Bond Yields Are Driving the Wildest Swings in CRE Values

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Good morning. Bond market moves are quietly shaking up commercial real estate values—more than inflation or GDP ever could. A new Oxford Economics report reveals just how sharply yield shifts are hitting returns, especially in low cap rate markets.

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Market Snapshot

Yield Volatility

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• Mom-and-pop momentum: On-time rent payments rose to 83.1% in September, signaling a slight rebound despite continued YoY declines.

• Minimal disruption: Nearly half of U.S. REITs mentioned tariffs on Q2 earnings calls, but most reported limited impact, except for cold storage and timber. 

• CMBS compression: CMBS conduit spreads tightened to early 2024 levels as bond demand rises and lenders maintain cautious underwriting.  

• Debt climb: Commercial and multifamily mortgage debt rose 1.0% in Q2 to $4.88T, with life insurers and banks leading the increase in holdings. 

• Slowing growth: CRE inventory growth is slowing nationwide, but oversupply risks remain in office, life sciences, and select industrial and multifamily markets.  

• Rate shift: With the Fed’s recent rate cut and more expected, CRE investors are watching the 10-year Treasury for signals, potentially boosting demand for office and retail properties.

• Talent raid: Wall Street banks are aggressively poaching top bankers amid a surge in dealmaking and revived IPO activity.

• Water works: A new water deal clears the way for a 420-unit build-to-rent project in Liberty Hill, fueling growth in the booming Austin suburb.

• Quick build: New York launched a $50M “Move in NY” program to deliver 200 modular homes to low- and middle-income families. 

• Housing hurdle: San Francisco is racing to rezone for higher density to meet state housing goals, but slow construction, high costs, and political setbacks threaten progress. 

• Legal pushback: A coalition of affordable housing developers is suing the state of TX over HB 21, arguing the retroactive tax exemption restrictions are unconstitutional.

• Texas triumph: Eli Lilly will invest $6.5B to build the largest U.S. drug manufacturing campus in Houston’s Generation Park, selecting the site from over 300 proposals. 

• Selective surge: Q2 self-storage sales totaled $755M, with prices up 19% YoY as capital flowed into dense urban cores and fast-growing suburbs. 

• Refi of the day: EJF Capital and North Signal secured $115M to refinance three buildings at RiverPort Commerce Park near Savannah. 

• AI shortfall: AI firms face an $800B funding gap to meet 2030 compute needs, as data center growth and power demand outpace chip efficiency and tech budgets.

• Split preferences: Shoppers are flocking to both value grocers and upscale fresh formats, while traditional supermarkets rebound by targeting loyal, region-specific customers. 

• Community comeback: CVS has reopened in wildfire-ravaged Pacific Palisades, marking the first major retailer to return. 

• Crown conversion: IRG and PREP Funds are transforming a former Pittsburgh mall into a $40M mixed-use hub, with tenants arriving in 2026.

• Slow recovery: Manhattan office leasing is at a post-pandemic high, but availability rates remain slow to improve. 

• Distress discount: MetLife bought two foreclosed Newport Beach office towers for $70M, well under their loan balance and past valuation. 

• Ownership secured: The World Bank Group paid $165M to buy the land under its J Building in D.C., securing full ownership of the 488K SF property across from its HQ. 

• Controversial contract: NYC signed a $77M lease at 14 Wall Street amid scrutiny over ties between the building’s owner and Mayor Eric Adams.

• Travel slump: U.S. hotels ended summer on a down note, with RevPAR, occupancy, and leisure travel all sliding as consumer demand weakens and investors hit pause on new projects.

• Reservation scam: Bankrupt LuxUrban kept taking hotel reservations at shuttered NYC properties, sparking DOJ and union alarms over unpaid workers and consumer protection risks.

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