August 21st, 2025

🏗️Economic Insights: July 2025 Data Signals Mixed Outlook

Let's start this week by unpacking the latest economic data and its implications for monetary policy, consumer behavior, and market expectations. July 2025 data paints a complex picture, with a cooling labor market, rising inflation pressures, and resilient consumer spending creating a delicate balancing act for the Federal Reserve.

Jobs Report: A Cooling Labor Market

July’s jobs report underperformed expectations, with downward revisions to prior months signaling slower hiring. The unemployment rate remains low at just over 4%, but private-sector job growth is nearing stall speed, raising concerns about potential layoffs. This has fueled hopes for a September interest rate cut, though inflationary pressures may shift the Fed’s focus.

Inflation: Tariffs Stir Price Pressures

Inflation data for July showed a reacceleration, particularly in trade services, driven by new tariffs. The Consumer Price Index (CPI) rose 0.2% month-over-month, with a year-over-year rate of 2.7%, slightly below the expected 2.8%. Core CPI, excluding food and energy, climbed 0.3% monthly and 3.1% annually, the highest since February 2025. The Producer Price Index (PPI) surged 0.9% in July, with core PPI up 3.3% annually, the fastest since February 2022, indicating businesses are passing tariff-related costs to consumers. Trade services margins expanded 2% in July, driving a year-over-year increase of 6.9%, the highest since January 2023, suggesting further consumer price hikes may loom.

Consumer Spending: Resilience Amid Uncertainty

Despite a slowing labor market and tariff uncertainties, retail and food services sales grew 0.3% in July, following a 0.6% rise in February, marking two consecutive quarters of growth. Declining gasoline prices (down 2.2% in July and 9.5% year-over-year) provided budget relief, boosting spending on cars and auto parts (up 1.6%). Domestic auto sales rose 4%, partly due to electric vehicle purchases ahead of the expiring EV tax credit. However, discretionary spending is mixed, with gains in sporting goods and furniture but declines in restaurant and electronics spending, hinting at consumer strain.

Federal Reserve and Powell’s Jackson Hole Speech

With inflation above the Fed’s 2% target and a weakening labor market, all eyes are on Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Symposium on August 22, 2025. Market expectations for a 25-basis-point rate cut in September have risen post-jobs report but softened after the PPI data. Analysts expect Powell to remain data-driven, avoiding firm commitments due to upcoming jobs and inflation reports before the September FOMC meeting. Tensions with the White House, particularly over tariffs and Fed Chair criticism, add complexity to the Fed’s decision-making.

Tariff Impacts: A Mixed Bag

Tariffs are beginning to push goods prices higher, with apparel and household furnishings seeing notable increases. However, some argue foreign suppliers are absorbing costs, limiting broader inflation spikes. 

Outlook: A Cautious Path Forward (Sound Familiar?)

The economy faces crosscurrents: resilient consumer spending, rising inflation, and a cooling labor market. The Fed’s dual mandate—stable prices and maximum employment—is under strain, making Powell’s data-dependent approach critical. Retail spending may ease as tariff front-loading fades and labor market softness persists. Markets will closely watch Powell’s speech for hints of the Fed’s next move, with September’s decision hinging on forthcoming data.

🚨CRE Insights: Navigating Opportunities in Commercial Real Estate

There was a great podcast this week on Trepp that featured Samir Tejpaul, Managing Director and Head of Capital Markets at Madison Realty Capital, who shared his insights on the evolving CRE landscape, market opportunities, and strategic approaches to lending. Below are the salient discussion points that we found most compelling. 

Market Shifts: A Tale of Resilience

The CRE market has seen dramatic shifts over the past decade, from the post-GFC upswing to the volatility of COVID, zero interest rates, and rapid rate hikes in 2022. Samir compares today’s market to 2011–2012, a period of recovery with growing optimism. Key observations:

2025 as a Turning Point: After a slow 2023 and a cautious 2024, 2025 shows signs of recovery with increased transaction activity and optimism for 2026, particularly in fixed-rate borrowing.

Supply-Demand Imbalances: Markets with limited new construction (e.g., housing in New York City, hospitality) present opportunities for value-creation lending.

Regional Trends: While the Southeast and Southwest saw heavy investment in recent years, markets like the Mid-Atlantic, Midwest, and coastal cities are regaining traction due to demographic shifts and housing shortages.

Lender Finance: Providing leverage to private credit lenders via sublines, warehouse lines, and other structures. As interest rates stabilize, demand for such financing is expected to grow significantly.

Samir highlighted that private credit’s flexibility has prevented widespread defaults, unlike the GFC era, by enabling tailored solutions for well-positioned assets.

Office-to-Residential Conversions: The Pfizer Deal

A standout topic was Madison’s $720 million loan for the conversion of Pfizer’s Midtown Manhattan headquarters into residential units. This deal exemplifies the potential of office-to-resi conversions:

Why It Works: Lower acquisition costs, tax incentives (e.g., NYC’s 467M abatement), and housing shortages make conversions viable.

Nationwide Potential: While New York leads, markets like D.C., San Francisco, and Miami could follow with historic tax credits as incentives.

Challenges: Execution requires experienced operators, and scaling conversions beyond major markets remains complex.

Samir sees this trend gaining traction, with a few anchor projects potentially sparking broader interest.

Office Market Outlook

The office sector is showing signs of recovery, with CMBS office issuance rising from $4.3 billion in 2023 to over $15 billion in 2025, though still below the historical $20–$30 billion average. Samir is optimistic about 2026, predicting a peak year for office refinancing, driven by:

Supply Constraints: Limited new office construction could stabilize Class A and A-minus assets.

Long-Term Perspective: Investors must adopt a 10-year horizon to navigate current uncertainties in Class B office valuations.

📰 Market & Industry Update 🏗️ Homebuilders Confront Tighter Credit

The NAHB’s Q2 survey showed credit availability for residential builders tightened for the 14th straight quarter.

Key hurdles: 60% reported smaller loan sizes from lenders, 53% noted personal guarantee requirements, nearly half faced higher rates or outright refusals, and 40% cited heavier documentation demands.

Despite some easing in interest rates on land acquisition loans (down to 7.82% from 8.23%), financing remained restricted.

Builder sentiment: The NAHB/Wells Fargo confidence index slipped to 32 in August, its 16th consecutive month in negative territory.

🏘️ Housing Starts Climb

July housing starts jumped 5.2% from June and 12.9% year-over-year, driven by a surge in multifamily projects.

Single-family starts reached a 939,000-unit annual pace, while multifamily climbed to 470,000 units.

NAHB noted affordability challenges, labor shortages, and regulatory costs continue to weigh on single-family construction, which is down 3.7% year-over-year in homes under construction.

🏢 Office Attendance Softens

Office usage across 10 major U.S. metros slipped for the fourth week in a row, averaging 52.3% of pre-pandemic levels as of Aug. 13.

Top markets: Austin (66.4%), Houston (60.3%), Dallas (58.6%).

Lagging metros: New York (51.1%), Los Angeles (49%), San Jose (49%).

 📈 CMBS Market Update: No Summer Slowdown Conduit Market Heats Up

Investor demand remains strong: Mid-August brought an unusually heavy flow of conduit deals, yet appetite kept pace.

Tightest spreads since February: A $656M Bank of America-led deal priced at 78 bps over

Treasurys on its top tranche, tightening 9 bps from guidance. Lower-rated classes also cleared smoothly.

Oversubscription signals momentum: Goldman Sachs and partners launched a $631M transaction backed by 10-year loans, with senior tranches two to three times oversubscribed and pricing expected to come in tighter.

Single-Borrower Spotlight

Houston Office Tower: Wells Fargo priced a $270M deal for Hines and CalPERS, with senior notes at 160 bps over SOFR.

Industrial Portfolio: JPMorgan and Morgan Stanley priced a $376M deal for Davidson Kempner and LXP, where the BBB- D class tightened 30 bps to 295.

Hollywood Studio: Wells and Barclays priced $165M for Raleigh Studios, with AAA notes at 200 bps. Lower tranches were preplaced.

Times Square Hotel: One William Street Capital financed Arden Group’s Margaritaville takeover with a $140M deal. Only the senior notes, rated A, were sold at 400 bps over SOFR.

Industrial Properties Portfolio: Goldman and BofA priced a $407.5M transaction for TPG, with spreads widening slightly to 160 bps (senior) and 275 bps (D class).

Upcoming: Citi and Goldman are marketing $425M backed by a national self-storage portfolio.

CRE CLO Activity

Bridge Investment Group: Closed a $1.11B managed CLO, largely multifamily loans. AAA notes priced at 140 bps over SOFR, while BBB- bonds tightened to 315 bps.

MF1’s Fourth Deal of 2025: JPMorgan and partners are bringing a $1.2B offering, also multifamily-heavy, with senior tranches at 140 bps and the E class offered at 335.

Market Sentiment

Investors see Fed policy as a tailwind, with expectations of a September rate cut driving confidence.

Demand for CMBS paper is so strong that one investor called it “insane how quickly these get gobbled up.”

If rate cuts materialize, most believe spreads could compress even further.