The Brick Breakdown

Hello Brick Brief readers, 

Thank you for your continued support! Today we’re watching producer prices for signs that tariff-driven cost increases are filtering through the supply chain. Tariffs are complicating the Fed’s path forward, while builder incentives are keeping new home prices elevated. 

📈 Tariffs Complicate the Fed’s Path Forward
June inflation ticked up to 2.7% as furniture and clothing prices rose, showing early signs that companies are passing tariff costs to consumers. Fed officials signaled no near-term cuts, with Dallas Fed’s Logan calling for extended restrictive policy and Boston Fed’s Collins backing patience as tariff-driven inflation could approach 3% even if firms absorb some of the cost.

🏦 Banks Show Strength, but CRE Stress Persists
JPMorgan, Citi, and Wells Fargo posted strong Q2 earnings and say consumers remain resilient, though all three warned spending could weaken later this year. Wells Fargo’s apartment loan distress rose 45% YoY to $378M, signaling continued multifamily pressure even as the bank trims office exposure.

🏗️ Builders Prop Up Prices With Mortgage Buydowns
Morgan Stanley says builder-funded rate buydowns are sustaining elevated home prices by enabling sales that wouldn’t otherwise happen. The firm estimates Ginnie-backed homes would be 12% cheaper and Fannie or Freddie-backed homes 5% cheaper without these incentives, helping explain why new homes are selling while the resale market continues to lag.

This Week in Real Estate: Key Events & Data

Quick Markets

30Y Mortgage: 6.85% (+2 bps) 

10Y Treasury Yield: 4.49% (+6 bps)

WSJ Prime Rate: 7.50%

FTSE NAREIT Index: 762.00 (-1.36%)

30-day SOFR Average: 4.34%

Market Pulse & Rate Watch

Tariff-driven inflation has revived Fed caution, with officials signaling no near-term cuts as they wait to see how rising import costs and potential retaliation shape broader price pressures

Inflation picked up to 2.7% in June – Signs emerge that companies are passing tariff costs to consumers, with goods inflation rising on items like furniture and clothing (WSJ)

Dimon defends Fed Chair Powell from Trump attacks – JPMorgan CEO warns political pressure could damage central bank credibility and raise long-term borrowing costs (WSJ)

Bessent urges Powell to leave Fed board in May – Treasury Secretary says staying past chair term could confuse markets as Trump begins search for successor (Bloomberg)

Fed signals no near-term rate cuts as tariffs revive inflation concerns – Dallas Fed’s Logan says rates must stay restrictive longer to counter potential price pressures from Trump’s trade policy (Reuters)

Fed’s Collins backs patient stance on rates amid tariff uncertainty – Says tariffs will lift inflation near 3% but impact may be modest as firms cut margins and consumers keep spending (Reuters)

Big banks say consumers remain strong – JPMorgan, Citi, and Wells Fargo report solid Q2 results despite tariff pressure, though caution spending may soften later in 2025 (Reuters)

Mexico seeks trade deal as EU weighs retaliation – Both aim to avoid Trump’s 30% tariffs set for Aug. 1, with U.S. trade topping $1.8T across both partners in 2024 (FreightWaves)

Trump strikes 19% tariff deal with Indonesia – In exchange, Indonesia will purchase $15B in US energy, $4.5B in agriculture, and 50 Boeing jets (Bloomberg)

Brick by Brick: Builders Use Mortgage Buydowns to Hold Up Prices and Sales

Morgan Stanley says builder-funded mortgage buydowns are propping up home prices across the housing market by sustaining new home demand and limiting broader price declines, even as resale activity weakens.

• A mortgage buydown allows builders to lower a buyer’s interest rate by covering part of the mortgage cost, reducing monthly payments without cutting the home’s price
• About 75% of Ginnie Mae–backed new homes and 30% of Fannie or Freddie-backed homes now include builder-paid buydowns
• Morgan Stanley estimates Ginnie-backed homes would be 12% cheaper and Fannie or Freddie-backed homes 5% cheaper without these incentives
• Buydowns keep prices elevated by enabling buyers to purchase homes they might otherwise delay or forgo, reducing pressure for broader market discounts
• New home sales rose 11% in April, while existing home sales fell to their slowest April since 2009 despite a 21% increase in listings
• These incentives make new homes more competitive than existing homes, which do not come with affordability support

Takeaway: Builders are using rate buydowns to support both pricing and absorption, cushioning the entire housing market from deeper price declines. As these incentives keep buyers active, resale volume suffers and home prices remain out of reach for many.

Residential

Mortgage buydowns are propping up new home prices as demand softens, while Midwest and Southeast multifamily markets outperform due to stable job growth and limited new supply

US home prices lose momentum – Over half of top 100 markets are below peak, with June price growth slowing to 1.3% as high mortgage rates dampen demand (Bloomberg)

Builder mortgage buydowns keep prices elevated – Morgan Stanley says new homes could be 5–12% cheaper without incentives, which help offset high rates but prop up pricing (Bloomberg)

Chinese buyers spent $13.7B on US homes this year – Up 83% from last year, with California as top destination and all-cash deals driving demand despite geopolitical tensions (Bloomberg)

Multifamily

Midwest and Southeast lead multifamily rebound – Slowing supply and stable job growth fuel stronger rent gains, while oversupplied Sunbelt markets lag (GlobeSt)

Office

Office demand is consolidating around high-end space as firms cut footprints and tighten mandates, while banks like Wells Fargo accelerate sales of distressed office loans

Wells Fargo leads office loan purge – Major banks trim exposure to troubled assets as CRE revenue dips and nonperforming loans persist (CoStar)

AI accelerates office sector shift – Companies are shrinking footprints and favoring high-quality, flexible space as automation reshapes headcount and lease strategies (Bisnow)

Target and Starbucks tighten office mandates – Companies now require more in-office days as part of broader efforts to boost performance and culture (CoStar)

Insight: Companies are cutting office space as automation reduces staffing needs, but at the same time, they’re pushing return-to-office policies to improve performance and culture. These opposing forces are reshaping demand, with leasing activity concentrating in top-tier, flexible buildings.

Manhattan trophy offices dominate 2025 sales – Class A assets captured 74% of $3.2B in volume as tenant demand concentrates in high-amenity, well-located buildings (CommercialObserver)

Leasing

Nvidia expands in Austin, TX with 99K SF lease – Chipmaker anchors Brandywine’s One Uptown project to support AI growth, doubling Texas office footprint (CoStar)

Kanner & Pintaluga leases 78K SF at The Eclipse in Boca Raton – Law firm will relocate HQ to the former Office Depot campus redeveloped by BH Group and PEBB Enterprises (CoStar)

Convene leases 32K SF in NYC’s Scholastic Building – New 555 Broadway location will be its 16th in the city, expanding event and meeting space offerings (CommercialObserver)

Industrial

Rolls-Royce invests $75M in South Carolina plant – Expansion supports U.S. engine production and rising power demand from the data center sector (Reuters)

Leasing

Spectrum renews 200K SF lease in Brooklyn – Charter Communications extends stay at 59 Paidge Ave for 10 years, maintaining full-building warehouse and office use (CommercialObserver)

Market Mix

Family offices reshape CRE investing – More flexible, risk-tolerant, and fast-moving, with growing roles in private credit, club deals, and complex capital stacks (GlobeSt)

Retail

Retail vacancies rise to 5.8% – Leasing falls 20% as tariffs and store closures drive negative absorption for second straight quarter, with Joann, Party City, and Big Lots leading shutdowns (Bisnow)

Hospitality

NYC hotel market leads nation in H1 2025 – 82% occupancy and $239 RevPAR driven by tourism surge and tight supply (WSJ)

Insight: New York is outperforming because it has the rare mix of strong demand and tight supply, with tourism surging and new hotel construction and short-term rentals held in check.

Data Centers

AI-driven demand is fueling a wave of data center investment led by Blackstone and CoreWeave, propping up construction backlogs despite broader nonresidential slowdown and tariff pressure

Blackstone to invest $25B in data centers and energy – Plans include co-located facilities and natural gas plants across Pennsylvania to support AI-driven power needs (Reuters)

Google to invest $25B in PJM data centers and AI infrastructure – Plans include $3B to modernize PA hydropower and 3GW hydro deal with Brookfield as grid demand surges (CNBC) 

Cloud computing firm CoreWeave to invest $6B in Pennsylvania AI data center – Nvidia-backed firm expands amid Trump’s push to bolster U.S. tech dominance (Reuters)

Data centers prop up construction backlogs – AI-driven demand keeps contractor pipelines strong despite tariff pressure, tight lending, and a 4-month decline in nonresidential spending (Bisnow)

Earnings & Real Estate Impact

Strong Q2 earnings from JPMorgan and Wells Fargo reflect underlying economic resilience, but rising apartment loan distress highlights ongoing cracks in CRE even as office exposures decline

JPMorgan beat Q2 earnings expectations as Dimon cited US economic resilience but warned of risks from tariffs, deficits, and asset bubbles (CNBC)

Wells Fargo’s shares fell over 5% despite beating Q2 profit expectations, as M&A activity rose but the bank cut its net interest income forecast and reported a sharp YoY rise in troubled apartment loans to $378M, offsetting declines in nonperforming office debt (Bisnow & Reuters)

Insight: Wells Fargo is actively trimming distressed office exposure, but the surge in troubled apartment loans from $28M to $378M signals the pain is shifting across CRE sectors. With net interest income under pressure and mounting losses in multifamily, the bank may continue pulling back from CRE lending to protect margins.

Financings

Loans

Empire Group secures $144M to recap 610-unit Phoenix BTR portfolio – Arbor Realty Trust provided bridge loans across three single-family rental communities (ConnectCRE)

Banner secures $124M for 334-unit Wheaton multifamily project in Chicago metro – PNC Bank leads financing as suburban deliveries slow and rents rise (TheRealDeal)

Maxim Capital lends $115M for NYC condo tower – Montperia and JLS to build 207-unit project at former Apex site, slated for 2027 completion (CommercialObserver)

Refinancings

Moishe Mana secures $150M refi for 56-property Miami, FL portfolio – New loan replaces Centennial credit line and supports redevelopment plans around Mana Wynwood Convention Center (CommercialObserver)

Moderno Development refinances 352-unit multifamily in Fort Lauderdale, FL with $117M loan – JLL arranged the three-year floating-rate debt for newly delivered Rivr Lofts, now 65% leased (ConnectCRE)

Cisterra and Spruce Capital refinance 241-unit Class A multifamily in San Diego, CA with $98M loan – Radian is a luxury property near Petco Park (ConnectCRE)

M&A

Building & Portfolio M&A

Healthcare

Jonathan Rose buys SoCal senior housing for $83M – Firm acquires 240-unit Coventry Court in Tustin as demand surges and new supply lags nationwide (CommercialObserver)

Retail

Fullerton Metrocenter sells for $118.5M in Orange County, CA’s top retail deal since 2017 – Space Investment Partners acquired the 395K sf, 30-acre power center anchored by Target and Sprouts from Kite Realty (CoStar)

Institutional Fundraising

AEW closes $1.77B for Fund X – The 10th vintage in its opportunistic series surpasses its 2021 predecessor but misses $2B target (IREI)

Distress Watch

Columbia Property Trust lists San Francisco office tower after $1.7B loan default – 201 California’s value fell from $239M to $81.5M with occupancy at 35% (TheRealDeal)

Savanna misses balloon payment on $463M New York City office loan – 5 Bryant Park CMBS debt matures with no extensions left, occupancy at 81% (TheRealDeal)