January 17th, 2025
Note: See links at the bottom of this email for some interesting recent report releases from the past week.
The 10-year treasury is sitting right around 4.6%, up 100 bps from the September lows and one positive sign is that the steepening of the curve remains in place with a +35 bp difference between the 2-year and 10-year. The CPI report showed core CPI slowing to 0.20% increase compared to the 0.30% increase from Novembers report. It's difficult to say what is going to transpire over Q1 but there is a strong possibility that inflation is going to remain stubborn leaving the Fed with little room to lower rates at a pace that CRE investors were anticipating through the latter part of 2024. As discussed in previous weeks extensively, the market is going to have to grapple with the extend and pretend policies that many banks and investment groups have utilized in anticipation of a lower rate environment in the next 12-24 months.
It's difficult to be able to predict how national and regional banks are going to fare in terms of originations in 2025 as they continue to balance their portfolios. On the one hand, CoStar reported this week that national and regional banks have made considerable progress in balancing their commercial real estate lending portfolios, M&T Bank is one regional bank that is growing its real estate pipeline as it reached its targeted commercial loan concentration in Q4 of 24'. Other banks including Wells Fargo, PNC, and Bank of America have also reported some improvement as rising delinquencies have been somewhat balanced by fewer write-offs on unpaid loans. On a different note, Florida Atlantic University Banking Initiative stated that 59 of the largest 155 banks in the country had exposures greater than 300% in the 3rd quarter of 2024 which puts them at risk for regulatory action. This is just as the FDIC report (link below) came out noting that the FDIC is now staffed and in a position technologically to conduct resolutions in the event of bank stress or failures like what we witnessed in 2023 with SVB and Signature.
As evidenced by Lument's $198MM in balance sheet bridge loan closings in December, groups that can offer structure and flexible financing to complement their core lending products will likely continue to benefit in 2025. Apollo announced this week that they completed $1.9B in loan originations in 2024, 41% of which was US real estate credit, providing further support to this thesis that well capitalized lenders that can offer creative financing solutions will continue to fill a gap in the market where others have pulled back. Another interesting development this week was Pretium Partners closing on their homebuilder finance vehicle with $550MM in capital commitments. With leverage they anticipate originating up to $5B in loans to SFR builders to fill the void left by regional banks.
News and Notable Reports
