Sen. Rand Paul (R-KY), and Sen. Thom Tillis (R-NC). Leadership is focusing on flipping Murkowski so a 50-50 vote can be broken by Vice President JD Vance.

Why it matters: The White House has made a heavy push to enact the bill by July 4, which required both the Senate and the House to truncate their scheduled recesses. 

• The Senate worked over the weekend to begin debate on the bill, with final action likely today. 
• Only two GOP senators, Sen. Paul and Sen. Tillis, opposed the motion to proceed on the bill. Soon after, Tillis announced he would not run for reelection in 2026.
• The House is expected to vote on the bill Wednesday, and leaders are attempting to craft the Senate bill to appease (or jam) the House. With the Friday deadline, there would be no room for a conference to reconcile any lingering differences. 
• At least eight House GOP members have said they will vote against the bill. While other House Republicans are concerned with certain parts of the bill, only three GOP members can oppose the bill if all Democrats are voting against it.

The big picture: While the bill itself continues to evolve, the concerns of individual Members of Congress have consistently centered around state and local tax (SALT) deductions, Inflation Reduction Act (IRA) tax credits, Medicaid, and the overall debt impact. 

• SALT: The latest deal in the Senate version largely preserves the $40,000 deduction for those making under $500,000 in House language. Notably, after five years, it permanently reverts to a $10,000 deduction. The Senate bill also removes the House prohibition that would have limited state workarounds for certain pass-through entities. The House SALT Caucus is largely on board, but Rep. Nick LaLota (R-NY) has said he will oppose the bill on SALT grounds. 
• IRA Credits: Dueling Republican factions are seeking either greater preservation of the credits and tax treatment, or ending them sooner or completely. The latest iteration has drawn ire from solar and wind advocates, including Elon Musk. 
• Medicaid and Overall Spending: The changes to Medicaid are the primary driver of budget savings, but deficit hawks complain the cuts are not deep enough, while some moderates are concerned the cuts go too far. Sen. Tillis’s main objection to the bill was that too many people would lose health insurance. Murkowski and Collins are also concerned about the Medicaid provisions. 

What’s next: Assuming the Senate passes the bill today, expect maximum pressure from President Donald Trump on House holdouts. 

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

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Bank Capital Regulatory Update

July 1, 2025

Banking regulators are starting to move ahead with reframing U.S. bank capital standards. 

• On June 25 and June 26, the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC), respectively, voted in open sessions to issue for comment proposed amendments to the enhanced Supplementary Leverage Ratio (eSLR) applicable:
  • The proposal calls for replacing the current eSLR, which requires globally systemically important banks (GSIBs) to hold additional capital equal to 2% of their total exposures, with a new capital charge, equal to one-half of each bank's GSIB surcharge.
  • Comments are due August 26.
• The joint banking agencies, including the Office of the Comptroller of the Currency (OCC), on June 27 officially requested comment on the proposal. One of the proposal’s key goals is to reduce disincentives for banks to engage in lower-risk activities, thereby encouraging the smoother functioning of U.S. Treasury markets.
• Two Federal Reserve Board members, Adriana Kugler and Former Fed Vice Chair of Supervision Michael Barr, voted against issuing the proposal, sharing their concerns about the potential impact on bank capital. According to Barr:

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Mamdani’s Primary Win in NYC and What It May Say about National Politics

July 1, 2025

Queens Assemblyman Zohran Mamdani clinched the Democratic nomination for New York City mayor, defeating former state Governor Andrew Cuomo in the June 24 primary. With 93% of votes counted, 33-year-old Mamdani led with 43.5% to Cuomo’s 36.4%, prompting Cuomo to concede the race.

• His campaign focused on affordability for working-class New Yorkers, proposing initiatives like freezing rents for rent-stabilized apartment owners, free public transportation, universal childcare, and the construction of 200,000 affordable housing units
• Mamdani’s political career began with a successful bid for the New York State Assembly in 2020. He represents Queens’ 36th District. His endorsements from prominent progressives such as Bernie Sanders and Alexandria Ocasio-Cortez further bolstered his appeal. 

According to Jacobin, this primary race vindicates an economic-populist strategy that embraces bread-and-butter economic issues some Democrats have advocated for:

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Economy, The Fed and Rates

The Economy, the Fed, and Rates…

• May inflation slightly hotter: Core PCE rose 0.2% m/m (vs 0.1% expected), with the annual rate at 2.7%. Overall PCE rose to 2.3% y/y, up from a revised 2.2%. Consumer prices overall rose 0.1%, lifting the annual rate to 2.3%.
• Consumer spending weakened: Personal spending fell 0.3% in real terms for May, down from April’s 0.1% increase. Personal income fell 0.4%, the most since 2021, reflecting a reversal of April’s Social Security payment spike.
• Q1 GDP revised lower: GDP contracted at a -0.5% annual rate vs a second estimate of -0.2%. Personal consumption rose just 0.5% vs. a second estimate of 1.2%, marking the weakest pace in almost two years.
• Labor market cooling gradually: Initial jobless claims fell to 236,000, but continuing claims rose to 1.97 million for the week ended June 14 - the highest since November 2021. This suggests employers are slowing hiring rather than laying off workers.
• Consumer sentiment rebounds: The University of Michigan Consumer Sentiment Index jumped to 60.7 from 52.2, an 8.5-point increase and the largest since the start of 2024. One-year inflation expectations improved to 5% from 6.6% in May.

Federal Reserve Outlook

• Market anticipates a more dovish post-Powell Fed: Traders are pricing in five quarter-point rate cuts by year-end 2026, betting that a Trump administration appoints a more accommodative Fed chair after Powell’s term ends in May 2026.
• Diverging Fed voices: Fed Governors Waller and Bowman favor a July rate cut, downplaying tariff-driven inflation, while Chair Powell advocates waiting until fall for more clarity on inflation trajectories.

Market Dynamics & Treasury Yields

• Stocks defying skeptics: The S&P 500 hit a fresh record high, completing a 27% rally from April lows. The recovery reflects confidence that Trump will moderate his most aggressive tariff threats and that the economy can weather current uncertainties.
• Bond market sending warning signals: The 10-year Treasury yield remains elevated at around 4.28%, up about 60-70 bps above last September’s lows. This persistence despite rate cut expectations reflects growing concerns about fiscal sustainability and inflation risks.
• Dollar weakness raises alarm: The dollar fell to a three-year low, breaking its traditional positive correlation with Treasury yields. Citadel’s Michael de Pass warned that this divergence reflects questions about U.S. “institutional integrity” and policy predictability.
• Corporate bonds resilient: The gap between corporate bond yields and Treasuries is near the tightest since 2005, reflecting investor confidence in the Fed achieving a "soft landing." Foreign investors bought about $45 billion of US corporate notes in April, the most in six months, according to Citigroup's analysis of Treasury data.

Implications For the CRE Finance Market

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CRE Securitized Debt Update

Private-Label CMBS and CRE CLOs

Three transactions totaling $1.6 billion priced last week:

1. VDCM 2025-AZ, a $735 million SASB backed by a fixed-rate, five-year loan for Vantage Data Centers to refinance three recently constructed data centers in Goodyear, AZ.
2. BANK5 2025-5YR15, a $556.3 million conduit backed by 31 five-year loans secured by 68 properties from Morgan Stanley, BofA, JPMorgan, and Wells.
3. GSAT 2025-BMF, a $330 million SASB backed by a floating-rate, five-year loan (at full extension) for Buckingham Cos. to refinance seven multifamily properties totaling 2,381 units in five states.

By the numbers: Year-to-date private-label CMBS and CRE CLO issuance totals $76.6 billion, representing a 62% increase from the $47.3 billion recorded for same-period 2024. 

Spreads Hold Steady

• Conduit AAA and A-S spreads were unchanged at +86 and +115. YTD, they are wider by 11 bps and 10 bps, respectively.
• Conduit AA and A spreads were unchanged at +160 and +205. YTD, they are wider by 25 bps and 40 bps, respectively.
• Conduit BBB- spreads were unchanged at +540. YTD, they are wider by 115 bps.
• SASB AAA spreads were tighter by 1 - 3 bps to a range of +110 to +138, depending on property type. YTD, they are wider by 3-21 bps. 
• CRE CLO AAA and BBB- spreads were unchanged at +145 and +390, respectively.

Agency CMBS

• Agency issuance totaled $1.2 billion last week, comprising $910.3 million of Fannie DUS, $262.2 million of Freddie Multi-PC transactions, and $74.4 million of Ginnie transactions.
• Agency issuance for the year totaled $67.1 billion, 44% higher than the $46.5 billion for the same-period 2024.

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Powell Testifies on Hill Amid Increasing Criticism

Fed Chair Jerome Powell testified before the House Financial Services Committee and the Senate Banking Committee last week, delivering the Semi-Annual Monetary Policy Report.

• Rep. Lisa McClain (R-MI) questioned Powell about potential financial instability “building beneath the surface” in sectors such as commercial real estate, private credit, and regional banking that could derail economic growth. 
• Powell stated that there are “a lot of pots to watch to see that they don’t boil over,” pointing specifically to commercial real estate. He noted, however, that the Fed is actively managing the issue and emphasized that the situation is getting better, not worse. 
• As for private credit, Powell acknowledged its “real, positive attributes,” but cautioned the sector has grown rapidly and has yet to face “a real downturn,” noting that it “bears close watching.”

• Specifically, Powell said that ongoing uncertainty regarding the economic impact of elevated tariffs has led the Fed to maintain its current monetary policy stance, despite continued progress toward the 2% inflation target. 
• Powell indicated that restrictive trade policies will lead to higher prices, noting that it's the Fed’s duty to ensure that a jump in prices does not lead to persistent inflation. 
• On regulatory policy, Powell discussed proposed changes to the supplementary leverage ratio (SLR), the removal of reputational risk from bank examinations, and congressional efforts to advance stablecoin legislation. 
• In addition to these regulatory changes, Chair Powell fielded questions from Senators on the national deficit and the economic implications of artificial intelligence.
• As noted in the story above, shortly after the Senate hearing concluded, regulators released a joint proposal that would replace the current 2% eSLR buffer with a new capital charge, equal to one-half of each bank’s GSIB surcharge.

Contact David McCarthy (dmccarthy@crefc.org) or Sairah Burki (sburki@crefc.org) with any questions.   

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CREFC's May 2025 Monthly CMBS Loan Performance Report

June 30, 2025

• Conduit/SASB CMBS combined delinquency of 7.08%
  • Delinquency rate increased 5 bps in May
  • Third consecutive monthly increase; follows increases of 38 bps and 35 bps in April and March, respectively
  • On a YOY basis, the overall combined delinquency rate is up 211 bps (7.08% vs. 4.97% in May 2024)
• Multifamily delinquency rate declined by 46 bps in May to 6.11%
  • Multifamily rate is still 441 bps higher than it was one year ago
• Hotel loans saw a large decrease in delinquency, down 146 bps to 6.39% 
• Office delinquency rate rose 31 bps in May to 10.59% and remains the highest delinquency rate of all property types
• Overall May delinquency rate still 324 bps below the 10.32% peak in June 2020 – the height of pandemic-related lockdowns
• Loans in special servicing (SS) increased 13 bps to 10.30% in May; SS rate has increased in 15 of the last 18 months and is up 209 bps YOY 
• BofA analyzed conduit loan repayment trends by original maturity year and found growing signs of stress
  • Elevated interest rates and slowing cash flow growth are already impairing borrowers’ ability to refinance
  • So far, 2025 has posted the lowest repayment rate since the GFC

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