Daily Dose of Real Estate

Daily Dose of Real Estate for October 3

Partisan gridlock is expected to continue, with no immediate resolution as legislative efforts from both parties have straight up stalled. Data dependent Fed will be relying on vibes until gov economic data can start being released again – jobs report scheduled for today and the unemployment report was missed yesterday. Inventory is up and price cuts are coming fast and furious in residential real estate – Denver and Portland taking it on the chin. Mortgage rates move 1/8th to a 1/4 over the week and refinance volume drops 55% – that’s how rate sensitive the market is. Rocket & Cooper complete their mega merger and if they dial in their recapture business (they will) it will have a material impact on future refinance waves. As Resi takes a breather, private CRE fundraising is experiencing a remarkable resurgence as investors regain confidence with borrowing costs dropping modestly and creating capacity for opportunistic investments. Let’s get you caught up and out the door in 3 minutes. Tim

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Table of Contents

KEY TAKEAWAYS

Government shutdown disrupts economic data flow: The federal shutdown has delayed critical economic reports including Friday’s jobs report, forcing the Federal Reserve to rely on private data sources for policy decisions 1
Mortgage rates surge triggers refinance collapse: 30-year fixed mortgage rates jumped to 6.46%, causing refinance applications to plummet 21% in the latest week as borrowers lost refinancing incentives 2
Price cuts accelerate buyer market shift: Nearly 20% of US homes for sale experienced price reductions in September, with inventory jumping 17% year-over-year as sellers increasingly slash prices to attract buyers 3 4
Private sector sheds jobs unexpectedly: ADP data revealed the private sector lost 32,000 jobs in September, the largest decline since March 2023, highlighting labor market weakness that could prompt Fed rate cuts 5
Home price growth moderates significantly: Freddie Mac’s House Price Index showed national home prices up just 1.6% year-over-year in August, with 20 states and D.C. still below previous peaks 6
Mega-merger reshapes mortgage industry: Rocket Companies completed its $14.2 billion acquisition of Mr. Cooper Group, creating a mortgage servicing giant handling over $2 trillion in loans 7
$129 billion projected for 2025: Private CRE fundraising experiencing remarkable resurgence as investors regain confidence amid easing borrowing costs and strategic shifts toward debt and opportunistic investments 23
Student housing demand hits decade high: 96.5% of beds pre-leased for Fall 2025, demonstrating sector resilience and strong fundamentals as institutional appetite returns 24
REIT performance gains momentum: Falling interest rates enhance dividend appeal and reduce borrowing costs, with historical outperformance during rate-cutting cycles positioning REITs favorably 25
Market Recovery Accelerates: US commercial real estate has shifted from contraction to recovery phase, with the $19 trillion market showing renewed investor optimism and improved pricing clarity 1
Multifamily Capital Returns: Banks, life companies, agencies, and private lenders are reentering the multifamily market with competitive terms, with KeyBank reporting 30-50% increases in lending volumes this year 2

RESIDENTIAL REAL ESTATE MARKETS

The residential market is experiencing a fundamental shift toward buyers as sellers face reality with widespread price cuts and extended selling times. Nearly one in five homes now sees price reductions, while inventory surges and luxury markets face particular headwinds amid economic uncertainty.

PRICE CUTS SIGNAL MARKET SHIFT TOWARD BUYERS

19.9% of homes cut prices in September: Nearly one in five American homes listed for sale saw price reductions, unchanged from August but representing a significant shift from the pandemic-era seller’s market 3 4
Mid-tier homes hit hardest: Properties priced between $350,000-$500,000 experienced the steepest markdowns at 21.6%, while luxury homes over $1 million saw only 13.3% of listings reduced 3
Regional variations stark: Northeast showed most resilience with just 14% of listings cut, while South and West both saw approximately 21% of homes reduced. Denver led major metros at 30.7% price cuts, followed by Portland (30.2%) and Indianapolis (29.7%) 8
Buyer activity declining: Prospective homebuyers are pulling back from the market as mortgage rates remain elevated and economic uncertainty grows, with many adopting a wait-and-see approach 9

INVENTORY SURGE PROVIDES BUYER OPPORTUNITIES

Active inventory jumps 17% year-over-year: September marked the fifth consecutive month with more than 1 million homes on the market, though supply remains 14% below pre-pandemic norms 3
Homes taking longer to sell: Median time on market reached 62 days in September—seven days longer than last year. Florida metros saw largest increases with Miami adding 16 days, Orlando 14 days, and Tampa 13 days 8
List prices hold steady: Median list price remained flat at $425,000 compared to a year ago, but still approximately 36% higher than 2019 levels, suggesting sellers maintain elevated expectations despite market shifts 3

LUXURY MARKET FACES HEADWINDS

Luxury sales decline amid caution: Wealthy buyers demonstrate increased hesitancy amid economic uncertainty, with luxury home sales falling while inventory rose 9.5% year-over-year to highest level since 2020 10
Regional performance varies: Indianapolis and Fort Worth bucked trends with luxury sales increases of 19% and 14% respectively, while Miami saw luxury sales fall 19.4% and Bay Area sales above $5 million plunged 13% 10

MORTGAGE MARKETS

Mortgage markets experienced significant volatility as rates surged to three-week highs, devastating refinancing activity while purchase applications showed resilience. The government shutdown adds uncertainty by delaying key economic data that typically influences rate movements.

RATE SURGE DEVASTATES REFINANCING ACTIVITY

30-year rates jump to 6.46%: Average contract rate increased from 6.34% with points rising to 0.61 from 0.57 for loans with 20% down payments, reaching three-week highs 2
Refinance applications plummet 21%: Despite remaining 16% higher than same week last year when rates were 32 basis points higher, the weekly drop reflects extreme rate sensitivity 2
Refinance share drops to 55%: Down from 60% the previous week as higher rates eliminated refinancing incentives, with average loan size falling dramatically to $380,100 from $461,300 two weeks prior 2
October Fed cut may provide limited relief: Experts suggest an anticipated 25 basis point cut could offer psychological benefits but may not translate to meaningful mortgage rate reductions as markets have already priced in the move 11

PURCHASE MARKET SHOWS RESILIENCE

Purchase applications decline just 1%: Weekly drop was modest compared to refinancing collapse, with applications remaining 16% higher than same period last year following three consecutive weeks of gains 2
Conventional and VA refinances hit hard: Conventional refinances dropped 22% while VA refinances declined 27%, reflecting broad-based impact of rate increases across loan types 2

GOVERNMENT SHUTDOWN CREATES MARKET UNCERTAINTY

Key economic data delayed: Expected Friday jobs report postponed indefinitely due to Bureau of Labor Statistics suspension, forcing Fed to rely on private data sources 2
Potential short-term rate benefits: Some analysts suggest shutdown could paradoxically benefit mortgage rates as secondary market spreads have already tightened significantly 12

REGULATORY DEVELOPMENTS IN REAL ESTATE

Federal agencies navigate shutdown impacts while maintaining critical operations, as regulatory scrutiny intensifies around GSE privatization and HUD proposes significant changes to housing assistance programs that could affect millions of Americans.

FEDERAL AGENCIES NAVIGATE SHUTDOWN IMPACT

FHA operations continue at reduced capacity: Mortgage program operates but with slower endorsement process for new single-family mortgages, while VA-guaranteed loans face processing delays though critical operations continue 13
Flood insurance guidance issued: Federal regulators reminded lenders they may continue making loans subject to federal flood insurance requirements despite shutdown to prevent disruption in flood-prone areas 14
Rural development loans halted: USDA suspended issuance of new rural development loans, affecting rural housing markets dependent on these programs, while some FHA condominium project approvals are delayed 13

GSE DEVELOPMENTS AND REGULATORY SCRUTINY

Warren requests Treasury answers on privatization: Senator Elizabeth Warren demanded responses regarding possible GSE privatization plans after FHFA Director Bill Pulte failed to respond to previous letters, highlighting ongoing political tensions 15
GSEs block unsafe condo sale: Fannie Mae and Freddie Mac successfully prevented sale of unsafe South Florida condominium complex, arguing FHFA consent required due to first position liens on eight units 16

HUD PROPOSES SIGNIFICANT HOUSING AID CHANGES

Draft rules could cut aid for millions: Proposed changes would introduce stringent work requirements and citizenship verification processes that could jeopardize federal aid for up to 4 million low-income Americans 17
Mixed-status households threatened: Changes particularly target mixed-status households and vulnerable families, with housing advocates warning of benefit stripping according to National Housing Law Project 17

RATING AGENCY UPDATES CRITERIA

Fitch finalizes RMBS criteria: Consolidated previous models into comprehensive framework with revised loss severity calculations, default adjustments for loans with debt service coverage ratios below 0.75x, and modified treatment of second lien loans 18

ECONOMIC NEWS

Economic uncertainty deepens as government shutdown prevents release of crucial labor data while private sector reports show unexpected job losses.

LABOR MARKET WEAKNESS EMERGES AMID DATA BLACKOUT

Private sector loses 32,000 jobs: ADP report showed unexpected September decline, largest since March 2023, defying economists’ expectations of 45,000 job gain and highlighting labor market weakness 5
Official jobs report delayed: Bureau of Labor Statistics unable to release September nonfarm payrolls due to shutdown, forcing Fed to examine alternative data sources for October meeting 5
Fed faces data-driven challenges: Chicago Fed President Austan Goolsbee indicated central bank will use alternative sources if scheduled data remains unavailable, complicating policy decisions 5

FED POLICY OUTLOOK AMID UNCERTAINTY

Markets price in 80% rate cut probability: Financial markets expect Federal Reserve rate reduction at next meeting with another likely in December, following September’s first cut of the year 19
Bank of America warns of data dependency: Mark Cabana noted Fed could be “reliant on private data for policy decisions if shutdown extends,” introducing additional uncertainty into monetary policy formulation 20
Mixed economic signals persist: While hiring slowed, signs suggest overall growth may be accelerating with increased consumer spending and Atlanta Fed estimating healthy July-September expansion 21

MARKET RESILIENCE DESPITE NEGATIVE HEADLINES

S&P 500 hits record highs: Stocks rose for fourth straight session during first shutdown day as investors shrugged off political gridlock, with historical data showing 1% average gains around shutdowns 22
Treasury yields decline: 10-year yield fell to 4.10% from 4.15% amid Washington gridlock, potentially providing mortgage rate relief, while gold advanced 2.7% as safe-haven demand increased 22
Investor confidence in underlying economy: Market performance reflects belief that political issues are temporary disruptions rather than fundamental economic threats, with oil futures slipping 0.6% to about $62 per barrel 22

COMMERCIAL REAL ESTATE MARKETS

The US commercial real estate market has officially entered a recovery phase with renewed investor confidence, strong fundamentals across alternative property types, and pricing clarity emerging after the capital-markets correction. Deal flow is running ahead of 20-year averages while cap rates stabilize across major sectors.

MARKET RECOVERY AND FUNDAMENTALS

$19 trillion investable CRE universe represents 16.2% of all US risk assets, spanning private equity, REITs, private debt, and CMBS sectors 1
Deal flow exceeding $400 billion annual average over the past year, signaling renewed market confidence and transaction activity 1
National Property Index delivers 8.4% average annual returns with just 4.3% standard deviation, showing only six negative calendar years since 1978 1
Recovery periods typically last 10 years and average 11% returns, with approximately 80% of total returns coming from lease income 1

ALTERNATIVE PROPERTY PERFORMANCE

Alternative properties comprise 12.9% of US NPI, including life science, medical office, data centers, student housing, and self-storage 1
Public REIT portfolios are 64% alternatives, up dramatically from 21% in 2000, showing institutional shift toward specialized assets 1
Student housing reaches 96.5% pre-leased for Fall 2025—the strongest season in at least a decade after the slowest start in years 6

CAP RATES AND PRICING DYNAMICS

Cap rates averaging 6-7% across multifamily, industrial, and retail sectors, with office properties closer to 8% 7
Investors need 100 basis points higher cap rates to aggressively deploy capital, implying a 10-15% price reset that few expect over next six months 7
Near-term value expectations: Industrial up 3%, retail up 2%, multifamily up 1%, office flat—marking first non-negative office reading since surveys began 7

COMMERCIAL FINANCING MARKETS

Capital markets are experiencing a dramatic transformation as banks, life companies, agencies, and private lenders reenter with competitive terms. The Federal Reserve’s rate cut has fueled REIT optimism while major refinancing activity demonstrates renewed institutional confidence in commercial real estate debt markets.

MULTIFAMILY CAPITAL RESURGENCE

KeyBank reports 30-50% increases in lending volumes this year, with SVP calling resurgence of bank capital “the biggest theme of the year” 2
Multifamily debt comprises up to 30% of CMBS originations, significantly higher than typical 10% allocation 2
Federal Reserve’s 25-basis-point rate cut—first in years—fueling optimism that borrowing costs will continue declining into 2026 2
Lenders increasingly willing to negotiate and restructure distressed deals rather than pursue foreclosures, with banks showing greater flexibility 2

REIT PERFORMANCE AND OUTLOOK

REITs delivered 9.48% average returns in 12 months following Fed rate cuts, compared to 7.57% for broader markets historically 4
Data centers, telecom infrastructure, healthcare REITs positioned to benefit most from rate cuts due to long-term leases and capital-intensive operations 4
Lodging, retail malls, multifamily REITs showing more subdued responses due to shorter lease durations or consumer behavior exposure 4

MAJOR FINANCING TRANSACTIONS

Blackstone secured $465 million refinancing for five-property multifamily portfolio spanning Massachusetts, Florida, and Georgia with 92% occupancy 8
$435 million interest-only, floating-rate CMBS loan with two-year term and three one-year extension options, plus $30 million mezzanine debt 8
$59 billion in CMBS loans originated during first half of 2025, marking record post-GFC issuance levels despite rising office delinquencies 8

COMMERCIAL SERVICING MARKETS

September 2025 marked a turning point with CMBS delinquency rates retreating after six months of increases. Most property sectors showed improvement while the industry shifts toward restructuring over foreclosure, though selective distress patterns persist in certain markets and asset classes.

CMBS DELINQUENCY IMPROVEMENTS

CMBS delinquency rates retreated to 7.23% in September 2025 after six consecutive months of increases across most sectors 3
Lodging delinquencies fell 73 basis points to 5.81%—lowest rate since March 2024, showing strongest sector improvement 3
Office delinquencies dropped 53 basis points to 11.13%, though this would have been all-time high prior to recent months 3
Multifamily delinquencies decreased 27 basis points from 6.86% to 6.59%, though rates remain nearly double September 2024 levels 3

SECTOR-SPECIFIC PERFORMANCE

Industrial maintained strongest performance with delinquencies falling four basis points to 0.56%, continuing sector leadership 3
Retail was lone sector showing deterioration, with delinquencies rising 34 basis points to 6.76% after back-to-back months of declines 3

RESTRUCTURING TRENDS

Borrowers working collaboratively with lenders to repair balance sheets rather than walking away from properties during variable-rate loan resets 2
Banks demonstrating greater flexibility with ample capital available to recapitalize troubled assets, reflecting constructive approach to distressed situations 2
Veritas Investments faces foreclosure on 66 buildings after defaulting on over $652 million in loans, highlighting selective distress in certain markets 9

INDUSTRY NEWS

Major industry consolidation accelerates with Rocket’s massive Mr. Cooper acquisition, while commercial real estate fundraising surges and technology innovations reshape the sector. Private CRE fundraising momentum builds toward $129 billion year-end target amid renewed institutional confidence and significant transaction activity.

ROCKET COMPANIES COMPLETES MASSIVE MR. COOPER ACQUISITION

$14.2 billion transaction creates servicing giant: Combined entity now services approximately 8.5 million customers managing over $2 trillion in loans, positioning Rocket as dominant player in origination and servicing 7
Technology-driven integration planned: Merger combines Rocket’s tech platform with Mr. Cooper’s servicing capabilities to create comprehensive homeownership ecosystem with enhanced digital capabilities 7
Complex financial structuring completed: Goldman Sachs advised Rocket while Centerview Partners advised Mr. Cooper in transaction marking significant industry consolidation that may pressure smaller competitors 7

TECHNOLOGY AND INNOVATION DEVELOPMENTS

S&P Global wins AI technology award: Market Intelligence division recognized for ‘Best Artificial Intelligence Technology Provider’ at Waters Rankings for Capital IQ Pro and Global Marketplace Generative AI Search capabilities 26
Life science real estate investment: Innovative Industrial Properties closed initial investment into IQHQ, Inc., highlighting continued investor interest in specialized property sectors driven by technological advancement 27
Industry technology integration accelerates: Rocket-Mr. Cooper merger promises enhanced digital capabilities and streamlined customer experiences, potentially pressuring other companies to invest heavily in technology or seek partnerships 7

CRE COMPANY PERFORMANCE AND EARNINGS

Apollo Commercial Real Estate Finance (ARI) nearly doubled total returns year-to-date, significantly outperforming broader markets as CRE benefits from rate cuts 10
ARI positioned to capitalize on sector recovery with analysts highlighting massive potential benefits from continued rate reductions 10

GOVERNMENT POLICY IMPACTS

DOGE cancelled 384 federal office leases generating estimated $140 million in savings but creating significant market ripple effects 5
Largest cancelled lease: 845,000-square-foot office in Washington D.C., while smallest was 250-square-foot Secret Service office in NYC 5
Social Security Administration leads with 23 cancelled leases, followed by Small Business Administration and Geological Survey with 22 each 5
57% of potentially eligible leases located outside the 10 most populated states and Washington D.C., particularly impacting rural properties 5

FUNDRAISING AND INVESTMENT ACTIVITY

Private CRE fundraising on pace for $129 billion by year-end 2025, with funds already raising $85 billion through first three quarters 9
Remarkable turnaround from recent stagnation as investors regain confidence amid easing borrowing costs and strategic shifts toward debt investments 9

MAJOR TRANSACTIONS

Weill Cornell acquired Sotheby’s NYC headquarters for $510 million, representing significant Manhattan office market transaction activity 9
Newgard Group and Two Roads secured $513 million in financing for Miami’s One Brickell Riverfront, a two-tower residential project over 50% complete 9