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Economy, the Fed, and Rates…

Economic Data

• Inflation pressures are mutating, not vanishing. April CPI slowed to 2.3% y/y, with PPI at 2.4%, but both showed “modest tariff pass-through” on goods largely offset by outright deflation in services. Bloomberg Economics calculates that the same goods/services split should cap core-PCE around 3% by year-end, below the 3.3% consensus, even after accounting for the tariff shock.
• Consumers are blinking. April retail sales were notably weak, rising just 0.1% after a 1.7% surge in March. The slowdown is attributed to consumers pulling back in categories exposed to China-related tariffs, indicating sensitivity to price increases. Spending on food services, however, remained solid, limiting downside risk to overall consumption. 
• Input-cost squeeze at the factory gate. Producer prices fell -0.5 % m/m, the biggest drop in five years, as margins shrank; firms are absorbing tariff costs rather than passing them through – for now.

Federal Reserve Policy

• Fed Chair Jerome Powell pivots back to an inflation-first doctrine. In back-to-back speeches, Powell warned of “more frequent and potentially persistent supply shocks.” He said the Fed will rewrite the 2020 framework, reconsidering the “shortfalls in employment” language and shelving “average inflation targeting.” Translation: the bar for pre-emptive rate cuts just got higher.
• Rate cut timeline delayed. Market expectations now target September for the resumption of rate cuts, significantly later than early-year forecasts. The Atlanta Fed’s Bostic maintains an outlook for just one rate reduction in 2025, citing persistent uncertainty unlikely to resolve quickly.

Treasury Yields & Credit

• Moody’s strips U.S. of triple-A rating. Moody’s lowered the U.S. credit score to Aa1 from Aaa on Friday, joining Fitch and S&P in grading the world’s biggest economy below the top, triple-A position.
• Long bonds cross 5% - briefly. The Moody’s downgrade, while largely symbolic given the dollar’s reserve status and the depth of U.S. financial markets, has contributed to upward pressure on Treasury yields. The 10-year yield climbed to around 4.5%, and the 30-year briefly crossed 5%-levels that historically begin to weigh on equities and risk appetite. The 30-year yield is up over 40 bps since early April while the 10-year yield is up over 30 bps.
• Foreign investors reducing Treasury exposure. Central banks and sovereign wealth funds now hold just 36% of U.S. debt, near the bottom of the historical range since 2012. Additional selling due to the Moody’s downgrade looks unlikely; many investors long ago rewrote mandates to allow sub-AAA Treasuries, and PGIM argues the immediate market impact will be “minimal.”

Impact on CRE Finance

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Senate Advances Stablecoin Bill 

May 20, 2025

The U.S. Senate invoked cloture on the GENIUS Act yesterday, a bipartisan bill designed to establish a regulatory framework for payment stablecoins. The bill and cryptocurrency legislation are major priorities for House and Senate financial services leadership. 

Why it matters: A stablecoin is a type of cryptocurrency designed to maintain a stable value by being pegged to a reserve asset, often a currency like the U.S. dollar, euro, or a commodity like gold. Common examples include USDT (Tether) and USDC (USD Coin), both of which are tied to the value of the U.S. dollar. 

• Stablecoins can offer price stability compared to traditional cryptocurrencies, which tend to be more volatile. Advocates for stablecoin regulation see the effort as an important step to digitize the dollar, ensuring it remains competitive in global trade, finance, and as a store of value in a world increasingly embracing digital assets.
• Proponents of the legislation say the GENIUS Act could bolster the U.S. dollar's position in the digital economy. It would do so by providing clarity and stability to the rapidly growing stablecoin market, which has seen its market capitalization surge to $246 billion. 
• The legislation is also expected to influence the broader regulatory landscape for digital assets in the United States; however, a separate effort known as market structure on crypto legislation is expected.

Go deeper: If enacted, the bill would enact the following measures: 

• Stablecoin issuers must be licensed: Entities that wish to issue payment stablecoins would need to obtain a license from a federal or state regulator.
• 1:1 Reserve Requirement: All stablecoins must be backed by reserve assets at a one-to-one ratio, ensuring that each token is backed by U.S. dollars or high-quality liquid assets. It is important to note that secure and liquid assets such as cash or Treasury bills can be held as reserves.
• Redemption Rights: Consumers must be able to redeem their stablecoins for U.S. dollars at par value, preserving trust and liquidity.
• Audit and Transparency: Issuers would be subject to regular audits, public disclosure of reserve composition, and strict risk management protocols.
• Anti-Money Laundering (AML) Compliance: Issuers must comply with AML, Know Your Customer (KYC), and other financial integrity obligations.
• Prohibits Issuance by Non-Financial Entities: Large technology companies and commercial firms would be barred from issuing stablecoins to prevent systemic risk or monopolistic digital currencies.

What they’re saying: The Senate voted to invoke cloture—a 60-vote threshold—with a large bipartisan margin (66-32) on Monday. This is a stark change from two weeks ago, when the bill failed to receive sufficient votes to be considered by the full Senate.

• Despite initial bipartisan support, Democrats had concerns over potential conflicts of interest involving President Donald Trump's family's cryptocurrency business ventures and the possibility of Big Tech companies issuing their own stablecoins.
• Other Democrats on the committee have changed their perspective on the proposed legislation, touting “major victories” in stablecoin negotiations since the initial bill failed two weeks ago. A revised draft has been introduced, including stronger anti-money laundering, national security, and consumer protection provisions.
• Senator Mark Warner (D-VA), a key negotiator for the Democrats, was quoted as saying he was “hoping for a deal,” noting that there are “literally just a couple of language issues” to iron out. Warner and 15 other Democrats voted for the bill.

The bottom line: The cloture vote was the key legislative hurdle for the bill, and Senate passage is likely assured later this week. The legislation still needs to go through House consideration before making it to the president’s desk. Proponents believe the bill would be a milestone for an industry that wants to encourage broader use and acceptance of cryptocurrency.

What's next: CREFC will continue to monitor this proposed legislation and any impact it may have on the CRE finance market.

Please contact James Montfort (Jmontfort@crefc.org) with any questions. 

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CRE Securitized Debt Update

1. ALA 2025-OANA, a $2.4 billion SASB backed by a floating-rate, five-year loan (at full extension) for a joint venture led by Brookfield to refinance the 2.7 million-sf Ala Moana Center in Honolulu.
2. MF1 2025-FL19, a $1.3 billion CRE CLO sponsored by MF1. The managed transaction is comprised of four whole loans and 21 loan participations secured by 82 multifamily properties in 18 states.
3. BSPDF 2025-FL2, an $894.4 million CRE CLO sponsored by Benefit Street Partners Real Estate Opportunistic Debt Fund. The managed transaction is comprised of three whole loans and 35 loan participations secured by 62 properties in 15 states. The top three property types are multifamily (61.3%), hotel (19.3%), and industrial (15%).
4. BX 2025-LIFE, an $869.3 million SASB backed by a fixed-rate, 10-year loan for Blackstone’s BioMed Realty unit on eight life-sciences buildings in the Boston area.
5. ARCLO 2025-BTR1, an $801.9 million CRE CLO sponsored by Arbor Realty SR, Inc. The managed transaction is comprised of 21 loans secured by 21 multifamily properties.
6. BSTN 2025-1C, a $650 million SASB backed by a fixed-rate, seven-year loan for Carr Properties and National Real Estate Advisors to refinance the recently constructed One Congress office tower in downtown Boston.
7. WFCM 2025-5C4, a $581.6 million conduit backed by 32 five-year loans secured by 82 properties across 16 states from Wells, Citi, LMF, Argentic, and JPMorgan.

By the numbers: Year-to-date private-label CMBS and CRE CLO issuance totals $61 billion, representing a 100% increase from the $30.5 billion recorded for same-period 2024. 

Spreads Rally

• Conduit AAA and A-S spreads tightened by 7 bps and 5 bps to +85 and +130, respectively. YTD, spreads are wider by 10 bps (AAA) and 25 bps (A-S).
• Conduit AA and A spreads were tighter by 35 bps and 40 bps to +170 and +225. YTD, they are wider by 35 bps and 60 bps, respectively.
• Conduit BBB- spreads were tighter by 40 bps at +575. YTD, they are wider by 150 bps.
• SASB AAA spreads were tighter by 10 - 17 bps to a range of +115 to +140, depending on property type. YTD, they are wider by 8 - 23 bps. 
• CRE CLO AAA were tighter by 15 bps to +150, while BBB- spreads were unchanged at +425.

Agency CMBS

• Agency issuance totaled $3.8 billion last week, comprising $2.4 billion of Fannie DUS, $993.8 million of Freddie Multi-PC and SBL transactions, and $396.2 million of Ginnie Mae transactions.
• Agency issuance for the year totaled $50.9 billion, 38% higher than the $37 billion for the same period last year.

Contact Raj Aidasani (raidasani@crefc.org) with any questions.

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Regulatory Update: SEC Agenda, More Color on Rule 15c2-11

May 20, 2025

The Securities and Exchange Commission (SEC) and the Practicing Law Institute (PLI) held their SEC Speaks program on May 19 and 20. 

• This is particularly important given that the Office of Information and Regulatory Affairs has not yet updated its semi-annual regulatory calendar, which provides industry with a roadmap on regulatory policy priorities. The last update was in November 2024.

The event featured remarks from Chair Paul Atkins and Commissioners Mark Uyeda, Hester Peirce, and Caroline Crenshaw. 

• In his opening remarks, according to Politico, Chair Atkins focused on the need for a friendlier regulatory environment for financial start-ups, particularly within the cryptocurrency industry. He said that the SEC has until now been operating with a "shoot-first-and-ask-questions-later" approach to the industry in recent years.
  • He also stated that he has instructed staff to revisit a more than two decades-old rule that limits the ability of closed-end funds to invest in private funds. He is interested in regulatory changes that would allow average investors to participate in private funds.
• Uyeda said that he was pleased to witness the SEC’s “major course correction” since January, returning to its “core mission” of regulating the capital markets. He also shared that he looks forward to “refocusing regulatory resources and tools” with Chair Atkins.
• Peirce, as chair of the SEC’s crypto task force, shared her thoughts on the crypto market and related regulation. She noted, “My short answer to the question—Are crypto assets securities?—is that most currently existing crypto assets in the market are not.” She also noted that “important work lies ahead of us in areas such as expanding access to capital, reinvigorating our public markets, regrounding disclosure in materiality.”
• Crenshaw, the sole Democrat on the Commission, cautioned against the SEC’s deregulatory stance, characterizing it as “playing a game of regulatory jenga.” She said that the agency has rescinded rules and guidance without enough analysis and that with a 15% reduction in staff, the SEC has lost a “deep well of institutional knowledge.”

The conference also featured senior staff at the Divisions of Investment Management, Trading and Markets, Corporation Finance, Enforcement, Examinations, and Economic and Risk Analysis, and the Offices of the Chief Accountant and General Counsel. 

• Saltiel shared that the Division is considering next steps for relief from 15c2-11 for public fixed income. (He noted that the SEC has already provided exemptive relief for the application of Rule 15c2-11 to 144A fixed income securities and, more recently, an indefinite no-action extension for public debt.)
• In response to former SEC Commissioner Elad Roisman’s question about how the industry can best share their 15c2-11 concerns with the agency, Director Saltiel asked for more detail on the challenges in meeting 15c2-11 requirements and the impacts to underlying markets.
• CREFC has been deeply engaged in advocacy related to 15c2-11, both on the exemptive relief and no-action extension, and will continue to meet with SEC leadership and staff on this topic. We will also monitor SEC Speaks today. 

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Tax Bill Update: House Moves Toward Passage

May 20, 2025

The House plans to consider the full reconciliation bill this week, but House Speaker Mike Johnson (R-LA) continues to negotiate with various Republican factions to advance the bill. 

Why it matters: Johnson has a narrow majority (220 to 213) and has to contend with a variety of “red lines” on SALT, the deficit, Medicaid, IRA programs, and more. Republicans can afford to lose only three votes to pass the legislation, as Democrats are not expected to back it.

The “One Big Beautiful Bill” faced a setback on Friday when five Republicans on the Budget Committee voted with all Democrats to block the bill. 

• As part of reconciliation, the Budget Committee assembles the various titles passed by other committees before it heads to the House floor. 
• Rep. Chip Roy (R-TX) opposed the bill, which he called “back-loaded savings and has front-loaded spending.” 
• Three other Freedom Caucus members joined Roy while one GOP member voted against the bill as a parliamentary maneuver to allow for its reconsideration. 

What they’re saying: Johnson negotiated with the holdouts over the weekend and made promises on accelerating Medicaid work requirements and sunsetting IRA energy tax credits earlier. President Donald Trump also weighed in via social media, urging support, and will attend a House GOP meeting in person today to make his pitch. 

• The committee passed the bill 17-16 late Sunday evening with the four holdouts voting “present.” 
• Despite allowing the bill to advance, the House Freedom Caucus published a statement following the vote noting the bill “still does not meet the moment.” 
• Moody’s credit downgrade of the U.S. government may also give spending critics more sway in reshaping the bill. 

What’s next: The House Rules Committee will be the next stop for the bill before the House floor, offering another opportunity for the Freedom Caucus to weigh in on the bill. 

• Two of the initial objectors on the Budget Committee also sit on the Rules Committee. 
• The Rules Committee will meet at 1 A.M. on Wednesday — yes, 1 A.M. — to set the parameters for consideration on the House floor. 
• House GOP leadership hopes to pass the bill out of the House this week, but they’ve indicated they could stay over the Memorial Day weekend if delays persist. 

Yes, but: Johnson still has to negotiate acceptable SALT cap provisions, which have taken a back seat in the current round of negotiations. 

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SEC Publishes No-Action Letter on Conflicts on Interest Rule 192

May 20, 2025

The Securities and Exhange Commission (SEC) published a No Action Letter on May 16 in response to a joint trade group effort requesting clarification of the SEC’s Conflicts of Interest in Securitization Rule (Rule 192). 

• Specifically, it bars certain securitization participants from activities like short sales of ABS, purchasing credit default swaps (CDS) that pay off upon a security’s default, or entering into economically equivalent transactions that benefit from a transaction’s poor performance. 
• Exceptions exist for risk-mitigating hedging, liquidity commitments, and bona fide market-making, provided they meet specific compliance requirements

• In particular, firms were concerned that compliance policies could not adequately address the vagueness of the rule’s third prong prohibiting “economic equivalents” of short positions.
• Employees with no knowledge of a deal could unknowingly violate the rule, and enforcing it could require breaching internal information barriers.
  

“Specifically, the Division will not recommend enforcement action to the Commission under Rule 192(a)(3)(iii) with respect to a transaction entered into by a securitization participant related to an asset-backed security (as defined in Rule 192(c)) subject to the rule’s prohibition against engaging in conflicted transactions (as defined in Rule 192(a)(3)) where the person entering into such transaction is a Non-Deal Team Employee and the following conditions are satisfied:

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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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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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