Delinquencies Tick Up Across the Board in Q125

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Good morning. CRE delinquencies nudged upward across the board in early 2025, signaling growing stress in key sectors. While most investor groups remain stable, CMBS is flashing warning signs.

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• Housing shift: Renters now outnumber homeowners in 203 US suburbs as affordability, remote work, and lifestyle changes reshape housing.

• Tax tailwind: Pending legislation could boost CRE with revived opportunity zones, 100% bonus depreciation, and higher QBI deductions.

• Cautious optimism: Despite lingering uncertainty and loan maturity challenges, investors are eyeing long-term opportunities, with multifamily and niche sectors showing resilience.

• Debt deployment: Starwood Capital raised $2.86B across multiple debt funds to expand its real estate lending efforts amid a pullback from traditional lenders.

• Private lending: KKR's CRE loan pipeline has surged to a record $42B, as landlords increasingly turn to private credit.

• Fee advantage: Continuing care communities with entrance fees are outperforming rental models in occupancy and rent growth across US markets.

• Absorption dip: Apartment absorption rates have dropped sharply from pandemic highs, with the Midwest and South dragging national numbers down.

• Default drama: Starwood is suing multifamily investor Alan Stalcup for over $110M, alleging he triggered recourse guarantees on defaulted loans.

• Amazon assist: Bridge Housing, backed by a $22M loan from Amazon’s Housing Equity Fund, has acquired a 200-unit Kirkland apartment complex for $55M.

• Voucher debate: NYC is proposing a rule to raise rent contributions from long-term CityFHEPS voucher holders from 30% to 40% of income.

• Renter edge: A flood of new apartment supply is giving renters leverage to demand concessions as lease-up rates remain sluggish.

• Sun Belt bet: EQR is buying 8 Atlanta apartments for $535M, doubling down on Sun Belt growth over aging coastal assets.

• Occupancy dip: Over half of Q1’s 73 MSF in new US warehouse space delivered vacant, as spec builds outpaced demand and pushed vacancies to 7%.

• Data demand: Data center demand is booming on the back of generative AI growth, but questions around long-term scalability and sustainability remain.

• Market move: Principal Asset Management and a state pension plan acquired a 2.1 MSF industrial portfolio targeting key logistics hubs in high-growth markets.

• Tech expansion: Vantage Data Centers secured $5B to expand its US footprint, with nearly half funding a 1.5 MSF, preleased hyperscale campus in Ohio.

• Waiting game: Tariff-related inflation hasn’t hit consumers yet, but rising input and utility costs are building pressure.

• Gone thrifting: Secondhand retailers are expanding nationwide as inflation, tariffs, and shifting consumer values fuel demand for affordable, sustainable goods.

• Discount demand: Dollar General beat earnings expectations and raised its outlook as it attracts more middle- and upper-income shoppers.

• Soho boom: NYC retail is roaring back with a 14% rise in leasing and fierce competition for prime space, as global brands and cash-rich tenants drive demand.

• Big Lots reboot: After reopening 219 stores, new owner Variety Wholesalers is eyeing more Big Lots lease acquisitions.

• Unicorn market: In a bifurcated Manhattan CRE scene, only top-tier assets with premium tenants are fetching strong pricing.

• AI footprint: OpenAI is leasing two floors in Bellevue’s City Center Plaza, marking another major office move by tech firms seeking space outside of San Francisco.

• Comeback signal: Flynn Properties and DRA Advisors bought San Francisco’s Market Center for $177M in the city’s biggest office deal since 2022.

• Portfolio pivot: Easterly Government Properties is accelerating efforts to diversify away from federal tenants, targeting state, local, and private-sector leases.

• Policy pushback: California’s proposed commercial rent control bill is facing strong opposition from property owners.

• Labor backlash: NYC’s Safe Hotels Act faces pushback as hoteliers warn its subcontractor ban could raise costs and discourage investment.

📈 CHART OF THE DAY