October’s storylines:
Rates: holding but more likely to rise than drop.
CRE debt: from stress to realized losses.
Multifamily: rental increases are manifested, but so are syndication collapses.
Data centers: poised for problems?
Quiet winners: diluted by CRE drama, these sectors are thriving.
1| Rates: holding but more likely to rise than drop.
After September’s hot inflation and jobs reports (core CPI beat forecasts; August added 162,000 jobs), the Fed hiked rates on Sept. 16, the 10-year reached its highest level since 2007, and mortgage rates hit 7%. October brought a cooling economy (+29K jobs, 4.2% unemployment), but rates did not fall. Markets priced an Oct. 28 hike; the Fed paused instead while calling inflation too high, and a December hike is now expected. The 10-year held near 5.3%, and forecasts now assume higher interest rates will stay: Fannie sees 7.5% mortgages in 2027 and CBRE sees cap rates rising 40–60 bps.
2| CRE debt: from stress to realized losses.
The cracks have been showing for some time: special servicing climbed in August on large maturity defaults, and the office crisis shifted to CMBS investor losses. September continued to report signs of stress. By October, the stress moved to breakage: CMBS delinquency reached 8.02%, the highest since 2020. Special servicing hit 11.49%, the highest since 2013. Big banks took bigger CRE losses, distressed sales rose 26%, and $733B comes due in 2027 as extensions fade. Lenders have stopped extending and started taking losses. Rescue capital buys sponsors time but costs control.
3| Multifamily: rental increases are manifested, but so are syndication collapses.
The multifamily recovery started in September when rents rose for the first time in years as Sun Belt pressure eased, and multifamily starts fell nearly 16%, shrinking future supply. Distress was a general warning: a $1.8T apartment debt reckoning and DFW distress. By October, rent growth turned positive nationally for the first time since 2023, led by San Francisco, Chicago and the North, while concessions stayed at 15-year highs and MAA’s revenue dipped on Sun Belt weakness. And the distress picture clarified:
Two sponsors hold 89% of delinquent SASB multifamily balance.
A quarter of Texas floating-rate apartment loans can’t cover their debt.
S2 Capital modified $1.2B across 26 assets; Blackstone’s $1.3B Sun Belt loan went to special servicing.
The FBI opened an investigation of syndicator Lurin Capital, while Texas authorities vacated residents from unsafe conditions.
4 | Data centers: poised for problems?
Back in September, money was pouring into data centers: Coverage tallied AI’s $10.3T bet, a $1.3T data center debt surge led by 15 lenders, Nebius raising $5.75B in debt, and Blue Owl seeding a data center REIT with ~$6.5B. But problems were on the horizon as opposition and regulatory challenges increased and power availability decreased. Opposition was project by project: a community revolt toppled a $100B project, and Colorado development stalled on power and taxes.
By the end of October, the data center honeymoon was over and moved to “it’s complicated” status: debt repriced and tenant risk surfaced. AI data center debt yields hit double digits as buyers balked, PIMCO halved its AI debt stakes, and CoreWeave’s debt troubles and an Oracle delay put tenant credit in focus. Bain put the revenue gap at $4.2T. Opposition became policy: canceled tax breaks, 11 types of restrictions, and Illinois ballot referendums. Demand held: Blackstone’s book reached $200B and Equinix bookings hit a record. Power access now outranks land and labor in site selection.
5 | Quiet winners: diluted by CRE drama, these sectors are thriving.
Malls and industrial assets were showing a growing trend through September: Malls were named the top performer in CRE, with open-air traffic up 6.6%. Industrial occupancy rose as net absorption climbed 82%. And the trends strengthened through October:
Industrial: leasing hit 202.6M SF, the best since 2022; L.A. vacancy fell to 5%; and data centers lifted outdoor storage rents 32%.
Retail: vacancy fell to 4.3% and retail CMBS payoffs neared 90%. The split widened: top-tier malls mask distress below and luxury spending fell 6%.
Little new supply is coming. Retail construction starts hit a decade low and strong fundamentals are driving industrial returns.
The Skeptic’s Corner
Thank goodness low interest rates aren’t coming to save us.
Now every GP with an upside-down deal that was never going to return common equity in whole (or potentially even in part) can just keep blaming interest rates.
Not the 19% rescue capital, not the aspirational pro forma, not the aged, Class C apartments with 40% overhead costs underwritten like a new Class A.
The plague of terrible deals is claiming its victims. LP money is gone and so are the GPs.
Will these zombie GPs rise again? Probably. But a new era of transparency and LP information sharing is here.
Let’s hope that what doesn’t kill us makes us stronger.
Quote of the Month
“property was foreclosed, haven’t heard from the GP in months, my entire investment is lost”
— most common comment in syndicated investor groups and reviews
What did we miss?
Comment below on news and resources worth sharing.