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Capital Markets Update Week of 3/4

March 4, 2025

Private-Label CMBS and CRE CLOs

• KRE 2025-AIP4, a $740 million SASB backed by a floating-rate, five-year loan (at full extension) for KKR to refinance 29 industrial properties totaling ~7.5 million sf located across six states.
• BLP 2025-IND, a $540 million SASB backed by a floating-rate, five-year loan (at full extension) for Brookfield to refinance 54 industrial properties totaling ~6 million sf located across 16 states.
• SCG 2025-DLFN, a $457 million SASB backed by a floating-rate, five-year loan (at full extension) for Starwood and Dalfen Industrial to acquire a portfolio of 38 industrial properties totaling ~5 million sf across 10 states.

By the numbers: Year-to-date private-label CMBS and CRE CLO issuance totals $33.5 billion, 179% higher than the $12 billion for same-period 2024. 

• Conduit AAA spreads were wider by 3 bps at +81, while A-S spreads were wider by 5 bps at +110; AA and A spreads were unchanged at +130 and +160, respectively. 
• Conduit BBB- spreads were unchanged at +415.
• SASB AAA spreads were wider by 3 bps, ranging from +110 to +120, depending on property type.
• CRE CLO AAA and BBB- spreads were unchanged at +125 / +130 (Static / Managed) and +350 / +365 (Static / Managed). 

Agency CMBS

• Agency issuance totaled $1.9 billion last week, consisting of $1.2 billion in Freddie K and Multi-PC transactions, $481 million in Fannie DUS, and $256.2 million in Ginnie-Mae transactions.
• Year-to-date agency issuance totaled $22.4 billion, 31% higher than the $17 billion for same-period 2023.

The Economy, the Fed, and Rates…

• Consumer Confidence Plummets: The Conference Board's consumer confidence index fell sharply by 7 points to 98.3 in February, its largest monthly drop since 2021. Respondents cited concerns over the Trump administration's policies, particularly tariffs and federal layoffs. Scott Helfstein of Global X noted:

• Jobless Claims Rise Sharply: Initial jobless claims rose by 22,000 to 242,000 for the week ending February 22, reaching their highest level since October. Layoffs at federal agencies and government contractors contributed significantly to this increase. Apollo's Chief Economist Torsten Slok estimates up to one million federal employees and contractors could lose their jobs due to government cuts – a significant potential drag on employment. 
• Trade Deficit Hits Record High: The merchandise trade deficit widened unexpectedly by 25.6% to a record $153.3 billion in January, driven by an 11.9% surge in imports ahead of Trump's planned tariffs. This front-loading of imports suggests that businesses are bracing for prolonged trade tensions.
•  GDP Outlook Turns Negative: The Atlanta Fed GDPNow forecast dramatically revised first-quarter GDP growth from +2.3% last week to -2.8%, driven mainly by weaker consumer spending and the ballooning trade deficit. Piper Sandler similarly downgraded its GDP forecast to a -2% contraction.
• Savings Rate Increasing: Americans' personal saving rate, which measures savings as a percentage of disposable income, rose to 4.6% in January from 3.5% in December – potentially signaling defensive consumer behavior amid economic and policy uncertainty.
• Housing Market Weakness: Pending home sales fell to a record low in January due to high mortgage rates, high home prices, and severe winter weather.

  Federal Reserve Policy

• Inflation Still Elevated but Moderating: January's core Personal Consumption Expenditures (PCE) price index – the Fed’s preferred measure – rose 2.6% year-over-year, matching expectations but still above the Fed's 2% target. While inflation pressures moderated slightly from December's 2.8%, tariff-related price hikes, rising inflation remains a looming threat. Morgan Stanley warns that tariffs could raise PCE inflation by up to 0.6 percentage points and depress real consumer spending by as much as two percentage points.
• Fed Faces Stagflation Risk: Recent data suggest a potential stagflation scenario – slow growth coupled with elevated inflation expectations – could emerge if tariffs significantly raise consumer prices and economic activity weakens further. While inflation remains above target, the Fed may prioritize growth concerns over price stability. Brian Quigley, Senior Portfolio Manager at Vanguard, said if the Fed has to choose between supporting growth and fighting inflation,

• Rate Cut Expectations Intensify: Markets are increasingly pricing in significant Fed rate cuts – currently anticipating about three quarter-point reductions (75 basis points) this year – reflecting growing concerns over economic stagnation and labor market weakness. Citigroup economists predict the Fed will cut rates in May, by which point they expect data will conclusively show slowing inflation and growth, and tariff uncertainty will have subsided.

• Business Investment Plans Stall: Companies have begun freezing expansion plans due to tariff uncertainties, with Ford CEO Jim Farley warning proposed tariffs would "blow a hole" in the auto industry, while Chipotle warned about potential impacts on food imports like avocados and limes. As Michael Strain at the conservative American Enterprise Institute noted:

• Consumer Backlash over Tariffs Likely: A Harris Poll found nearly 60% of Americans expect Trump's tariffs will lead directly to higher prices, indicating potential political risks for the administration if consumer sentiment continues to deteriorate.

• Equity Volatility Rises Amid Uncertainty: Despite Friday's late-day rally trimming February losses, investor sentiment remains fragile amid geopolitical tensions, tariff threats, and weakening economic data. Analysts caution that volatility will persist as markets grapple with policy uncertainty and recession risks.
• Wealth Concentration Raises Economic Fragility Concerns: Moody's Analytics analysis revealed that the wealthiest 10% of American households now account for half of all consumer spending – a historically unprecedented concentration that raises vulnerability should asset prices reverse or high-income consumers retrench spending. While high-income consumers continue spending, middle- and lower-income groups show signs of strain.
• Gold Prices Surging: Gold futures have returned 42% over the past 12 months, more than double the S&P 500 index’s 19% return (including reinvested dividends), as investors seek safe-haven assets amid economic uncertainty.

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