CRE Deal Activity Surges—Will Recession Fears Drag Investors Down?

Markets whipsawed this week against a barrage of policy and economic headlines. Inflation cooled more than expected, which was welcome news, but investors grappled with trade war escalations sparking recession fears and a sharp selloff in equities. Martha, Manus, and Dianne break down how macro uncertainty is shaping investor sentiment, from rising bond yields to heightened volatility in the stock market. Despite the turbulence, the LightBox CRE Activity Index surged 19% month-over-month and 27% year-over-year, signaling continued strength in commercial real estate transactions. The team also unpacks the latest CMBS issuance surge, what Delta’s earnings reveal about business travel pullbacks, and why CRE investors remain focused on deal flow even as the economy wobbles. With CRE sentiment still resilient, the question remains: is this just a market correction, or are we edging closer to a recession? 

04:26 Interest Rates and Market Sentiment 

09:51 Uncertainty in Tariffs and Government Shutdown 

12:54 Lightbox CRE Activity Index Surges 

15:33 CRE Lending Trends and Market Sentiment 

22:19 Navigating the CMBS Landscape 

25:48 More Green Shoots in the Office Market 

28:57 San Francisco Shows Positive Signs 

31:19 Reflections on the Pandemic's Impact 

Have questions for the pod team? Send them to Podcast@LightBoxRE.com. 

www.lightboxre.com

Transcript

The CRE Weekly Digest by LightBox

Episode 37: CRE Deal Activity Surges – Will Recession Fears Drag Investors Down?

March 14, 2025

This is the CRE Weekly Digest by LightBox, a firm transforming the commercial real estate landscape by connecting every step of the CRE process with comprehensive tools and data. I'm Martha Coacher with our experts, Manus Clancy and Dianne Crocker. For the week of March 10th through the 14th, inflation eased more than expected last month but the heat turned up on the trade wars and fears of a recession.

Investors reacted dumping stocks during a Monday market meltdown and volatility that continued throughout the week. Manus, we have a market that is reacting to headlines day to day, and it could take time for more clarity in the macro landscape. 

Wow, what a week, right? So many moving pieces, so many pieces that it's hard to get your arms around.

So maybe the best way to start with the open is splitting this into the good and the bad from the week. And let's start with the good. The good was the CPI number that came out a couple of days ago, slightly below estimates that triggered a huge melt up in stocks at just the right moment, just when we needed it, the stock market had been on fumes for a couple of days.

So that benign better than expected CPI reading was quite helpful. Then we saw an even better PPI number today, Thursday, which came in well below expectations. And you would have thought that. The rally that we saw on Tuesday would have continued on Thursday as a result of that number. Instead, almost inexplicably, we saw a real uptick in interest yields today.

The 10-year yield jumped 10 basis points after that PPI print. Hard to get your arms around that. Um, but the CPI and the PPI were two parts of good news this week. If you want to look at another part of good news, obviously this is really early in the process. But it seems like perhaps we'll come up with a ceasefire in the Ukraine.

It seems like Russia is leaning towards doing that. If we were to come to the end of a shooting war in the Ukraine, that would be a wonderful thing too, right? Just for humanity's sake. So those were the three things I think in an otherwise very challenging and volatile week that gave me a little hope.

There was a lot of bad. But before I get to the bed, why don't I pause and let you, Diane, or you, Martha, react to the couple of nuggets of good that we got this week. 

Yeah, I'll jump in Manus. You know, I think in my mind, the word of the week is choppy. I spent some time Monday night catching up with Lisa Strope.

She's the head of research at TA Realty and we were at a commercial real estate women's event in Boston. Lisa's an excellent market trends speaker. And one of the things that she noticed was just a disconnect that she's seeing between The headlines, good and bad, you just talked about some of the good and what the metrics are showing, which is a still growing economy, a healthy commercial real estate markets, ready capital, that we're still in a position of strength, you know, unemployment's low, job growth is still pretty solid, but we're seeing some softer data on things like business sentiment, which we talked about last week, but the real activity data hasn't really changed materially yet.

And yet, you know, in my mind is, is kind of the operative word. But Lisa's take was as long as the numbers stay strong, we should be fine. And it kind of makes me wish that we could turn off the 24 hour news cycle and just let the markets do what they're going to do, you know, without that drama. But it's not realistic.

I think that other markets clearly need policy clarity to stabilize. And I'm sure we'll talk about Tariffs in a minute, but as my brother says, pass the popcorn. It's a, it's going to be a bumpy ride. And I also wanted to give kudos to Holly Niebuhr. She is the CEO of AEI Consultants. She was also at the Boston event.

Thank you, Holly, for your support of the CRE Weekly Digest. She shared the podcast with our whole table, and we really appreciate you being on board. Thanks, Holly. 

So we talked about some good, I don't want to bury the lead too much. We have some other good things coming out. We're going to talk about the.

LightBox activity index later, and some remarks from city group and something that appeared in commercial mortgage alert last week were also positive. We'll peel those back as the podcast goes on, but the negative this week seemed to outweigh the positive by a fair amount, and that's what led to a lot of this volatility.

Let's start with interest rates. We saw the yield on the 10 year fall to about 412 last week. That gave us a lot of hope that. Maybe a, you know, 405 was in the offing, maybe even cross our fingers, uh, something with a three handle that was not to be this week. We saw the yields on the 10 year really shoot back up.

They jumped about 10 basis points this morning to about 435. And when I looked a few minutes ago, it was still at that 426 level. So not the direction we want to be going. An awful lot of volatility in the stock market. We saw several days this week. Where the NASDAQ was down hundreds of points, including a 4 percent dip a couple days ago, that gave people a lot of pause.

Are we running into a recession? The sentiment seems quite negative right now. People using the R word, the recession word over and over and over right now. It's being utilized in corporate earnings, in forecast, the notion that the economy is softening. And the trade war seems to have no end in sight right now.

It seems like. Every instituted tariff comes with a reaction, and every reaction comes with a counter reaction. Yes, I think Canada pulled back on some of their energy tariffs, but they replaced that with a more broad tariff on a wide assortment of goods. So, that part of it completes kind of the, maybe the hat trick of negative items that came in this week.

We also saw retailers announce earnings that highlighted what we've been talking about for the last several weeks. They're concerned about consumers in the coming quarters, and in some cases were relatively pessimistic about what could happen later in the year. 

I saw a headline on CNBC this morning, and I don't know who to attribute it to, which I think it was a Wall Street Journal article, perhaps, that people were pulling back on it.

Two out of those three I get, never been a big Twinkie guy, never been a smoker, but giving up Doritos might be a step too far for me. But you're right, Martha. I think that what's happening right now is everybody is assessing where the economy is. You saw the numbers from Delta this week. They came out and said they're seeing a real inflection point right now as it pertains to the current economy and where they see people going.

Airlines are a great barometer. No 30 days in advance when somebody's going to fly somewhere, right? People make their plans. They make their vacation plans. They are a forward-looking barometer. And if they're saying the consumer seems tapped out right now, it may be time to listen. Time will tell, but you're right.

There was an abundance of stories like that this week. 

And the Delta story is an interesting one because they specifically mentioned business travel being pulled back and that, of course, will have knock on effects on industries like lodging and restaurants and those that are in the commercial real estate space that help support travelers.

Certainly, if that comes to pass, I mean, nobody could ever imagine a time worse than right after the great financial crisis. I guess that was the second worst. And then the early days of COVID, which lasted two years. Where nobody traveled at all, right? If you could survive that as an airline, you'd probably survive anything.

I think the big question comes in right now, and I'm looking forward to your reactions to this, is that every time we see a five or 10 point drop in U. S. stocks, the big debate becomes are we going headlong into a recession? Or is this just a healthy correction ahead of the last couple of weeks, stocks were really at all-time highs.

The multiples were extraordinary, right? Historical all-time peaks for PE earnings ratios. And so, to me, my gut tells me that yes, maybe the economy is getting softer, but it feels more like a healthy correction, a pullback people taking both the time to assess what's going to happen with tariffs. Spending, doge layoffs, and so forth, and also to maybe take some chips off the table because valuations had been so high rather than us tumbling down the hill on the way to a painful recession.

What do you guys think? 

I tend, man, us to take a longer view and not get hysterical over, you know, a couple weeks or even one month of data. But having said that, it seems like a growing number of sources are already changing their outlooks based on one month of data. So, this week it was Goldman Sachs, JPMorgan Chase.

They both raised their probability of an economic downturn this week, warning that the outlook was considerably more adverse, I think is the term that they used. It's an emotional market for sure, and I think that's a lot of the swirling assessments that we've been hearing this week, that confidence in the economy was a lot higher a month or two months ago, and people are definitely getting nervous, and that uncertainty is rising, so that's what I worry about is, is just the theme that we've talked about here before, that, you know, will we talk our, ourself into a recession, or is this a correction like you just said, you know, where everything will calm down and, and We'll work out.

I think clearly we're going to be on this roller coaster for a while. 

I think the question, Manus, is that no one has any certainty as to which tariffs are going to hold, which ones are just being used as a negotiating chip, and where we'll be, you know, six months from now. If we had some certainty in terms of what the tariffs were going to be that are in place, companies could make plans around that and expect how they're going to, you know, recover.

Uh, increase costs across their, their product lines. I think given the fact that we don't know where it's going to end up is what is making everybody nervous. 

And the one thing we didn't remark on in the litany of bad news this week was the possibility that we could see a government shutdown. We saw the House narrowly pass a continuing resolution that would take us through the end of September.

The Senate is ready to pass it, but the Democrats have the ability to filibuster this. And at the moment, it does seem like the outcome will be a government shutdown. It doesn't seem that the Republicans have the votes to get to 60. Nor does it seem that the Democrats are willing to step back. So that is another level of uncertainty and that probably had something to do with interest rates moving higher today, right?

The probability of a government default is never a good thing for your currency or your debt. And that was one of the headlines that really came out of late yesterday afternoon. So add that Martha to your list of things that are keeping people up at night. But CEOs are CEOs for a reason. and One of those reasons is they do a good job of managing people's expectations.

And I think even if they don't believe that we're running headlong into a recession, it's probably prudent given all the uncertainty to say that we may hit some bumpy roads down the, down the path just to measure and just to, just to allow investors to have some visibility in where things are going, right?

If you don't mention this now and you have dismal earnings three months from now because of tariffs, You look foolhardy, right? So, I think that's part of the reason these CEOs are getting in front of this. I'm not sure that they're fully committed to this notion that recession is right around the corner.

And with all this uncertainty swirling, we have our light box CRE activity index, which. Looking at last month, the month of February, which is when we saw a lot of this turbulent streak begin, had a very healthy result. 

That's right. Our February LightBox CRE Activity Index came out on Monday and it showed a strong acceleration to 96.

1 up from 80. 7 in January and 75. 8 a year ago. So that equates to a 19 percent month over month. increase and a 27 percent year over year increase. So even as the market is navigating the economic and policy uncertainty, much of which hit hard in March, so it's not reflected in these numbers yet, the data does show that dealmaking is soldiering on and February's number really approaches ninety-eight.

Two that we saw last September, which of course was fueled by the optimism when the Fed lowered rates for the first time by 50 basis points. You know, keep in mind the index is a function of three different elements of commercial real estate dealmaking that LightBox supports. It measures property listings activity, it measures appraisals and also phase one environmental site assessment.

So, our index in any given month is cumulatively reflecting in the range of 20 to 30, 000 hits on our data. Whether the trigger is a property listing, an appraisal, or an environmental site assessment. So, I mention that because the index is a broad metric across all asset classes and all geographies. And we're also about to release a 12-month moving average, which is a different way of thinking about the index.

What it will do is kind of smooth out the wild fluctuations that we see from month to month by expressing the index as a 12-month moving average. So Where we saw this huge jump from a very low December due to seasonality on market volatility averaged over 12 months, you get kind of more of a truer sense of the broader, longer term trajectory from month to month by calculating the average as the average over the current month and the 11 months prior.

So, on that basis, February was 86. 4 versus 78. 5 last February and just above 84. 7 in January. And then one last thing I wanted to mention is that of the three components in the index, property listings are the absolute starting line of the race. You know, a property listing is the start of a deal. It's the start of a property along that path to closing.

So that's really the earliest indicator that, that the market has. In terms of dealmaking, because it happens in advance of appraisals, and it happens in advance of environmental due diligence and other supportive functions that follow in suit. So. You know, the big question in my mind, and I think it's a big question in your mind, Manus and Martha, is, you know, how will March shape up based on all the things that we've been talking about so far?

So, listings activity that we have in our LightBox platforms for the first few weeks of March is already starting to trend a little bit downward relative to the growth that we saw in the previous four weeks, which were up in the double digits year on year. It could be the start of a pivot point, could be the start of a market starting to grow cautious and think, you know, maybe I don't want to list this property just yet, but we certainly have some things to watch as March unfolds.

So stay tuned. 

Well, loyal listeners of the podcast know that I'm a big believer in this index. We put it out about a year ago for the first time and your point is spot on, Diane, that this is a forward-looking measure of where the commercial real estate market is going. If you looked at in the past. What our barometers were five years ago, 10 years ago, you would look at bank reports, how many loans do they make in that particular quarter?

Were they growing their book? Were they shrinking their book? You would talk, look at the CMBS market. You would look at public records data, see how many sales had taken place. All of that happens. 2, 3, 4, sometimes 6 months after a property has been sold or a loan has been made. What you're talking about with the listings first, that can front run a sale by several months when you're talking about appraisals and environmental reviews, that normally front runs a sale by 2, 4, 6 weeks, something like that.

So, what you're really getting is on the ground, what is happening in real time with this index. And it seems like it struck a nerve this week because I posted something on LinkedIn about it. And I think people are starting to realize that if you really want to know where the market is going right now, this is a very good index.

All right. Let's look at some trends we're seeing across CRE lending. And Manus, you saw the note in CMA about commercial real estate securitizations. 

Yes. This kind of goes hand in hand with what Diane was saying before about the index looking good in February. The sentiment is also good. The headline, a headline this week in Commercial Mortgage Alert, the market is not slowing down after a record February.

And it talks about February being the busiest month for CRE securitizations in nearly 20 years. Wow. What does that tell you? It tells you we're in a really liquid market right now. The story also goes on to say that Blackstone and TPG real estate are both lining up CRE CLOs. So, is that something we haven't seen a lot of?

In the last couple of years, since SOFR went from twenty-five basis points to over 5%. They also mentioned other CRE CLO issuers getting into the game. And what that's telling us is that the data and the sentiment are going hand in hand, the data telling us that listings, appraisals, environmental reviews, really surging in February, the CMBS market, seeing the gates fly open with new issuance.

And that article telling us that looking over the horizon, several new deals are on the way and nobody's tapping the brakes. So, it's all a piece, right? Even though there may be mayhem around us with tariffs and inflation volatility, interest rate volatility, stock market volatility, the CRM market, at least for now, is kind of ignoring that, remaining stable and soldiering on.

What do you think? 

Yeah, and I think, Manus, that was kind of the same sentiment that Lisa Strope was pointing out too, is that the market is, is moving forward regardless of the news that's coming out from inside the beltway. And I wanted to thank Tina Lichens, our colleague who was a podcast in early February.

She shared an interesting study that Savills did, which I think also ties into the optimism that you were just talking about from Citigroup. So it's something else to put on the good news side of the ledger on today's podcast. And the study was that Savills is projecting over 500 billion. And pent-up sales to begin this year and beyond.

And essentially what they did to come up with that number is they looked at the volume of assets acquired by equity funds and investment managers in 2018 and 19. And then they assumed a typical five-year hold. And they compared that to the volume of disposals over 23 and 24. And based on that, they estimated around 500 billion of pent-up sales that funds have delayed over the last two years.

And now that folks are seeing a recovery in liquidity, they're seeing more price and clarity, and that funds are increasingly likely to bring these assets to market. So, if that assessment is correct and 500 billion of assets go on the selling block, then you Citigroup and others who are very bullish about commercial real estate are, are correct.

We bring up Citigroup. There was a piece this week also that noted that their CRE team headed by Nicholas Joseph, he heads up real estate and lodging for the bank, held a conference and they were quite bullish at this conference. In their remarks, they said that there are various tailwinds that will push the retail sector upwards this year.

I thought that was a great way of saying it. They talk about low supply across all property types, low inventory, economic constraints on new construction stats. What they're talking about there is as supply costs go up with regard to tariffs, as labor costs go up. New inventory can't come on the market to compete with who's out there.

They referred to steady demand, improved rent growth and likely improved NOI growth in 2025 of low single digits. So what you have here is the Citibank team adding some meat to the bones here to say not only is it sentiment, but there's real data telling us that it's not a terrible time to be deploying capital.

in CRE. And that whole tariff effect, I think will be real. I think when you're talking about a multifamily owner, yes, they could come under stress if their tenants come under stress, if we hit a recession, if higher costs put pressure on their ability to raise rents, but they're not buying steel. They're not buying, unless they're renovating apartments, new carpeting, things that are subject to tariffs.

And accordingly, you know, nothing lumber based. Accordingly, if you have a property already in place. You are one step removed from any of this tariff volatility. 

So Manus, you were talking about the surge in CMBS deals and there were some headlines in CMBS related news and we don't normally cover it too deeply, but there are some nuances that are worth talking about.

There has been this ongoing narrative of the wall of maturities that the number keeps get bigger and bigger and bigger. We are extending and pretending there's going to be a swell of things that have to be resolved. And my experience over 30 years in this market has been catastrophe never comes all at once for these assets.

Even in the great financial crisis, even though the U. S. economy was in a catastrophe, and even though we saw big companies failing, it took years and years and years for all of this to play out and squeeze out. So for anybody who thinks That tomorrow, we're going to see the delinquency rate go from 10 percent to 20%, um, something like that, or there's going to be an apocalyptic event in CMBS.

I don't think that day is coming. To that point, I brought up a couple of articles today that caught my attention. From the real deal, the Tamaris Group secured a four-year extension of an office building at 1500 Broadway. That's Midtown West, that loan matured last October. It's a $500 million loan. They were able to secure a four-year extension on that loan, pushing the maturity date out to 2028.

What you have here, uh, and this is a $335 million a note, $170 million subordinated note. What do you have here is a situation where something was distressed. It was a big loan, 500 million, and now it's not distressed anymore. It's going to sit in where it is performing, hopefully for the next four years, and that's what I mean about you can't go to all in or to all out when you buy into this wall of maturities narrative, it's going to muddle through.

In some cases, there'll be foreclosures in others. There'll be refinancings and part of it. So. Here's just one example. And by the way, kudos to Iron Hound Management, Chris Herron and Anthony D'Amelio for leading those talks and arranging this extension. So this is going to be an asset that no longer is distressed.

Another one we saw this week, this comes from Brian Packers of commercial observer, SL green RXR secured a workout for a nearly 1 billion CMBS loan on one worldwide Plaza. In this particular case, the borrowers. We'll be allowed to tap into their reserves to keep debt service current. This loan had a big reserve at one point, a major tenant was lost.

The reserve dwindled down. There were reports that this was going to go into foreclosure at any moment. That was a report earlier in the week. A morning start now reporting that the borrowers can use loan reserves to fund operating expenses and debt service shortfalls for the next period of time. It's unclear how long that will go.

But it just goes to show again here that there are alternative workouts to property defaults, forecloses upon, goes to REO, sold at a big loss, and all the while distress rates continue to go up. It's much more nuanced than that, and if you're playing in this market, coming to grips with that I think is important.

So, we've been talking about office almost every week now. We saw a couple of stories and reports that were more positive signs about office overall. 

Yeah, Martha, the Marcus and Millichap came out with a report this week, their 2025 office national investment forecast, and what they said was office properties are continuing to face a particularly complex operating climate, but they're starting to see some green shoots emerge among the ones that they cited were in the first three quarters of last year.

They're seeing positive net absorption, marking the strongest office demand since 2019, so pre COVID, which is a real plus. And the top ten metros that they cited are, uh, Tampa, Raleigh, Fort Lauderdale, Charleston, West Palm Beach, Miami, Vegas. Charlotte, Salt Lake City, and Orlando. New York was number 11, so they're not left out.

They're just out of the top ten. And in fact, a lot of those metros that they mentioned in their report are office deals that we've been talking about here on the pod. So that was interesting to see. 

And we did see this week a nearly 200,000 square foot lease by Amazon in Manhattan as well. They took 193, 000 square feet at 237 Park Avenue.

And I think this might be the most encouraging sign about the office. It's, it's hard to call it a recovery, yet the office inflection point that we've seen over the last six months, the Amazons, Microsofts, Googles, Facebooks, revert to what they had been doing 10 years ago. 10 years ago, they were taking space hand over fist, year after year, growing their footprint, and not only growing it in one city, but growing it across the country in multiple different locations.

They went through kind of a hibernation period as they tried to cut costs the last three or four years. And now they seem to be back in business. In the Amazon case, we talked about this 200,000 square feet at 237 Park. But they also took 112,000 square feet at 5 Manhattan West just last month. And they partnered with WeWork on 300,000 square feet.

On the West side on 34th Street on the West side of Manhattan a couple months ago. So, I think that's the most encouraging sign. And we saw a couple of other things this week. We saw the Bank of India take, I think it was about 45,000 square feet on Park Avenue as well in Manhattan, that reporting come coming from Steve Cuozzo.

And just to go not completely New York centric, we saw a 90,000 square foot lease at Sugarloaf One in Duluth, Georgia with Collier's. leading the way to get venture employer solutions to take nearly 100,000 square feet there. So, you know, I don't think anybody's ready to say office is back by any means, and certainly you can't say it with all the closings of federal workers, federal offices right now.

There are green shoots if you look for them at this point, and that's better than where we were six months ago. 

And as I feel like these signs happen gradually over time and We don't often hear news that's positive about San Francisco, so I'll throw this one in. That the area around San Francisco's most recognizable skyscraper is shaping up to what they're calling the epicenter of a downtown recovery.

It's on the block across from the Transamerica Pyramid near the edge of Jackson Square. And Related California is moving forward with plans forty-one story tower. Its office space totaling 360, 000 feet. And a 200 room, five-star hotel. And the great news is that it's finally getting underway after a really long delay, in part caused by the pandemic, which I think is on everybody's mind now as we approach the five-year anniversary.

What you're describing in San Francisco is Class A. It's going to be great office space and Even in this hardest hit cities, we've seen that quality, the flight to quality really hold up. And I think that's what's happening in San Francisco. 

And our did you know for the week takes us to zoning reports and what trends we're seeing in that market.

Yeah, I spent some time this week, Martha, dialing into LightBox's data on the zoning side with our PZR business. And as a whole, zoning report volume was up 20 percent in 2024 versus the prior year, and in January and February of this year, zoning report demand was up 12 percent versus January and February of last year.

Industrial, in particular, is showing a dramatic turnaround in the first two months of 2025 with zoning project volume. Already more than quadrupling where it was at this time last year. So it's interesting because zoning assessments play a really important role in identifying underused properties that could be strong candidates for rezoning or redevelopment or just for telling developers whether a property's permitted uses align with intended use before purchase.

As you mentioned, Diane, this month marks the five-year anniversary of the pandemic, which of course dramatically reshaped how we do everything from shopping to entertaining and working. And many of us thought that this would be maybe a 30 day pause. It has turned out to be way much more. 

It's a very bittersweet anniversary, I have to say.

People may be surprised at that. They may look back and say, how could you say that there was anything sweet about that period of time? And yes, it was probably more bitter than sweet out of it, but we launched our first podcast at that time, Martha and I, five years ago, right in the teeth of this. We weren't expecting to launch a podcast and have COVID at the same time, but we did.

And it was such a journey of making new friends. And I guess that's the sweet part of it, that everybody was locked in their basement. They were trying to make head or tail of what was happening. They were trying to accomplish things. They were trying to help their neighbors. They were trying to help their local businesses, but they were also isolated and the number of emails and phone calls and texts we would get every week, it just felt like the beginning of a community that has turned us from kind of just being players in the commercial real estate to being part of a real family of people.

And so, it was bittersweet, painful memories of those we lost and those that suffered. God, it showed a lot of good things about this country and, and the resiliency of us all. 

And with that, we'll close. Thanks to our producer, Josh Bruning. Please join us every week as our LightBox team shares CRE news and data in context.

You can listen on any of your favorite podcast channels. Send your comments or questions to podcast@lightboxre.com. Thank you for listening and have a great week. 

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