Tesla and SpaceX both confirmed that Terafab, a jointly built semiconductor megafactory, will be coming to Grimes County, Texas (just north of Houston). The site calls for 100+ million square feet of manufacturing space, and if completed as planned, would make it the largest building in the world. For comparison, this building will be five times the size of China’s New Century Global Center, which is currently considered the world’s largest building by square footage.

The Numbers Behind Terafab
The first phase will cost $16.8 billion, with a disclosed ceiling as high as $119 billion. Intel has also signed on as a partner though the size of its contribution has not been disclosed. The project will bring at least 1,800 full-time jobs by 2035, with the broader project expected to create 3,000 jobs.

This is a useful data point against last week’s jobs report. Construction payroll rose by 22,000 jobs in July, even as the broader labor market disappointed.

Under one roof, the facility will house manufacturing, packaging, and testing of advanced logic and memory chips. This includes chips for Tesla’s Optimus robots, Cybercab autonomous vehicles, and Musk’s stated ambition for space-based data centers. Musk has framed the scale by saying that both Tesla and SpaceX will need more chips than current global production can supply, with the goal of producing more than a terawatt of compute per year. This is a figure that doesn’t compare to anything the semiconductor industry currently measures.

Why This Matters for Industrial Real Estate
We’ve written before about industrial being one of the best-performing property types this cycle, even as other commercial products work through distress. But, Terafab takes that trend to a different scale. While a 100 million square foot semiconductor campus is far removed from a typical industrial development, it reflects the growing demand for large-format manufacturing space and the infrastructure needed to support it.

A project of this size doesn’t move through the typical build-to-suit or brokerage pipeline, but it competes for many of the same resources as conventional industrial development, including power, water, skilled construction labor, and large tracts of developable land. In a market like Grimes County, that competition could have implications beyond the Terafab site.

However, the bigger CRE story is what develops around it. Semiconductor manufacturing depends on a network of equipment suppliers, specialized contractors, chemical and materials providers, warehouses, logistics operations, and other support businesses that cluster near these major fabs. As that ecosystem takes shape, it creates a second wave of demand for industrial space, particularly modern manufacturing and distribution facilities with reliable access to power and transportation infrastructure.

For example, TSMC’s Phoenix fab complex has attracted suppliers and additional investment to the surrounding market. This has helped establish a broader advanced-manufacturing cluster. Industrial vacancy in nearby submarkets has fallen below 3%, while Class A industrial rents have increased by roughly 15% to 20% since construction began. TSMC’s Arizona operations also employ approximately 4,500 workers directly, adding another source of demand for housing, retail, and supporting real estate.

The scale becomes even more significant given the project’s location. Grimes County has a population of roughly 30,000 spread across 802 square miles. At full buildout, Terafab alone would rival or exceed the total industrial inventory of many U.S. metro markets. Adding a project of that magnitude to a rural market will reshape demand for land.

The Starlink Side: A Different Kind of Infrastructure Bet
The Terafab announcement landed the same week SpaceX reported its first earnings as a public company. Revenue came in at $7.8 billion for the quarter, up about 90% YoY, while losses narrowed to $541 million from $1 billion a year earlier. Starlink subscribers doubled to 12 million over the past year, and capital expenditure increased to more than $18 billion from $2.83 billion a year ago.

On the call, Musk said it’s “not out of the question” that Starlink could eventually deliver the majority of the world’s internet in the next decade. To support this, SpaceX has applied to the FCC for approval to deploy up to 100,000 low-Earth-orbit satellites for its next-generation V3 network, supplementing the roughly 11,000 V2 satellites already in orbit.

This is a claim that is more aspiration than forecast. Twelve million subscribers is meaningful growth, but it’s still a small fraction of global internet usage. The pattern connects directly back to Terafab: both are bets that access to public capital markets (SpaceX’s own recent IPO chief among them) lets Musk fund infrastructure at a scale most companies, and most real estate developers cannot match.

Bottom Line for Owners
Terafab and Starlink’s buildout are extreme examples of a trend already showing up in the CRE data we track every week: capital is flowing into large-scale, compute-adjacent infrastructure at a pace that’s reshaping demand for land, power, and construction labor in certain submarkets. With Texas being chief among them right now. For owners and developers in Houston and the broader Texas industrial market, that means both opportunity (rising demand for adjacent logistics, housing, and support infrastructure) and new competition for the same finite regional resources every other industrial project needs.

It’s been a genuinely eventful stretch for anyone tracking the intersection of monetary policy, credit markets, and the labor market. Three separate data points landed in the span of about ten days, and each one pushes in a slightly different direction. Here’s where things stand heading into an even heavier data week.

The Fed: A Hold, But With Teeth

The FOMC voted 9-3 to hold the federal funds rate at 3.50%-3.75% at its July 28-29 meeting, the fifth consecutive hold and Kevin Warsh’s second meeting as Chair. The vote count is what made this one notable: three members (Hammack, Kashkari, and Logan) dissented in favor of a hike, the most dissents we’ve seen in years, despite a June CPI print that had cooled to 3.5% year-over-year.

Warsh continued his lower-guidance approach, giving markets little to work with in his press conference. The result was more volatility, not less, with rate-hike odds for September swinging meaningfully on essentially no new information. The 10-year Treasury pushed toward 4.70%-4.75% in the days around the meeting, and the 30-year hit its highest level since 2007, both a direct hit to CRE borrowing costs.

The Credit Side: Delinquencies Post Their Biggest Jump in Over a Year

Trepp’s July CMBS delinquency report showed the overall rate jumping 51 basis points to 7.86%, the largest single-month increase in more than a year. A handful of very large loans drove the move: five loans accounted for 44% of the $6.0 billion in newly delinquent balances, including a Chicago office tower, a Seattle office portfolio, two Times Square properties, and a North Carolina/Nevada showroom portfolio.

Office remained the worst-performing property type at 11.91%, but multifamily posted the largest increase of any sector, up 46 basis points to 7.69%, driven by a wave of loans in Ohio, Texas, and New York going 30 days delinquent. That multifamily move lines up uncomfortably well with what bank earnings calls have been saying: Texas multifamily is where new bank lending growth and Trepp’s earliest surveillance warnings are starting to overlap, with Austin’s multifamily watchlist rate sitting at 17.3% against a special servicing rate of only about 1.0%.

Industrial was the lone property type to improve, falling 7 basis points to a market-best 1.13%, consistent with what we’ve been seeing across bank commentary: new CRE lending is concentrated in disciplined, well-underwritten multifamily and industrial, while distress remains concentrated in older, higher-leverage vintage credits still working through the system.

The Labor Market: A Surprise Decline That Complicates the Fed’s Hawkish Case

Just over a week after the Fed’s hold, the July jobs report landed well below expectations. Nonfarm payrolls fell by 23,000 against a forecast gain of 83,000, though the decline was driven almost entirely by a 53,000 drop in government jobs and a 40,000 decline in leisure and hospitality. Private payrolls actually rose 30,000. Construction, which we watch closely, added 22,000 jobs.

The bigger story was underneath the headline: May and June payroll gains were revised down by a combined 103,000, the third straight cycle of meaningful downward revisions, and wage growth slowed to 3.2% year over year, the softest reading since May 2021. That combination undercuts the argument the FOMC’s three dissenters made just over a week earlier, that the labor market was too tight to justify easing.

How These Three Things Fit Together

Taken individually, each of these data points is noisy. Taken together, a pattern starts to emerge. The Fed held rates and saw its most hawkish members push for a hike, based partly on labor market strength that the very next employment report called into question. Meanwhile, credit stress is building in exactly the property types banks are trying to grow into (Texas multifamily in particular), even as industrial keeps performing and office remains stuck at an elevated plateau with no clear signs of turning.

None of this points to a market-wide unraveling. It points to a market where the easy, uniform read (rates are high, credit is fine, or rates are high, credit is falling apart) doesn’t hold up. Different property types, different vintages, and now different labor market signals are all telling somewhat different stories at the same time.

What’s Still Ahead This Week

This is an unusually data-heavy week, and each release carries more weight than usual given how much tension already exists between the Fed’s posture and the incoming data:

Wednesday, August 12: July CPI. Consensus is calling for a modest 0.1% monthly increase following June’s surprise 0.4% decline. Fed Governor Lisa Cook said on August 5 she’s prepared to support a hike if inflation doesn’t cool, so this print carries real weight either direction.

Thursday, August 13: July PPI. A leading indicator for consumer inflation and a read on whether pipeline cost pressures are building beneath the surface, regardless of what CPI shows.

Friday, August 14: Advance retail sales for July. The clearest read yet on whether consumer spending is holding up against a cooling labor market and elevated borrowing costs.

Bottom Line for Owners

The setup right now is genuinely two-sided. A softening labor market argues for rate relief. A hawkish Fed with real dissent argues for patience. Credit performance is bifurcated by property type and even by vintage within the same property type. We don’t think that ambiguity resolves this week, but Wednesday through Friday’s data will tell us a lot about which direction the balance is tipping heading into the Fed’s next meeting and Jackson Hole later this month.

The FOMC voted unanimously to keep the federal funds rate at 3.50%–3.75%, marking the fourth consecutive meeting without a move. That outcome was never really in question.

FedWatch showed a 98% probability of a hold heading into today but the decision still carries weight as the first under Kevin Warsh.

The backdrop is naturally hawkish. May CPI came in at 4.2% year-over-year, the hottest reading since April 2023, with energy prices (up 3.9% in May) responsible for more than 60% of the monthly increase. Core CPI, which strips out food and energy, was a more manageable 2.9%.

The other factor that will be telling is the employment market, which has run surprisingly hot for the last 3 months. The end of the war (we hope) and the new Fed Chair likely mean we are right back into “good news is bad news” for those waiting for rate cuts.

Warsh’s Press Conference Debut, and His Curtain Call?

Warsh held his first press conference as Chair today and for long-time Fed meeting watchers, it felt weird.

Jerome Powell elevated press conferences to a post-meeting staple, one after every FOMC meeting. Its been a long 8 years, but I am willing to bet many people in the CRE industry don’t know that Powell’s transparency was abnormal.

Warsh has been openly skeptical. At his Senate confirmation hearing, he declined to commit to that cadence, raising the prospect of reverting to four press conferences per year (the pre-Powell norm).

His core criticism is that too much Fed communication creates noise, anchors markets unnecessarily to near-term signals, and places the central bank at the center of decisions it shouldn’t be driving. He doesn’t want to give forward guidance, whereas Powell used forward guidance as a form of monetary policy itself.

His stated preference for “messier meetings”, where committee members debate openly rather than signal a pre-packaged consensus, signals a less predictable Fed.

We’ve been saying this since Warsh was nominated, and it may change the way we here at Matthews cover fed meetings (we will likely start adding Fed Previews the day before meetings), but the era of knowing what the Fed is going to do at any given meeting is ending.

It is unlikely he will cut the press conferences entirely, but we do think we’re headed for fewer statements from Warsh than we got from Powell.

This move has advantages and disadvantages. In normal times where the economy is functioning well, fewer curveballs and ambiguous statements will help market actors stay focused on real value.

The downside is simply that forward looking guidance allows the Fed to shift investor perceptions without changing the rate. Powell could come out hawkish in a press conference, and investment would cool, achieving the economic goal without any of the real damage of a rate hike. Warsh is throwing that tool in the waste basket, for better or for worse.

A Very Different Dot Plot

The June dot plot erased the single rate cut that appeared in March’s dot plot, when the median projection sat at 3.4%. The updated median now signals rates on hold through year-end, with no easing in sight for 2026.

More striking: nine FOMC members are projecting a rate hike before December. Reasons given are the hot job market and two-year Treasury yields sticking above the Fed funds rate. The bond market is largely expecting a rate hike, despite even the revised dot plot showing most Fed members see the rest of the year as a hold. Among non-voting Fed members, the appetite for a hike is even more robust.

For investors pricing in rate cuts, this is a meaningful reset. The market entered 2026 expecting two quarter-point cuts by December. Two now seems like a massive stretch.

What’s interesting is the dot plot itself is the exact kind of forward guidance Warsh wants less of. It will be telling to see if we see more dissenters at upcoming meetings.

The Warsh Reforms

Warsh came into the role promising a “reform-oriented Federal Reserve,” and the institutional changes he has outlined are arguably more consequential than any single rate decision.

Those priorities, outlined during his confirmation process, span four main areas:

Communications overhaul: Abandon or dramatically scale back forward guidance and the dot plot. Warsh believes detailed rate projections create policy errors by locking the Fed into signals it later has to walk back. He believes the market itself will set the best expectations, without the speculation Powell would provide markets.

Inflation targeting reform: Revert from the flexible average inflation targeting (FAIT) framework adopted in 2020 back to a strict 2% target, and revisit how inflation is measured. Warsh seemed open to redefining “normal” inflation as anything between 2%-3%, explicitly once we get back to 2%, an idea that we at Matthews think is sound. Is 2.0% that much better than 2.5% that the Fed must act? We don’t think so.

Balance sheet reduction: Shrink the Fed’s ~$6T balance sheet and exit mortgage-backed securities holdings entirely, pulling the Fed out of the housing market. He favors rate policy over QE as the primary tool.

If the Fed winds down MBS holdings, either by letting them mature without reinvesting or by selling them outright, it removes a large, price-insensitive buyer from the mortgage market. That would likely push mortgage spreads wider, meaning the gap between the 10-year Treasury and the 30-year fixed mortgage rate increases. Even if Treasury yields stay flat, homebuyers and multifamily borrowers could face higher all-in rates, especially on longer-term loans.

Mandate refocus: Pull the Fed back from climate policy and other areas he views as outside its statutory dual mandate (price stability + maximum employment).

None of this happens overnight. Warsh needs board consensus for any structural changes, and the process will be deliberate. But the direction of travel is clear: a smaller, quieter, and more disciplined Fed, one that seems likely to generate more short-term market volatility as investors lose the constant flow of guidance they’ve grown accustomed to.

Market Context

The 10-year Treasury has been running around 4.45%–4.50% for nearly 2 months, a level in line with early 2025 levels. Many of us in CRE were hoping for a cleaner end to the Iran conflict, one that would reinstitute long-term faith in the US economy and bring the bond yields back to levels we observed before the war.

That isn’t the ceasefire we got, and in the meantime, the US economy is positioning for growth. Cutting into a rising job market is a tough sell for any economist, especially one that just started in his role.

Our base case is still one cut, likely in December 2026. The Fed is a government institution, and the political gain from a pre-Christmas cut makes that more likely than January in our view.

Core CPI at 2.9% gives the Fed a path to act if headline readings cooperate. That single cut would provide only modest relief at the margin: a 25-bps reduction from the current range would take the funds rate to 3.25%–3.50%, not a structural shift in borrowing costs, but a directional signal that could help unlock deal flow and give lenders more confidence to underwrite. Although there’s nothing worse for deal volume than uncertainty in the direction of rates, we expect a major unlock of capital will occur the next time the fed does cut interest rates.

If the Iran deal unravels or energy prices re-accelerate, or if the strong labor market get stronger, the Fed may be forced to tighten. That would push long-term rates higher, widen cap rate spreads further, and extend the distress cycle for floating-rate borrowers and overleveraged assets.

The playbook to get to the next rate cut is:

1. A Peace Deal That Sticks

2. Sustained Job Growth Under 100,000 A Month (Or Job Loss)

3. Organic Treasury Demand at the Long End

Bottom line for owners: plan around the idea that any near-term rate relief is likely to come from the market itself, rather than from Fed action.

The long-end of the bond yield is really a reflection of investor confidence in America, and we don’t see a world where this peace deal sticks and interest rates don’t come down, even without Fed action.

We could see a slow retreat in rates akin to what we saw in 2H 2025, when tariff panic had played itself out.

Headline inflation hit 4.2% in May, a three-year high, and the third straight month of acceleration. After more than two years of steady readings between 2% and 3%, that turn higher has revived a comparison the long grind lower had mostly put to rest.

For an owner with debt maturing into 2027, the May inflation data raised one question worth losing sleep over: did it just push the next rate cut out of reach? Is this where rates sit for the next 12 months?

The market’s response has been to all but abandon near-term easing, pushing the next cut out toward the second half of 2027 and pricing a real chance of hikes before then. We think that is an overcorrection, and the distance between the market’s read and ours is the number that matters most here for anyone financing real estate (or any debt funded investment for that matter).

The shape is hard to unsee, and it is the reason the market has turned so defensive. Lay the post-COVID inflation cycle over the 1970s and the two rhyme: a first peak, a long disinflation, and now, just as the headline ticks back to 4.2%, a second upturn starting near the same point in the cycle where the seventies began their climb toward a second, higher peak.

That resemblance is doing real work, and businesspeople that remember this period are right to fear its return.

But the chart doesn’t show the “why”.

What The 1970s Actually Were

The word for the 1970’s is stagflation: high inflation and high unemployment at the same time.

That wasn’t supposed to be possible, the Samuelson textbooks said you got one or the other, so the Fed could always trade a little more inflation for a little less unemployment, or the reverse. The 1970s broke that.

Prices and joblessness rose together, and the Fed was trapped:

1) Raise rates to fight inflation and you deepen the recession.

Or…

2) Cut rates to fight the recession and you feed the inflation.

There was no move that helped both sides of the Fed’s dual mandate.

That trap, not the high prices by themselves, is what made the decade so destructive. Inflation is largely manageable at any level as long as wages and growth keep up.

So now that we know what the fear is, the important part becomes the how that trap started.

It started with oil, twice. In late 1973 the OPEC embargo roughly quadrupled the price of crude in a few months, and inflation hit 12% in 1974, while the economy fell into its worst recession since the war and unemployment reached 9%.

Inflation eased back to about 5% by 1976 but never returned to where it began. Then in 1979 the Iranian Revolution cut off Iran’s oil and prices more than doubled again, pushing inflation to nearly 15% in 1980, higher than the first peak.

What turned two oil shocks into a decade of inflation is that it started to feed on itself. Most union contracts back then had automatic cost-of-living raises built in, so every jump in prices automatically raised wages, which raised companies’ costs, which raised prices again.

People came to expect high inflation, so they asked for raises and set prices for it, which then created more inflation. The economy never had a chance to cool.

And the Fed kept losing its nerve: it would raise rates, then cut again the moment unemployment climbed, so no one believed it would see the fight through. The oil shocks faded, but the inflation didn’t, because it had been built into wages and expectations.

Ending it was brutal. The Fed pushed interest rates to nearly 20% and held them there through a deep recession that drove unemployment to almost 11% in 1982. That finally broke inflation.

If you’re a new agent and you think business is tough at current rates, go talk to some veteran brokers that were cutting deals with the 10-year at 15%. The market still moved.

The lesson the Fed took from it is why we won’t see the Fed raise rates this cycle. The whiplash of hikes and cuts in quick succession does more damage than holding.

Why This Cycle Is Different

Start with where the inflation came from. In the 1970s, the economy had been running hot for years before the oil shocks:

Heavy spending on Vietnam, the Great Society, the end of the gold standard, a Fed that let pressure build and the embargo landed on top of all that.

This time there’s none of that underneath. The entire move from 2.4% inflation in February to 4.2% in May is one thing: the war with Iran shut the Strait of Hormuz and pushed oil from about $60 to over $110. Take energy out and there’s no broad inflation problem to find.

Today’s above-target inflation is almost entirely the energy spike.

In the 1970s, something was holding it up. Workers won automatic cost-of-living raises, so every price increase turned into a wage increase and the two chased each other for years after the oil shocks passed. None of that is in place now. Wage increases slowed and is trailing inflation, companies are absorbing higher costs instead of charging more, and households still expect prices to settle.

Beyond the underlying economics, we can also index the oil shock’s magnitude to that over the 1970’s. When you do, this Iran conflict feels incredibly minor.

So, the loop that kept 1970s inflation alive isn’t here. Wages aren’t chasing prices, pay growth has slowed to 3.4% and is now running below inflation.

Today’s contracts don’t have automatic cost-of-living raises baked in. And people still expect inflation to come down: the June consumer survey showed expectations were easing, not rising. The economy took an oil shock, it’s not structurally damaged.

Oil Is Already Turning

Over the weekend the US and Iran agreed to a framework to end the war within 60 days, to be signed on the 19th, and the Strait of Hormuz appears open. Oil reacted immediately: Brent, which hit $110 during the war and briefly touched $140, is back to about $85.

The deal is far from certain given the administration’s whiplash negotiation tactics, but we think it’s likely the Hormuz will be open for business by the end of the summer.

The physical recovery is the slow part: reopening the strait, restarting production, and refilling storage takes quarters, so oil is still about 40% above its pre-war level near $60, and forecasters don’t see the low $60s again until 2027. But as long as gas prices don’t continue rising, we’ve likely seen the bottom for the bond market.

Where Inflation Goes From Here

Here’s our call. Headline inflation inches higher over the next few months, but slowly. Energy hits the index within weeks, so the monthly math will likely show up in the June and July readings.

As last year’s low monthly price increases roll out of the data, headline annual inflation will likely rise modestly even as monthly readings ease. The Fed understands that monthly figures matter more during energy shocks and other transitory periods.

When The Cuts Come

This is where we part ways with the market, and it matters most for borrowers with loans coming due. Futures now point to the next cut in the second half of 2027 and price in some chance of a hike, effectively betting that a 1970s repeat is possible. We think the next cut comes around December 2026.

Unemployment is 4.3% and the economy is still growing, so that tradeoff is not here. The Fed can hold until oil-driven inflation rolls out of the data, then cut. It does not need to hike because there is no structural inflation pressure.

Last week the Chicago Bears’ board of directors voted to advance a stadium development in Hammond, Indiana, the first time in the franchise’s history it will play home games out of state. The move came hours after Illinois lawmakers adjourned their spring session without passing a stadium financing bill, effectively ending the state’s last viable bid to keep the team.

The reaction was swift. Chicago Mayor Brandon Johnson, who had spent months lobbying to keep the Bears in the city, was left without leverage. Developer Bob Dunn resurfaced the long-dormant One Central megaproject within days of the announcement. Indiana officials declared victory.

How We Got Here

September 2021 — The Bears acquire the 326-acre Arlington Park racetrack site in Arlington Heights, IL, signaling serious intent to build a new stadium outside Chicago.

2022 — The team formally announces plans for a domed stadium and mixed-use development at the Arlington Park site, triggering a wave of speculative interest in the northwest suburbs.

2023–2024 — Property tax negotiations between the Bears and Arlington Heights stall. Cook County’s assessed valuations of the site come in far above what the team is willing to pay. The deal quietly dies.

Early 2026 — Indiana lawmakers pass legislation authorizing up to $1 billion in stadium incentives funded through taxes on admissions, hotels, restaurants, and toll revenue. The Bears begin evaluating a site in Hammond near Wolf Lake.

March 2026 — Chicago Fire FC breaks ground on McDonald’s Park, a privately funded $750M soccer-specific stadium at The 78 development in the South Loop, the first major new stadium built in Chicago in over 30 years.

June 5, 2026 — The Bears board votes to advance the Hammond site. Illinois legislature adjourns without a financing deal. The team is leaving.

Soldier Field: Event Campus?

Soldier Field’s future without the Bears is a different kind of real estate story — not a loss of value so much as a forced repositioning.

The Chicago Park District has proposed a $630 million renovation plan: $130 million in direct stadium improvements and $500 million in surrounding infrastructure covering traffic, parking, and lakefront connectivity.

The vision is a year-round events and concert venue freed from the constraints the NFL imposed. Under the current lease structure, the “five-day rule” blocked event scheduling around home games, is gone without the NFL tenant.

The area around Soldier Field likely has enough going on (Museum Campus draws 5M+ visitors/year, the lakefront, the South Loop’s residential density), similar to when the NHL’s Coyotes left Glendale, to prevent a major demand or foot traffic fall off as a result of the move. The old Coyotes stadium is actively used as a concert venue and event space, and the area around it has only developed further.

NFL stadiums average just 4.9 non-NFL events per year. Desert Diamond Arena in Glendale saw revenue jump 156% and attendance 119% the year after the Coyotes left. Soldier Field, freed from the NFL’s five-day scheduling rule, has a cleaner path to that outcome than most.

The Kia Forum in Inglewood does 150+ events per year.

Including Bears games, Soldier Field did just 29 events in 2025…

If Soldier Field can even just get that to 50 once the team leaves, the benefits are massive:

Venue Revenue

Soldier Field already makes 80%+ of its $50M annual revenue from non-Bears events. The Bears’ rent is just $6.48M/year. Scaling to 50 events could reasonably push venue revenue toward $60-70M.

Hospitality

This is where the real money is. Beyoncé’s single Soldier Field run in May 2025 generated $85M in hotel revenue. Taylor Swift’s 2023 stop: $39M. Those are outliers, but the multiplier is real.

Research shows every $100 spent on a concert ticket generates $435 in total local economic activity.

A 50,000-person stadium show with 30% out-of-towners at a $150 avg ticket = roughly $10-13M in local economic impact per event. Add the new events and you’re looking at $160-200M in additional annual hospitality/local spend per year.

Foot Traffic

Five consecutive sold-out shows at Soldier Field in 2025 drew 250,000 people. Scaling up events adds roughly 800,000 additional visitors annually to the Museum Campus/South Loop area, with no NFL scheduling constraints compressing when they can come.

Land Around a New Stadium

The clearest precedent for what Hammond could look like is Inglewood, California following the Rams’ return to Los Angeles and construction of SoFi Stadium.

Commercial property values within a two-mile radius of the stadium increased 78% between 2016 and 2019, before the stadium even opened.

Total commercial transaction volume in Inglewood surged from $153 million in 2012 to $506 million in 2021. Industrial properties that had been marketed generically became “stadium-adjacent” assets overnight, with pricing to match.

The Las Vegas market around Allegiant Stadium followed a similar pattern. When the Raiders announced their relocation to Las Vegas in 2017, industrial and flex properties within a mile of the future stadium began trading at premiums. Brokers who had marketed the area as “Southwest Las Vegas industrial” rebranded listings as the “Stadium Corridor.” The language shift reflected real pricing behavior.

The pattern across both markets: the land-value lift is fastest in the 12–24 months following a stadium announcement, concentrated within roughly a one-mile radius, and driven initially by speculative land plays rather than improved fundamentals. Retail and hospitality follow once construction is visible.

But Hammond Is Not Inglewood

The Bears have committed $2 billion to the Hammond project. Indiana is putting up $1 billion in incentives. On paper, that is a $3 billion catalyst for a market that has seen very little institutional capital.

But the underlying land story is materially different from what played out in Inglewood or Las Vegas.

The submarket the stadium is located in has just 7 hotels and 1,500 rooms, none particularly close to the stadium.

Both the submarket the stadium is in, and the closest submarket in Illinois have hotel occupancy rates in the low-60% range.

In recent years the newest NFL stadiums, like the ones in Las Vegas and Inglewood, have come with massive adjacent retail, hospitality, and housing projects. They became mixed-use cities on their own, boosting literally every CRE asset in the surrounding area.

The problem is these stadiums were built near-or-in areas with a solid mix of existing real estate and demand.

So, you can expect some lucrative new projects to break ground around the new site in the years to come, but we actually think this stadium will act more like those in Denver and Kansas City, a far-out venue where public transportation is relied upon to get visitors from downtown Chicago to Hammond, Indiana.

Arrowhead has sat surrounded by 200 acres of surface parking for 50 years with virtually no adjacent development, and Denver formally adopted a Stadium District Master Plan in 2019 that has been on indefinite hold since new ownership stopped engaging in 2022.

Hammond enters this with a 19% poverty rate, 6.5% unemployment, and 1.66 million square feet of industrial space it can’t fill today, much closer to the baseline of Kansas City’s stadium corridor in 1972 than Inglewood in 2016.

Bears fans may be upset, but in reality, this may be a win-win for both Cook County and Hammond.

Hammond gets the tax revenue of the stadium, Soldier field hosts an event more days of the year than it did with the Bears in the building, and everyone spends the day/night in downtown Chicago either way.

Despite months of tariff uncertainty, federal workforce reductions, and persistent speculation about an AI-induced slowdown, the U.S. labor market just delivered one of its most surprising reports of the year. May non-farm payrolls came in at 172,000, more than double the Wall Street consensus of 80,000, and the unemployment rate held steady at 4.3%. April was also revised upward substantially.

But the headline number may not even be the most important part of today’s release.

The Real Story Is the Pace

Strip away any single month and look at the full arc of 2026, and what emerges is a labor market running considerably hotter than the narrative would suggest.

Through five months, the U.S. has added approximately 539,000 jobs, putting the economy on pace to generate roughly 1.3 million jobs this year.

That isn’t a labor market that’s heading toward collapse.

February’s sharp contraction coincided directly with the wave of federal government workforce reductions that rippled through Washington and its contractor ecosystem in early 2026. That disruption was real, but today’s report makes clear private employers didn’t follow suit.

March and April were both revised upward, March by 29,000, April by a striking 64,000, meaning the labor market snapped back faster and more forcefully than we knew at the time.

If you look at the monthly trends, we haven’t seen sustained labor market growth of this size since the first 3 months of 2024.

The average workweek held flat at 34.3 hours, showing employers are not yet pulling back on hours as a precursor to layoffs.

If there’s labor market stress, companies haven’t acted on it.

What This Means for Real Estate

A labor market on pace to add 1.3 million jobs this year is, in broad terms, good news for commercial real estate fundamentals.

Employment drives demand across virtually every property type: workers need office space, consumers support retail and hospitality, supply chains require industrial capacity, and employed households form the demand base for multifamily and single-tenant net lease.

There is one interesting trend on the housing side worth monitoring, which is absorption appears to have less correlation with job growth than it did in the past.

We believe that the relationship will reconnect, and the factor driving the break is likely consumer sentiment, or economic “vibes”.

But if job growth continues at this pace, and unemployment holds, sentiment and vibes can change on a dime, and household formation with it.

We’ve said it before and we’ll say it again, don’t be a doomer, the data just isn’t there to suggest we’re heading towards a crisis.

Massachusetts voters are being asked, in November, to break their own housing market on purpose.

We looked at almost all of the measures that impact housing and could end up on ballots this fall, and this was the one that would harm renters most.

The ballot question (which could still be blocked by the courts) would cap annual residential rent increases at 5% or CPI state wide, whichever is lower.

Polling sits at 56% to 63% support. Governor Healey is opposed, Boston Mayor Wu supports it, the court is currently deciding whether the measure can appear on the ballot at all.

And every economic analysis concludes the same thing:

Pass this and Massachusetts loses roughly $300 billion in property value over a decade, with the burden of cost falling onto landlords and working class renters.

The craziest part?

Massachusetts has already learned this. From 1971 to 1994, Cambridge, Boston, and Brookline all operated rent controls.

During those twenty-three years, new housing construction in Cambridge was, in the words of the MIT economists who later studied it, “nonexistent.”

In November 1994, the state abolished rent control across the Commonwealth by a 51-49 vote. Cambridge voted to keep it 58-42 but got overruled by the statewide vote, killing the policy.

What happened next is a perfect case study in housing economics:

$1.8 billion in housing added to Cambridge in the decade after repeal, construction permit revenue tripled within four years, and the rental supply that had been frozen for two decades started coming back online.

This proposal on the November 2026 ballot asks Massachusetts voters to throw all of that away and return to the past.

What The Question Actually Does

A 5% cap doesn’t sound radical. In many Massachusetts markets, rents haven’t grown 5% in a year. But that framing misunderstands the mechanism.

The better way of thinking about it is:

1. Most years, when the market is down or “normal”, the rent control will have no effect on renewal rent growth or the prices renters pay directly.

2. When the market pops, like it did in 2021, landlords can’t adjust rental rates to meet the market. This creates a situation where rents are rising at the top end of what the control allows, and availability of units becomes a major concern. This is the kind of stuff that has led to renting horror stories in Canadian markets, where cover letters and high application fees are a staple of renting.

3. Developers and investors are aware of policies like this and will instead build in areas just outside the rent control (Maine/Rhode Island), or different regions altogether.

4. Renovations and unit upgrades slow as landlords begin accepting locked-in rental rates.

So, most years the policy won’t save renters a dime.

And once we see another strong leasing wave, developers will ignore it, putting metros like Boston firmly on track to join NY and CA locales in the “biggest housing shortage” rankings.

And of course, if you’ve read our newsletter before you know a shortage of housing is what creates these “affordability problems” to begin with.

Rent control isn’t a brake on rent growth in the years it’s needed, it’s a permanent ceiling that turns a rental unit into a depreciating financial instrument the moment it’s enacted. Operating costs don’t honor the cap. Property taxes, insurance, water and sewer, debt service, and construction costs all keep moving. Property owners testifying before the SJC cited annual operating cost increases well above 5% for the last three years.

Yes, there are years when the market itself runs operating costs ahead of rent growth. Insurance premiums, property taxes, and debt service have all moved faster than rents in most Massachusetts markets for the past 3 years.

That’s painful for landlords, but it isn’t a bad thing for the market. It’s the market doing what it’s supposed to do.

When costs outrun rents, returns fall, new development slows, supply eventually tightens, and rents catch up. The feedback loop pulls the market back toward equilibrium. The pain is real, but it’s temporary, and it’s the mechanism by which prices and supply find each other again. Then when rents catch up, developers reactivate.

Rent control engineers the same surface outcome, capped rents running below cost growth, but breaks the feedback loop.

Rents can’t ever catch up.

Development doesn’t reactivate.

Instead of the market correcting itself, capital walks away, the housing stock contracts, and the gap between what the market needs and what it can supply gets wider every year.

What looks like the same situation on a balance sheet is the opposite policy outcome: a market that was moving toward equilibrium replaced with one drifting permanently away from it.

The more we get in the way of the market mechanism the farther we get from the housing equilibrium so many people in this country want.

The Fiscal Math

The Tufts Center for State Policy Analysis, in a report released March 2026, quantified what passage would do to municipal balance sheets, using Cambridge and St. Paul as case studies:

Residential property tax base shrinks 6% to 9% immediately

Over a decade, statewide property values decline ~14% or roughly $300 billion

Gateway Cities see property value declines of 15% to 27%

To close the gap, property tax rates in those cities would need to rise 18% to 37%

Sound familiar?

It’s one of the same problems that led to LAFD’s cuts after the ULA measure. The state is cutting its cities’ capacity to collect and if passed, Massachusetts cities will face the same choice:

Raise taxes or cut services.

Why The Politics Are So Misleading

The honest part of the rent control debate is that the people supporting it are responding to a real hurt. Boston is the fifth most expensive multifamily market in the country, with average asking rent around $3,000 per month and vacancy under 5% and tightening.

People are getting priced out of neighborhoods they grew up in.

But even without the control, apartments in Boston cost more per month to rent than they do in Los Angeles.

The dishonest part is the proposed solution.

A 5% cap presented as modest doesn’t account for the supply-side response. The polling tells you the average voter hasn’t thought about second-order effects.

For many voters it is as simple as “I don’t want my rent going up more than 5%. So, I’ll vote yes.”

These are the kinds of people worth sharing this article with.

This is also what Governor Healey means when she says “investors in housing have already pulled out of Massachusetts because they’re concerned about rent control.”

That’s not a hypothetical risk being floated to scare voters.

The mere prospect of passage is already hurting renters in the state.

Healey is a Democrat. So is Mayor Wu. But housing policies continue to be more of an “either you know or you don’t”, than a standard partisan issue.

The Alternative

The policy alternative to rent control is not always “do nothing.” Massachusetts has a real housing problem, and the question of what to do about it is legitimate.

The answer, and has been for a long time, is supply.

The state already has the right framework. The 2021 MBTA Communities Act requires transit-adjacent cities to permit moderate-density multifamily housing as-of-right within designated districts, and as of January 2026, 102 developments are underway across MBTA communities, totaling just under 7,000 units. That is the mechanism doing its job. The work going forward is to widen it, defend it from local repeal efforts, and clear the friction around everything it touches.

Four concrete steps would move more housing in this state than any rent cap ever could.

Cap the permitting clock. Massachusetts is famously slow to permit. The state should set hard statutory timelines on as-of-right multifamily projects, 90 days for administrative review.

Boston’s 102-unit project at 40 South Margin Street took five years from first filing to certificate of occupancy. That is not a market failure. That is a process failure.

Reform condominium rules. Massachusetts builds almost no condominium product because the post-completion litigation exposure is too high to underwrite. Colorado tightened its condo defect rules in 2024 and saw a measurable rebound in for-sale multifamily within a year.

I know for a long time condos have been seen as inferior investment/home ownership avenues to single-family homes, but we at Matthews think it is likely given demographic and housing conditions, that condos will see valuations rise more in line with single-family homes moving forward.

Cap impact fees and impose statewide standards. Some Massachusetts municipalities load $40,000 to $80,000 in impact fees onto a single new unit before a shovel hits the ground. Cap the per-unit fee statewide.

Fix the property tax classification system. Massachusetts cities are allowed to tax commercial and apartment property at a higher rate than single-family residential, and most do, sometimes at twice the rate.

That is a direct disincentive to build rental housing in the cities that need it most. The state should limit the spread or move toward a unified rate that doesn’t penalize density.

None of these are radical.

They are the fairly boring supply-side reforms that other states have already proven work.

The thing the November ballot question proposes is not, when you strip the politics off it, a housing policy. It is a wealth transfer from the future renter to the current renter, paid for by every property owner in the Commonwealth and ultimately by the municipalities themselves through smaller tax bases, fewer services, and higher rates on whoever is left holding non-rental property when the dust settles.

Massachusetts already answered this question in 1994. The proposal in November asks voters to unlearn mistakes from 30 years ago.

On May 21, 2026, AvalonBay Communities and Equity Residential announced an all-stock merger of equals that will create the largest publicly traded apartment landlord in U.S. history. The new company will be a combined entity carrying an equity market cap of roughly $52 billion, an enterprise value of approximately $69 billion, and more than 180,000 units.

The market’s first read was skeptical.

AVB closed down 1.5% and EQR down 0.8% on announcement, and 15 of 20 sell-side analysts moved to or held a Hold rating. The narrative frames the deal as a defensive consolidation between two mature, fully valued operators with limited room for incremental synergy.

We acknowledge the Sun Belt hurdles but disagree. The size of the combined balance sheet, the 95% market overlap, and the structural cost-of-capital advantage that accrues to a $52 billion REIT change the unit economics of every dollar this entity deploys for the next decade.

The Deal in Numbers

AvalonBay shareholders will receive 2.793 newly issued Equity Residential common shares for each AVB share they hold. Post-close, AVB holders own 51.2% of the combined company and EQR holders 48.8%. Benjamin Schall, currently AvalonBay’s president and CEO, will lead the merged entity. The initial annual dividend is set at $2.81 per share, matching EQR’s current rate.

Management is guiding to $175 million in gross annual cost synergies and $125 million net of property tax reassessments, with more than 85% achieved by the end of 2027 and the full amount within 18 months of close. The scale logic rests on a single underappreciated fact: the two portfolios have 95% market overlap.

This is not two operators stitching together unrelated geographies. It is two operators stacking properties on the same submarkets, a configuration that supports efficiency gains in maintenance and leasing, centralized procurement, and consolidated G&A in a way that the Realty Income–VEREIT or Welltower–HCP transactions could not.

The Sun Belt Overhang Is Real

Between 2023 and 2025, the United States delivered a record number of new apartments, and that wave was heavily concentrated in Sun Belt metros. The cyclical damage is visible in the April 2026 rent data, most Sun Belt metros saw rents fall in 2025.

AvalonBay carries a 30–35% Sun Belt allocation; Equity Residential carries a targeted but smaller exposure in Atlanta, Austin, Dallas/Fort Worth, and Denver. Inside the combined portfolio, roughly one in four units sits in the markets the cycle has bruised.

But that is probably the ideal level of Sun Belt exposure for the biggest REITs in a year like 2026.

The reason this overhang is already priced in: both stocks sold off through late 2025 and early 2026 on exactly this concern. Sell-side analysts have spent twelve months marking down growth assumptions in the supply-heavy markets. What is not yet priced in is the cyclical turn that the construction data already shows. Apartment construction starts collapsed in 2024 and remained depressed through 2025. We are about to see the supply-demand inflection operators have waited so long for.

The Scale Advantage

Apartment REITs are, at their core, spread businesses. They acquire and develop properties at an unlevered yield and finance those properties at a blended cost of capital. The spread is the engine of value creation. Scale changes this equation in three specific, measurable ways.

First, debt cost. The cost of REIT unsecured debt is now roughly 150 basis points cheaper than conventional secured property-level debt. Access to that unsecured market is gated by size, credit rating, and bond market depth. AvalonBay carries an A-rated balance sheet — the highest credit rating in the apartment REIT peer group — and Equity Residential operates with the cleanest leverage profile (debt/EBITDA of 4.5×, the lowest among major peers). A combined entity with $2 billion of annual cash flow, $52 billion of equity, and a unified A-tier balance sheet does not just inherit those advantages; it consolidates them. Spread compression of 25–50 basis points on incremental debt issuance, applied to a $20 billion debt stack and a $4.4 billion development pipeline, is a recurring annual benefit that will not appear on the synergy slide but will compound in FFO for a decade.

Second, operating leverage at the property level. The 95% market overlap allows the combined company to staff regional operations the way Walmart staffs distribution. Two properties in the same neighborhood share the same maintenance technician, the same leasing pipeline, the same advertising spend, the same property tax counsel. EQR and AVB have each spent the last decade building proprietary technology stacks for revenue management, resident screening, and maintenance dispatch. Running 180,000 units on one of those stacks is materially cheaper per unit than running 85,000 or 100,000. Management’s $125 million net synergy target captures the corporate-overhead piece of this, but the more durable benefit is the per-unit operating margin lift that follows when the combined company finishes integrating the property-management technology in 2027–2028.

Third, development capital allocation. The combined pipeline of $4.4 billion across 10,800 units at 32 communities is funded internally. Self-funded development at the cost of retained capital is meaningfully cheaper than externally financed development, and the combined company’s $2 billion of annual cash flow makes that self-funding posture credible across cycles.

It’s always a good thing to be the biggest player in a market segment. The benefits compound.

The Outlook

Two analyst concerns deserve to be taken seriously. The first is execution. Integrating two portfolios across 180,000 units is not free. The 2017–2020 era of REIT mergers includes examples of operating disruption that destroyed value for one to two reporting years after close (the GGP and Simon retail consolidations among them).

EQR and AVB are not retail, but the principle applies: integrating assets is harder in reality than it is on paper.

The second is rate sensitivity. Apartment REITs trade as long-duration assets, and the 2024–2026 multiple compression across the sector reflects that. A combined entity is not insulated from the same rate sensitivity that drove both stocks to 52-week lows earlier this year. If the 10-year yield retraces toward 5%, the combined company will trade lower on the way to delivering the synergies. Investors with a 12-month horizon may legitimately conclude the entry point is not yet attractive.

Neither concern undermines the multi-year thesis. Execution risk is held in check by the market overlap and rate sensitivity is a sector-wide condition not a deal-specific one.

If you want a multifamily operator to buy for the long term, we believe there are few better options than this combined entity.

On a single night in January 2024, more than 770,000 Americans had nowhere to sleep, an 18% jump in a single year.

It’s very likely that the number is near 1 million in 2026.

The biggest increases didn’t show up in the poorest states or the coldest ones. They showed up in Illinois, Hawaii, Massachusetts, and New York.

The few states that posted declines don’t share a political party (although there is a skew), a climate, or a tax structure. What they share is more permissive housing markets that keep new supply coming every year.

The takeaway should be clear to anyone tapped into the national housing market just from this first map. The Northeast corridor, the West Coast, and Hawaii all have much lengthier processes, more regulations, or higher taxes on development.

Mississippi sits at 3.5 per 10,000, among the lowest in the country.

Researchers have tested variables like poverty rates, mental illness, drug use, weather, the generosity of welfare programs, low-income migration, and none of them predicted which cities have a homelessness problem.

Compare the two maps.

Mississippi has one of the highest poverty rates in the country and the lowest homelessness rate. Louisiana has a lower homelessness rate than 41 other states.

Hawaii, California, and New York are wealthier than the U.S. average. Vermont is wealthier than most of the country and homeless at three times Mississippi’s rate. Whatever drives American homelessness, it isn’t poverty.

The Price Of The Crisis

The 770,000 number is a single-night count. Over the course of 2024, more than 1.5 million Americans cycled through the shelter system. Roughly a quarter of the point-in-time total are “chronically homeless”, people who have been on the street for more than a year, or who have cycled through homelessness repeatedly while living with a disabling condition. About 40% of the count is unsheltered at any given moment. Children make up roughly a fifth.

The fiscal cost is enormous and almost entirely hidden because it doesn’t land on one budget line. Direct federal spending through HUD’s Homeless Assistance Grants runs about $3.5 billion a year. That is the surface. The real number is what gets absorbed elsewhere: emergency-room visits (chronically homeless individuals average four to five per year, at $1,500 to $3,700 a visit), psychiatric inpatient stays, jail bookings (~$160 a night in California, sometimes weekly for the same individuals), ambulance runs, shelter operations, sanitation crews.

The University of Pennsylvania’s foundational cost study, replicated in city after city, found that a chronically homeless individual costs the public system $30,000 to $60,000 a year, and well above $80,000 in the most expensive markets where, as we showed, the homeless tend to be.

Los Angeles is the case study in spending without supplying. Between 2020 and 2024, the city and county combined spent more than $3 billion on homelessness programs. The PIT count rose. Spending went up. The count went up. Supply did not meaningfully, partially due to policies like the Mansion Tax we highlighted two weeks ago.

The indirect costs are visible to anyone who has walked through a coastal downtown in the last five years. Retailers in San Francisco, Portland, and parts of LA have lost tenants and foot traffic. Office tenants cite encampment-adjacent safety as a reason for moving, or for staying fully remote, especially after a string of murders near tech hubs in the Bay.

Fitch and Moody’s have flagged street conditions as a credit-profile drag for several California cities. Hospital systems in unsheltered-heavy regions absorb hundreds of millions in uncompensated care. Public schools serving children in temporary housing post double-digit gaps in attendance and graduation. Cities that cannot keep their commons functional lose the residents and businesses that funded the commons in the first place.

And on top of all this, unmanaged homeless populations are driving productive, tax paying residents out of coastal cities, diminishing the tax base in a way that has the potential to spiral if these places don’t course correct now. Once a city drives its productive people away, the tax base is gone, and nothing can much be done to fix the underlying issues.

It’s a hole some cities appear eager to dive headfirst into.

The picture is straightforward: we are spending enormous sums to manage homelessness on the back end and getting more of it. Every dollar flowing into shelter beds, voucher administration, hospital absorption, and sanitation is, in effect, competing for the same fiscal capacity as the supply that would prevent the crisis upstream.

So what does predict homelessness, if not poverty or how much we spend on it?

It is so much more simple than politicians would want you to think.

It is rent. Every state in the upper-right of that scatter, Hawaii, California, Massachusetts, DC, New York, has high rent and high homelessness. Every state in the lower-left, like Mississippi, Arkansas, West Virginia, the Dakotas, has low rent and low homelessness. The handful of outliers (Vermont, Oregon) have one thing in common with the upper-right cluster: housing supply that hasn’t kept up.

If you accept the data (which everyone should), every other policy debate on homelessness becomes downstream of one question:

Are we building enough housing?

The answer, in most of the cities where homelessness has become unmanageable, is that we are not.

And the policies sold to fix it are usually the exact policies that caused it.

Why “Affordable Housing” Programs Underperform Their Press

The conventional response to a housing shortage in this country is to layer a mandate on top of the shortage. Inclusionary zoning, meaning you start requiring a share of new units be set aside at below-market rents, is the most popular version.

A modeled analysis of Los Angeles’s Transit Oriented Communities program estimated that a 20% inclusionary requirement reduces ten-year market-rate production from roughly 400,000 units to under 250,000 units, while producing roughly 50,000 below-market units. Net loss to the city: about 150,000 homes.

Even a 1% inclusionary requirement was estimated to reduce market-rate production by approximately 71,400 units over a decade. Inclusionary zoning is, in effect, a tax on building.

Developers respond to it the way they respond to any tax: they build less, build smaller, or build somewhere else.

The state-preemption dots cluster on the right side of the chart: high inventory growth, low or negative rent growth. The mandated-affordable dots cluster on the left: low inventory growth, rents climbing. Where developers are active, rents fall. Where mandates pile up, supply stalls and rents climb.

Now project that pattern back onto the country.

The states with the heaviest regulatory practices, California, Hawaii, New York, Massachusetts, Washington, are the same states that lead the homelessness crisis. The lightest-regulated states, Mississippi, Wyoming, Arkansas, the Dakotas, Texas, Alabama, have the smallest homelessness problem. The map of how hard it is to build a home in America is, with a couple of cold-weather exceptions, the map of where Americans cannot find one.

Plot the friction index against homelessness on a single chart and the empty quadrant tells the story. There is no state where building is easy and homelessness is bad. The bottom-right of that chart, easy to build, lots of homeless, is empty. Every state sits along a curve where harder-to-build correlates with more-homeless. The exceptions go the other direction: high friction, modest homelessness (Connecticut, New Jersey, Maryland), generally because cold winters drive sheltered counts down and PIT methodology in those states is conservative. There is no state on the empty side of the curve. The relationship is not subtle.

The deeper problem with the mandate-on-top-of-shortage approach is the per-unit math. When a Los Angeles affordable unit costs $600,000 to $1,000,000 and a Houston market-rate unit costs roughly $200,000, the same dollar of public money can produce three to five times as many homes by getting out of the way as it can by directly subsidizing them. The cities most committed to building “affordable housing” the hard way, through layered subsidies, set-asides, and prevailing-wage requirements, are the cities that have produced the fewest homes per capita and have the worst homelessness outcomes.

Developers want to develop. We just need to let them. If we really wanted to help people afford homes, we’d be deregulating and subsidizing. Not restricting and taxing.

Class A Construction Is How You Moderate Class C Rents

The cleanest objection to a supply-side housing position is the populist one: “Yes, you’ll build, but you’ll only build luxury apartments. Working people can’t afford a $3,500 studio, so it doesn’t help them.” It is intuitive. It is also wrong, and the data on this is now embarrassingly settled.

Researchers found that for every 100 new market-rate units, 17 to 39 people end up moving out of bottom-quintile-income neighborhoods within five years, because the move-up creates a moving chain. A young professional rents the new Class A unit. The Class B apartment they vacate goes to a less-affluent renter. The Class C unit that renter vacates is now available, at a discount, to someone who could not afford it last month. Build the top of the stack and the whole stack shifts.

Class is by definition a relative concept. If a market had only luxury units, the worst luxury units in the market would be occupied by what we think of as “Class C renters”. The prices paid for similar housing across cities vary greatly. And it is because local supply-and-demand trends drive pricing. Not just the quality or amenities an apartment has, it’s the quality and amenities the apartment has relative to other available apartments.

Look at Los Angeles. Class A/B rents fell in the city last year. Yet, despite all of their taxes and policies aimed at improving the lower-tier housing market, has become less affordable to the cities lowest income residents.

Austin demonstrated this in real time. The most expensive new construction came online, and Class C rents fell faster than Class A rents. In Atlanta, where Class A construction has been incredibly active, Class B/C rents fell almost 100 basis points last year.

The cities that have refused to permit Class A product on the theory that it will not help low-income renters have, in practice, denied low-income renters the only proven mechanism for cutting their rent.

The policies lock people out of the housing market, keep blue-collar workers in degrading buildings, and prevent young, high-skill workers from upgrading into new builds.

What Doesn’t Work?

California is the cautionary tale at scale. The state has the highest rate of unsheltered homelessness in the country and the most expensive affordable-housing pipeline on earth.

The median cost to build a single unit of “affordable” housing in Los Angeles County is roughly $600,000. More than half a dozen recent California projects have crossed $1 million per unit. Tilden Terrace in Culver City came in at $740,000 per unit. California development fees average around $30,000 per unit; in Texas the comparable figure is about $800. Architecture and engineering fees on Los Angeles affordable projects run roughly eight times the Texas equivalent. Sixty percent of tax-credit-financed projects must pay prevailing wage. Until July 2025, almost any urban infill project could be sued under the California Environmental Quality Act on the theory that an apartment building harms the environment more than the parking lot it replaces.

Most of these policies don’t even drive income for the city. They in fact limit future city revenues.

The only thing worse than taxing a developer is creating such a convoluted and expensive permitting process that no one even looks at new projects in the first place.

San Francisco is the cleanest “policy killed the project” case in America. In 2024, San Francisco approved just 1,074 housing units, the worst year since the GFC. The city is roughly 9% of the way toward its 2031 state-mandated goal of 82,000 units; to hit it, San Francisco would need to authorize more than 12,800 units a year, every year. That’s a 1200% increase from 2024 maintained for a full decade.

The city’s own controller’s office found that no category of multifamily housing, low-rise, mid-rise, for rent, for sale, currently pencils. Between local impact fees, inclusionary requirements that force a percentage of below-market units, prevailing-wage rules, and approval timelines that average years, the math has stopped working. So nothing gets built. So rents stay high. So homelessness stays high. So the city responds with more programs aimed at the symptom rather than the cause.

Mind you, this is a city where new articles like this come out weekly:

If you can’t make a single-family or multifamily development deal pencil in a market with this kind of housing action, something is very very broken.

New York City is where rent stabilization meets supply collapse. The city and private data venders all show vacancy in NYC among the lowest in the country, pushing many renters into New Jersey (And if you want to see a tale of two different housing markets, dig into how NYC and Hudson County can be so close and so different).

New York added roughly 1.2 million jobs over the last decade and built about 400,000 housing units over the same period. Rents reached record highs in April 2024, up 22% from pre-pandemic. The City Council, instead of treating that vacancy number as a five-alarm permitting emergency, used it to extend rent stabilization through 2027. According to a 2025 New York State Comptroller report, homelessness in New York State more than quadrupled between 2022 and 2024.

And now the new mayor unveils threats of property seizures, rent freezes, and expanded regulations on building owners.

We at Matthews will concede that land constraints make New York a different beast than many other coastal cities that can’t seem to get out of their own way, and if you own in NYC, as long as you can navigate the new mayor’s proposals, you likely have a very stable and lucrative asset on your hands.

But the population is growing, the economy is growing, and NYC will need more units one way or another, and the city’s current policies effectively prevent that from coming with enough scale to match the population.

What Works?

Houston is the case that should be on every mayor’s desk. Since 2011, the greater Houston region has cut homelessness by more than 60%. Houston gets credit, fairly, for embracing a “Housing First” model that pairs vouchers with services. But Housing First only works if there is housing to point people toward. Houston has it because Houston builds. Texas’s largest metros permit roughly 60,000 to 70,000 units a year.

The median home price in the Houston metro sits around $330,000. There is no zoning code in the traditional sense. Land use is governed mostly by deed restrictions and a few specific overlay districts, and the result is a market that produces apartments faster than households form. When that pipeline functions, vouchers find walls to attach to. The 2024 Point-in-Time count showed unsheltered homelessness in Houston down another 12% year over year.

Austin is the case that just settled the empirical argument. Between 2015 and 2024, Austin grew its housing stock by 30%, roughly 120,000 net new units. Permitting peaked at 957 multifamily units per 100,000 residents from 2021 to 2023, the highest ratio in the country. By any conventional NIMBY logic, this should have been a bonanza for “luxury developers” and a useless exercise for everybody else.

The opposite happened. Asking rents in large Austin apartment buildings fell at one of the sharpest paces in the country, and the decline was most pronounced in Class C buildings. The cheapest housing got the cheapest the fastest.

The lesson out of Austin is that new construction helps low-income renters more than it help anyone else.

Anyone telling you otherwise doesn’t understand the role of time in economics.

Minneapolis belongs in the conversation, but with a caveat. The Minneapolis 2040 Plan, adopted in 2018, eliminated single-family-only zoning citywide and legalized triplexes on every residential lot. From 2017 to 2022, the city expanded its housing stock by 12% while rents grew just 1%.

The rest of Minnesota grew its stock by 4% and saw rents rise 14%. Recent academic work by Helena Gu and David Munro estimates Minneapolis rents are 17% to 34% lower than they would have been without the reforms, though the authors note part of that reflects softening demand, not just supply.

Then St. Paul blew it up. In November 2021, St. Paul voters next door passed the strictest rent control in the country, a 3% annual cap, every unit, new construction included, no age exemption.

Multifamily permits in St. Paul collapsed by more than 80% the next quarter. The city council scrambled to amend the law in 2022, exempting new construction for twenty years, but the damage was done.

Capital reads signal, not statute. Once a metro shows it will pass a measure that aggressive, no underwriter prices the Twin Cities the same way they did the year before. Permits across the whole metro slowed sharply in 2023 and 2024, and a court ruling on environmental review put the Minneapolis 2040 Plan itself into legal limbo.

In four years, one of the country’s cleanest pro-supply experiments turned into a metro where developers underwrite political risk first and economics second. The rent controls in St Paul send renters and capital to Minneapolis, causing a sharp rent increase across the metro, despite St. Paul’s controls.

The rent controls in St. Paul push renters and capital to Minneapolis, raising rents across the metro, including, the St. Paul households the policy was supposed to help.

The Bottom Line

The cities that are quietly winning on homelessness aren’t the ones running the most aggressive shelter and voucher programs. They are the ones permitting the most apartments. They are the ones letting Class A get built so Class C can get cheaper. They are the ones treating housing supply as a market output rather than a moral failing of developers.

Reasonable people can disagree on the role of services for the chronically homeless, on mental-health policy, on drug treatment, on Housing First. They are all real and important debates. But none of them will move the homelessness number much in a city where rent has doubled and vacancy is below 2%.

The path out is unglamorous, perhaps that’s why many politicians avoid it. Zone for more density. Shorten approval timelines from years to months. Cut impact fees. Stop layering inclusionary mandates on top of a market that already isn’t penciling. Let the Class A get built, and let it push older inventory down the renter ecosystem. The cheapest “affordable housing” we have ever produced in this country is the housing we built thirty years ago.

Today’s Class A is tomorrow’s Class C. We are not going to regulate our way out of this.

The Consumer Price Index rose 0.6% in April, putting the year-over-year rate at 3.8%, the fastest pace of pricing growth since May 2023. That’s up from 3.3% in March and 2.4% in February, before the Iran conflict began reshaping energy markets.

Energy rose 3.8% on the month, accounting for more than 40% of the headline increase. Gasoline is now up 28.4% year-over-year.

Core CPI, which strips out food and energy, rose 0.4% for the month and 2.8% year-over-year. That’s double the monthly pace held in February and March.

Part of this is a technical artifact: the government shutdown last fall caused the BLS to miss rent data collection in October 2025, and April’s shelter reading captured six months of accumulated rent growth in a single print. Shelter rose 0.6% on the month. That’s a one-time distortion, but it still shows up in the data the Fed watches.

We of course know that rental pricing did not rise at a 0.6% monthly pace, any private market data provider on multifamily or single-family rents will show that.

The more concerning signal is that the downstream effects of higher energy prices are showing up outside of the energy bucket.

Airline fares jumped 2.8% in a single month and are up 20.7% year-over-year. Food at home rose 0.7%. Apparel rose 0.6%. These are early signs that energy costs are beginning to bleed into the broader price basket.

Real average hourly earnings fell 0.5% for the month and are now negative year-over-year at −0.3%. For the first time in three years, American workers’ paychecks are not keeping up with prices.

And if you thought people hated inflation before, now is the real challenge. For much of 2022 and 2023 workers were seeing prices rise faster than pay. Now, pay is the only metric growing slower than the Fed’s 2% target.

Next month’s outlook isn’t much brighter. In May 2025 inflation rose at just a 0.1% monthly rate, meaning that if inflation suddenly drops from 0.6% monthly growth to 0.1% monthly growth in May 2026, the headline CPI number will hold at 3.8% for another month.

Now it is incredibly unlikely that inflation will come down quickly enough to keep the annual pace flat. The initial runup in oil prices occurred roughly a month before we saw it peeking into the data, and two months before the massive surge we saw this week.

Even when we forecast a modest slowdown in the pace of CPI growth for May, the forecast sends the headline number back over 4%.

This Morning’s PPI: Pipeline Pressure Is Building

The Producer Price Index rose 1.4% in April, nearly three times the 0.5% consensus forecast. It’s the largest monthly gain since March 2022. On a year-over-year basis, wholesale prices are up 6.0%, the biggest annual increase since December 2022.

The PPI measures what producers pay, it’s the pipeline that feeds into consumer prices. A hot CPI tells you where inflation is. A hot PPI tells you where it’s going.

Energy drove the goods side again: final demand energy surged 7.8%, with gasoline up 15.6% for the month alone. Three-quarters of the goods increase came from energy. But unlike March, this time services also accelerated.

Final demand services rose 1.2%, the sharpest monthly reading since March 2022. Trade services margins, which reflect the spread businesses charge between what they buy and what they sell, rose 2.7% and accounted for roughly two-thirds of the services increase. That means businesses are actively widening margins, not just absorbing costs.

The core numbers are the concern. Core PPI excluding food and energy came in at +1.0%, more than double the 0.4% estimate. Excluding food, energy, and trade services, PPI rose 0.6% for the month and 4.4% year-over-year, the highest since February 2023.

Energy is the universal input. It’s used in production for every industry in the economy.

A New Fed Chair Inherits An Old Problem

The Senate is expected to confirm Kevin Warsh as Federal Reserve Chair today, replacing Jerome Powell. Warsh was widely viewed as Trump’s preferred candidate to accelerate rate cuts. At his confirmation hearing last month, he pushed back on that framing, stating that Trump never asked him to commit to rate cuts.

Whatever his intentions were, the data just made the job harder. Headline CPI at 3.8%, core CPI accelerating, PPI at 6%, and real wages turning negative is not the backdrop for rate cuts. It’s the backdrop for holding steady and hoping things cool down on their own.

The CME FedWatch tool shows no more than one rate cut priced in for all of 2026. Several Wall Street desks have started pricing in a non-trivial probability of a rate hike by year-end. After the PPI release, Chandan Economics noted there is now at least a 30% chance of a 25-basis-point hike before December. That was unthinkable three months ago.

The next FOMC meeting is June 16–17. Warsh will likely chair it. The era of predictable Fed meetings is over for now.

What This Means For CRE

The inflation panic is back. But the playbook from 2022 doesn’t apply here.

In 2022, inflation was broad-based and demand-driven. Consumers were flush with stimulus, the labor market was overheated, and the Fed was behind the curve on all of it. Rate hikes were the correct response to an economy that was running too hot across every sector.

That’s not what’s happening in 2026. Strip out energy and its downstream effects, airline fares, transportation, food logistics, and core inflation is running at a pace the Fed can live with. Shelter CPI is distorted by a data collection gap, not by surging rents. Wage growth is modest. The labor market is adding jobs but not overheating. GDP growth is steady, not runaway.

This is an energy supply shock, not a demand problem. And you don’t fix supply shocks with rate hikes.

The analysts pricing in rate increases are applying a 2022 framework to a fundamentally different inflation environment. In 2022, higher rates worked because the problem was too much demand. Raising rates into an energy shock caused by a war doesn’t bring oil prices down. It just makes borrowing more expensive for businesses and consumers who are already absorbing higher input costs.

What actually resolves this inflation is the same thing that caused it: the geopolitical situation. When the Strait of Hormuz reopens, whether through diplomacy or force, oil prices will normalize, and the energy-driven inflation that accounts for 40%+ of headline CPI growth will unwind on its own. The EIA is already forecasting Brent dropping to $89 by Q4 if flows resume by summer.

There’s also a structural tailwind that gets zero attention in the inflation debate: productivity. U.S. labor productivity rose 0.8% in Q1 2026. AI-driven efficiency gains are showing up in output per worker across services and manufacturing. In the medium term, rising productivity is disinflationary, it means more output per unit of input cost. That’s the opposite of the productivity stagnation that characterized the 2021–2022 inflation cycle.

So here’s our read on the timeline:

The Fed holds through the summer.

The Iran situation resolves or stabilizes. Energy costs come off their peak.

By late 2026 or early 2027, the headline CPI number will look dramatically different, not because the Fed hiked rates, but because they let the economy do economics.

And at that point, the rate-cutting cycle resumes.

The opportunity in CRE right now isn’t about the direction of rates.

It’s about the gap between fear and fundamentals. Sentiment says the sky is falling. The data says this is an energy shock working its way through a fundamentally healthy economy. When the shock clears, the fundamentals will still be there. The question is whether you positioned for it or sat on the sidelines waiting for permission. We know rates will move lower, barring even more geopolitical conflict.

The University of Michigan’s Consumer Sentiment Index fell to 49.8 in April, the lowest in the survey’s history.

Sentiment declined across every demographic: age, income, education, and political affiliation. One-year inflation expectations surged to 4.7%, up a full percentage point from March. Consumers cited rising gas prices, the Iran war, tariff costs, and shrinking asset values as their primary concerns

Two weeks earlier, the Census Bureau reported that retail sales jumped 1.7% in March to $752.1 billion, the largest monthly increase since January 2023 and well above the 1.4% consensus forecast. Year-over-year sales were up 4.0%. Twelve of thirteen major retail categories posted gains.

Consumers report feeling the worst they’ve felt since the survey began in 1952, and then they go out and spend at a pace not seen in three years.

What’s Actually Happening

The Headline Retail Number Overstates Trends Because Of Inflation, But The Underlying Data Is Still Strong

Gas station receipts surged 15.5% month-over-month in March as Iran-war-driven oil prices spiked. That single category accounted for roughly 70% of the headline increase. Since the retail sales report isn’t adjusted for inflation, higher gas prices look like more spending even when consumers are just paying more to fill the same tank.

But strip out gas entirely and sales still rose 0.6%. Strip out gas and autos and they rose 0.6%. The control group, which excludes gas, autos, building materials, and food services, and feeds directly into GDP calculations, was up 0.7%, more than triple the 0.2% consensus forecast.

So what explains the gap?

Sentiment Surveys Measure How People Feel

The Michigan survey asks consumers about their perceptions of the economy and their expectations for the future. It captures anxiety, and there’s plenty to be anxious about right now: a war, $4+ gas, tariff-driven price increases, and a volatile stock market. But anxiety and action are not the same thing. As long as paychecks keep clearing and credit stays accessible, Americans spend.

The Income Split Is Doing A Lot Of The Work

The top third of earners drive more than half of consumer spending. Higher-income households saw significant stock market gains in 2025 and carry far less debt relative to income. They report feeling worse about the economy and then book another trip or upgrade another appliance. It’s media driven negativity.

People’s wallets are a much better indicator of financial strength than people’s words.

The World Cup is about to prove this. Despite the doom-and-gloom narrative surrounding the economy and gas prices at the moment, you’re about to see one of the strongest tourism events in the history of the United States.

And the economic gains from that are real, future expectations are imaginary, by definition.

Don’t let that narrative, which never seems to come to fruition, drive your investment thesis.

Why This Matters for CRE

If you’re underwriting commercial real estate based on sentiment surveys, you’d be pulling back from every consumer-facing asset class (essentially all real estate). If you’re underwriting based on what consumers are actually doing with their wallets, the picture is more constructive than the headlines suggest.

Retail

Spending growth across categories like furniture, general merchandise, and health and personal care supports tenant health in grocery-anchored and necessity retail. One notable soft spot: food services and drinking places rose just 0.1% in March, suggesting consumers are trimming discretionary dining.

However, every shift in consumer preferences creates a winner and a loser, and investors that bet on discount grocers and retailers are likely to see an increase in foot-traffic as restaurant spending slows.

Industrial

Online retail sales were up 10.1% year-over-year, the highest growth rate across all categories. E-commerce’s continued acceleration sustains demand for last-mile distribution and warehouse space, even in an environment where consumers claim to be cutting back.

As Amazon and other retailers integrate AI ordering and discovery, we expect e-commerce and logistics to continue eating market share.

Multifamily

This is the property type where feelings are the most likely to drive actual behavior. When young workers move out and form their own households (usually in rentals) it is typically because they just got a new job, or a promotion, or something that makes them feel more financially secure.

The choice to live alone for longer or have roommates is often a choice based on “vibes” and sentiment.

So, the decrease in sentiment will likely put a damper on the summer leasing season, but…

During the GFC the apartment market learned just hard “pent-up” demand can get. After 2008 many older millennials moved back in with mom and dad and accepted jobs they were overqualified for.

Fast forward to 2018-2022. Those millennials had finally gotten white collar roles fitting of their degrees. Then because of the student loan payment pause and COVID-19 stimulus, their finances fell into place. All at once.

The wave of leasing we saw in the COVID-19 period is the direct result of GFC pent up housing demand. Whenever a young worker chooses roommates or their parents, that is future absorption being delayed.

It would take just a single cycle of increasing sentiment reignite apartment leasing. The structural housing shortage in America’s tier 1 cities is real.

The Fed held the target range at 3.50%–3.75% today, the third consecutive pause and Jerome Powell’s final meeting as Chair. He framed the Iran driven energy spike as a one-time pass-through rather than a sustained inflation impulse, preserving cut optionality for June or July if the data cooperates.

No new dot plot today; the March SEP still implies two cuts by year-end, but that projection is now functionally the next Chair’s problem.

Kevin Warsh moved another step through the process this morning. He is set to take the chair on May 15.

The press conference itself was uneventful. But investors should get ready to move past this period of “boring” FOMC meetings.

Today is the last quiet moment markets get before the sequence of new-Chair speeches, FOMC meetings, and data prints starts driving rates in 30–50bp swings.

A Weird Time for the Dual Mandate

The Fed’s dual mandate, price stability and full employment, is pulling in opposite directions right now, and the gap between the two sides is real.

The labor side is stalling. Job creation has slowed materially over the last two quarters. The headline unemployment rate looks contained, but it’s masking real softness — labor force participation is falling, which means people are dropping out of the workforce rather than getting hired. Strip out the LFP effect and the labor market is closer to a stall than the official rate suggests.

Inflation is heating up, but for geopolitical reasons, not structural ones. Iran-driven energy prices are pushing CPI higher. Core ex-energy is still trending in the right direction. The inflation lift complicating the Fed’s near-term path is transitory, even if Powell stopped using the word. Ironically, this whole Powell mess started with a miss on “transitory” inflation, and now as Powell is leaving, an actually transitory event is unfolding.

Had Powell been set to continue as Fed chair, the fear would have been that the Fed was so “burned” by the decision to delay rate hikes in the first place, that they would now raise rates based on a supply shock that won’t last.

Our read: rate cuts are the stronger prescription. A weakening labor market is a leading indicator of recession risk. A geopolitical energy spike rolls off the year-on-year base by July.

Cutting into labor weakness now and absorbing two more months of energy-driven prints is the better trade than holding tight against temporary inflation while the real economy softens. We may wait for rate cuts, but anyone calling for rate hikes just wants the admin to get bad outcomes.

The rate hike scenario is not a serious possibility in 2026 unless a MAJOR change occurs.

Why the Volatility Is Coming

Powell’s forward guidance just left the building. Markets have been trading off it for years — the dot plot, the press-conference cadence, the careful word choices on data dependence and inflation tolerance. All of it became scaffolding that fixed-income desks built positioning on top of. After today, that scaffolding is gone. Whatever Powell signaled about the path forward exits with him on May 15. Markets that were partially priced to his framework now have to reprice from a blank page.

Warsh isn’t bound by any of it. His first FOMC could carry a hawkish dot plot. His first Jackson Hole could reframe energy as persistent. His communication style could break the patterns markets have spent eight years learning. Until investors see his pattern — his data triggers, his tolerance for unemployment in service of inflation, his press-conference cadence — every speech is a potential reset and every FOMC a potential repricing.

A shadow Fed Chair. While Powell’s term ends, the prediction markets do not think he will resign from the Fed. Powell confirmed this today. This creates a situation where his influence on the other Fed members may prevent Warsh and the admin from making the changes they want to see at the Fed. This tension will lead to uncertain meeting outcomes, volatile markets in the build up to Fed meetings, and quick swings based on Warsh and other Fed members’ statements.

He Is a known hawk. He resigned from the Fed in 2011 over QE2, has been a Hoover Institution scholar critical of large-scale asset purchases, and has spent fifteen years arguing against the Fed serving as a Treasury price-support mechanism. Markets will price the hawkish baseline now. Then they’ll whip around every time he confirms or contradicts it.

Global conflict adds another layer. The Iran-driven energy spike is still in the year-on-year CPI prints through June. Every monthly inflation read carries headline risk that moves the long end. The American public was trained to think “inflation means rate hikes” after The Fed’s post-COVID “transitory” miss. The problem is this energy crisis is one time and is transitory. The mismatch between how the public reads the CPI print and how the Fed reads the CPI print will add uncertainty and volatility.

Markets and the Fed Are 50 Basis Points Apart

The Fed’s March dot plot still implies two cuts by year-end. Futures markets are pricing zero, roughly 70% probability of no cuts in 2026.

That 50bp gap is the widest we’ve seen in this cycle, and it’s the cleanest structural setup for volatility we can identify. We are even seeing some analysts mention that rate hikes could be more likely than rate cuts this year.

But the Fed makes the decisions, not Wall Street. Powell today, even though held held rates flat, referred to this as a discussion about “not rushing rate cuts” rather than taking rate cuts off the table. He even mentioned that members of the Fed could be convinced to cut interest rates at the next meeting.

The Takeaway

Volatility is the opportunity. Pipeline depth is the edge.

Through Q3, the 10-year will whip around in 30–50bp ranges. Most moves are noise. Every two or three weeks, volatility hands you a window — a rate dip, a forced seller, a lender quoting tighter than the prior Tuesday. You can’t close on a 30bp rate dip if you’re still finding the deal.

Build the pipeline now. Acquisitions should have ten more LOIs out by mid-May than two weeks ago. Refi teams should have five more lenders quoting than at the end of Q1.

Be the buyer when the seller can’t wait. Forced refinancings between now and the September FOMC are creating the cleanest entries of this cycle. Pipeline depth puts you on the right side of that transfer.

Bottom Line

Rates will be choppy through year-end. The windows that matter open and close in days. The CRE pros who build deep pipelines this spring close their best deals of the cycle. The ones who wait for the screen to settle may miss the best window, before asset pricing surges.

And ignore the doomers.

Jamie Dimon called for a bond crisis last night in Oslo, two weeks after Hank Paulson called the same shot. These are smart men, but they are applying economics from the past to a modern economy that no longer plays by those rules.

Click that link to read why our macro-outlook at Matthews thinks Paulson and Dimon are getting swept up into doomerist narratives.

At around 3 a.m. on January 8, 2025, firefighters working the Pacific Palisades ridge opened their hydrants and found air. The Santa Ynez Reservoir, one mile from the fire line, had been drained and offline for repairs for a year. Tanker aircraft that should have run overnight passes sat on the ground. By sunrise, more than 6,800 structures were gone.

No single decision caused that outcome. But a very specific chain of choices made it more likely, and at the front of that chain sits a tax that the city of Los Angeles booked money against before the money ever showed up.

This is the story of Measure ULA, the “Mansion Tax” that was supposed to raise $600 million to $1.1 billion a year for homelessness and affordable housing. In its first full year it raised $270 million, less than half of what the city had written into its own budget.

LA spent anyway. When the bill came due, the cuts landed where they always land: on the reserves that pay for the next emergency, and on the agency that answers it.

November 2022

On November 8, 2022, LA voters passed Measure ULA by 57.8%. It was sold as a clean, progressive solution to a catastrophic housing and homelessness problem.

Tax the slice of real estate transactions above $5 million (4%) and above $10 million (5.5%), and use the proceeds to build affordable housing and prevent evictions.

United to House LA, the coalition behind the measure projected $600 million to $1.1 billion in annual revenue. Councilmembers repeated those numbers. Advocacy groups cited them. City departments built program plans around the midpoint.

In the summer of 2023, Mayor Karen Bass signed a Fiscal Year 2023-24 budget that did something remarkable: it took the campaign’s projection and wrote it into the General Fund as a line item.

The ULA revenue line was $604.6 million, the bottom of the campaign estimate, treated as bankable. The city committed spending against it.

The campaign said $600M–$1.1B. The city’s own budget penciled in $604.6M. One year later the number was $270.3M. The budget was already out the door.

No independent fiscal analyst I can find, not the Legislature, not UCLA, not JBREC, not the Controller’s office in a signed forecast, not Beacon Economics in a published memo, ever endorsed the $600M floor as a conservative number. The city booked it anyway.

2023 and Early-2024

Measure ULA took effect on April 1, 2023. The response from the high-end market was immediate and brutal. In the first quarter of 2023, commercial real estate sales above the $5 million threshold in the City of LA totaled roughly $2.4 billion.

In the second quarter, the first quarter under ULA, they collapsed to $260 million. A UCLA Lewis Center analysis published in 2024 found that sales at or above the ULA threshold had fallen 49% to 55% compared to the pre-ULA trend. Some of that was market wide (interest rates). Some of it was the tax itself and properties that would have traded were held, restructured, or priced just below threshold.

By the time the books closed on FY 2023-24, the LA Controller’s year-end estimate for ULA was $270.3 million, $334.3 million below the city’s own adopted budget line for ULA tax revenue. The damage was not contained to ULA. The pre-existing Documentary Transfer Tax fell another $76 million (25.3%) as the entire threshold market froze. ULA didn’t just fall short, it helped drag the baseline down with it.

The volume the law killed shows up in the numbers. Our estimates put LA City commercial and residential transactions above the $5M threshold at roughly $5B in 2023, $4 billion in 2024 and $2.5 billion in 2025. The reason is not mysterious. A 4% to 5.5% percent surcharge that lands entirely on the seller is large enough to change behavior.

And the volume that disappeared paid zero ULA, zero base DTT, and generated zero of the brokerage, escrow, title, legal, and inspection activity that would have flowed from it.

When revenue misses its mark, a city has three options: raise taxes, cut spending, or drain reserves. Between FY24 close out and the FY25 budget cycle, the city drew down nearly half of its General Fund Reserves, the rainy day account that exists to absorb shocks like a bad fire season, a court judgment, or a revenue miss. ULA was one named driver.

Reserve drawdowns are not inherently scandalous. The scandal is the reason. The city drained its shock absorber to cover ongoing operating commitments it had made against an unverified revenue stream.

The worst part?

If the ULA tax never goes into effect, that $605 million budget line is never expected, and the drawdowns would never have been needed.

June 2024

On June 5, 2024, Mayor Bass signed a roughly $12.9 billion FY25 budget. Inside it:

LAFD: –$17.4 million cut.

Of that LAFD cut, roughly $7 million came directly out of the overtime line, the account that funds FAA mandated pilot currency training and Air Operations helicopter coordination for wildfire suppression.

In December 2024, LAFD Chief Kristin Crowley put it in writing. Her memo to the Board of Fire Commissioners warned that the cut had “adversely affected the Department’s ability to maintain core operations, deliver services, prepare for, train, and respond to large scale emergencies, natural disasters, and wildfires.”

She was specific: aged engines, a shrunken mechanic corps, overtime-dependent staffing that no longer penciled out. She wrote that memo three weeks before Palisades burned.

“LAFD got $17.4 million less. The city called that a balanced budget. It was a statement of priorities dressed up as arithmetic.”

The city’s Chief Administrative Officer and Controller warned, in filings that were public, that the FY24 revenue assumptions were optimistic. Those warnings were visible. They were not binding, and they were not heeded.

“Los Angeles did not get unlucky. It chose brittleness, on the assumption that a new tax would pay for everything it was already committing to. The next emergency showed up on schedule.”

The mayor’s office has defended the FY25 budget as a responsible response to a difficult fiscal moment. Accept that framing and a question still sits there: the “difficult fiscal moment” was self inflicted.

The city had spent a year treating a speculative tax line as if it were collected money. When the money didn’t come, the cut landed on the department whose overtime line trains the pilots who fly over canyon fires at night.

Would No ULA Have Raised More?

If Measure ULA had never been on the ballot, would Los Angeles have raised more money?

ULA’s defenders don’t like the question.

The honest answer is that for the General Fund, the discretionary money that pays for police, fire, streets, and parks, there is a defensible case that LA would be better off today without ULA.

The mechanism is the pre-existing Documentary Transfer Tax. Every real estate sale in LA city triggers a base DTT of 0.45%, and 100% of it flows to the General Fund. The more transactions, the more DTT. ULA didn’t replace that tax, it stacked a second tax on top of it. And in doing so, it crushed the denominator.

Every one of those missing transactions generates zero DTT and zero ULA. If LA’s high-end volume had held to the SF/SD trendline, the missing base DTT would pencil out to roughly $40 to $60 million annually. That missing revenue is 100% General Fund.

The actual ULA take is 100% restricted. The city is collecting more gross transfer-tax dollars than at any point in its history, but it has fewer discretionary dollars to spend than it would have had under a no-ULA scenario with normal transaction turnover.

So effectively, the city has managed to increase taxes and reduce its own capacity to spend as a government. The supporters’ argument is that the affordable housing and homeless fund was necessary.

This fundamentally misunderstands why housing is expensive in LA and why there is a homeless crisis in the city.

Why Houston Doesn’t Have This Problem

In the time LA has been debating Measure ULA, Houston has built more housing than exists in Beverly Hills.

LA’s housing crisis is not a fact of nature. It is a policy choice.

Houston’s median home price is around $330,000. LA’s is roughly $950,000. Houston has cut its unsheltered homeless population by about 60% since 2011. LA’s has grown, despite spending more than $1 billion a year on it.

The difference is not a mystery. It is supply.

Houston permits 60,000 to 70,000 housing units a year across its metro. LA permits 20,000 to 25,000 in a metro that is 50% bigger.

Houston has no zoning code. Minimum lot sizes were cut in the late 1990s to allow townhouse infill, and production responded almost immediately.

Permits take weeks, not years. There is no CEQA equivalent to weaponize against housing projects in court.

Texas also taxes differently. With no state income tax, local government is funded primarily through property tax.

Every new unit built adds to the tax base directly, which means cities actually want development because development pays the bills.

In California under Prop 13, that incentive is broken. New housing is a political headache that generates limited new revenue. Which is why LA zoned itself for strip malls and hotels.

Homelessness follows the same logic. Gregg Colburn and Clayton Aldern’s 2022 book Homelessness Is a Housing Problem established the finding empirically: homelessness rates track housing costs, not poverty rates, mental illness, addiction, weather, or welfare generosity.

Detroit and Cleveland have higher poverty rates than LA and a fraction of the homelessness, because their housing is cheap. Houston has warm weather, a large low income population, and proximity to the border, and still has far better homeless outcomes than LA, because its housing is cheap enough that rapid rehousing programs actually work.

This is the part that should be the most uncomfortable for ULA supporters.

UCLA research found LA multifamily permits dropped roughly 50% in ULA’s first year. The tax is cannibalizing its own mission.

Houston does not tax mansions to fund housing. It just lets people build housing. That is not a clever framing. It is the entire difference.

What Los Angeles Got Wrong

ULA itself is still not producing the money the city planned for. FY25 receipts are tracking to roughly $482 million, still more than $100 million short of the lowest projection.

LA spent two years trying to solve a housing crisis with a revenue scheme. It misdiagnosed the cause of the shortage. It passed a tax that suppressed the kind of construction that would have helped. It booked the proceeds before they existed. It cut the fire department when the money didn’t show up. It drained the reserves when the fire came anyway.

Every step along the way had warnings from serious real estate professionals.

Mayor Karen Bass signed a budget that booked $604.6 million in ULA revenue her own Controller’s office was already flagging, then cut $17.4 million from LAFD.

The City Council adopted the projection without independent fiscal scoring and continued to treat ULA as a reliable recurring line through the FY25 cycle. Its April 2025 audit order was the right instinct, two years late.

United to House LA campaigned on a revenue range their own cited sources did not support as a floor, then celebrated crossing $1 billion in cumulative collections in late 2025.

Taxes are instruments. They can be well designed, poorly designed, or somewhere in between.

The failure of Measure ULA is not that it raised money. It raised money. The failure is that the city still thinks more government is the answer to its housing market.

The reality is that less government is the actual path to achieving the goals the ULA campaigners promised. When we build more housing, cities, renters, and developers all win together.

Contact Your Representatives

The decisions described above were made by elected officials.

Mayor Karen Bass

Phone: (213) 978-0600

Web: mayor.lacity.gov/contact

Mail: 200 N. Spring Street, Room 303, Los Angeles, CA 90012

City Controller Kenneth Mejia

Phone: (213) 978-7200

Web: controller.lacity.gov/contact

Mail: 200 N. Main Street, Room 300, Los Angeles, CA 90012

City Councilmembers

Find yours by ZIP code: lacity.org/your-government/elected-officials/city-council/council-directory

General Council line: (213) 473-3231

Every so often a data release cuts through the noise and tells you something real. This week’s retail sales report was one of them. On April 21, the Census Bureau reported that advance retail and food services sales rose 1.7% month-over-month in March to $752.1 billion, the biggest monthly jump since 2023 (slightly edging out March 2025). Year-over-year, the headline ran at +4.0%.

Under the Hood of a Strong Print

Yes, gasoline receipts spiked 15.45% as Iran-related tensions pushed pump prices back toward $4 a gallon, and that line item flatters the headline. Strip gas out, and the month still prints +0.6%.

What’s astonishing is that +0.6%.

This winter we saw retail sales largely flat line, then geopolitical tensions escalated. Most experts were predicting a further slowdown in consumer activity.

Instead, the American consumer is showing that what they do with their wallets and how they respond to surveys are not always aligned.

The number that actually matters for retail operators and investors is the control group, retail sales ex-autos, ex-gas, ex-building materials, and ex-food services, the series that feeds directly into GDP consumer spending. That came in at +0.7% month-over-month, three-and-a-half times the 0.2% the Street was looking for and is running +4.8% year-over-year. By any honest measure, that is a strong print.

And it was broad. Twelve of thirteen major categories advanced: furniture (+2.2%), health & personal care (+3.0%), online (+1.03%), general merchandise (+1.0%), autos (+1.0%), and electronics (+0.9%) all posted solid gains. Clothing (+0.03%) and sporting goods (+0.04%) held positive but thin. Only miscellaneous retailers printed negative, at -0.86%. That is resilience with breadth, not a narrow bounce.

The Sentiment Footnote

Worth holding in peripheral vision: the University of Michigan’s preliminary April Consumer Sentiment Index, released earlier in the month, plunged 11% to a 74-year low of 47.6, with year-ahead inflation expectations jumping to 4.8%. Most of those responses were collected before the temporary cease-fire. It is a real data point, but it tells us how consumers say they feel, not what they do. What they did, per the March report, was show up at the register. That gap between sentiment and spending has been widening for three years, and betting against the American consumer has not been a good trade in any of them.

A Constructive Read on Retail CRE

Retail is in the best structural position of any major CRE sector right now, and this week’s print reinforces it. U.S. retail vacancy sits near historic lows, the product of a decade of essentially no net new supply, and demand, as measured where it matters, is clearly showing up.

For owners of well-located centers, the playbook is straightforward: lock in quality tenants at market, build co-tenancy that buffers the softer discretionary categories, and recognize that a flat-to-modest rent curve on a near-fully-leased asset is a perfectly good outcome in a market where many other sectors would trade places with you in a heartbeat.

The Bottom Line

Three facts worth stapling together: the American consumer is spending, retail CRE has the tightest supply-demand setup of any major property sector, and transaction volume is coming back. That is a green light, not a caution flag.

The operators and investors who trust the data, trust the fundamentals, and deploy capital in this window are the ones who will look very smart when we revisit this quarter a year or half-decade from now. The opportunity, as always, is in the building, the tenant, and the deal.

On Bloomberg’s Wall Street Week last week, former Treasury Secretary and Goldman Sachs CEO Hank Paulson said the United States needs an “emergency break-the-glass plan” on the shelf for a “vicious” crash at the long end of the Treasury market.

The 30-year closed the week near 4.90%. The 10-year is hovering around 4.30%. For commercial real estate professionals whose deal economics live or die on the 10-year print, the natural reaction to a former Treasury Secretary using the word “vicious” is to get defensive about the pipeline.

I want to take Paulson’s argument seriously, because he is a serious person making a serious argument. But I also want to explain, carefully, why our base case at Matthews remains that long rates drift lower, not higher, over the next six to twelve months, and what that means for how you think about deals this year.

What Paulson Is Actually Saying

Paulson’s warning is narrower and more specific than the headlines suggest. He is not calling a recession, explicitly said the timing is unknowable.

What he is saying is that the combination of persistent budget deficits, a declining foreign demand for US Treasuries, and structural constraints on bank and dealer balance sheets has produced a market where long-term bond buyers effectively “go on strike”.

If that happens, prices fall, yields spike, and the Fed becomes the buyer of last resort.

Which in Paulson’s words is “a dangerous thing” because it is no longer monetary policy, it is monetized deficit finance.

He’s not wrong here. That is a troubling policy that digs the long-term hole deeper to save political standing and consumer confidence in the near-term

His proposal is not that investors panic today. It is that the Treasury and Fed design a pre-committed liquidity backstop now, while there is no crisis, because the politics of designing one during a crisis are much worse. It is, fundamentally, a call for fiscal discipline paired with market-structure insurance. The IMF echoed the concern in its Fiscal Monitor the day before, noting that rising Treasury supply is compressing the “safety premium” Treasuries have historically commanded.

Investors don’t believe the US Federal Government is as safe an investment as they did just 3 years ago.

So, the warning is real. The question is, what’s the likelihood that we actually enter that spiral?

Why the Spiral Doesn’t Trigger in 2026

Here’s the thing about Paulson’s concession: it’s right on the 10–20 year horizon and wrong on the 6–12 month one. The fiscal hole is getting dug deeper. Confidence has eroded.

But having a confidence problem is a much easier fix than a structural problem.

The risk is already in the price.

The yield on 10-year treasury debt has nearly doubled its premium compared to short term debt in recent years. In other words, the market has already repriced exactly the fiscal anxiety Paulson is describing.

This matters because term premia mean-revert. When the Fed’s cutting cycle reasserts and inflation re-anchors, most rates desks, Morgan Stanley, PIMCO, Goldman, expect the premium to compress back toward 40–50 basis points. That compression alone pulls the 10-year toward the low 4s, with no help from the Fed beyond steady cuts.

The demand stack is stronger than the headlines suggest.

Yes, foreign central banks have stopped adding to Treasuries. But the dollar is still 57% of global FX reserves. Pensions are at their best funded position in a generation and are extending duration to lock in liabilities. Insurance accounts need yield. Money-market funds are sitting on roughly $7 trillion of cash, and when the Fed cuts more aggressively, a meaningful slice of that walks out the curve looking for carry. Banks, post the 2025 capital-rule tweaks, have room to re-engage.

The “missing buyer” Paulson warns about isn’t actually missing. It’s waiting for a better entry point, and Fed cuts will hand it one when it has to.

None of this disproves Paulson. The long-run fiscal math is still broken. But the next three to four quarters don’t contain the specific ingredients a crash of this nature requires. We’d have to continue running up the debt for the next -10 years to spark a confidence crash the way Paulson describes.

The Mattews™ view:

the 10-year trades into a 3.5%–4.0% range by EOY 2026, with the 30-year following in parallel.

Money Has Nowhere Else to Run

The strongest version of Paulson’s scenario requires investors not just to sell Treasuries and dollar assets but to buy something else at scale. That something else doesn’t exist as an easy answer.

Gold is the only alternative large enough to absorb the money. At $30–35 trillion of aboveground stock, it’s bigger than the entire global reserve pool. But gold can’t replace what Treasuries do. It produces no yield, so no central bank can hold the bulk of its reserves there without running negative carry. It settles in days, not seconds, which disqualifies it for FX intervention or external-debt service. And it can’t be transacted against the things reserve managers actually need to pay.

The Swiss franc fails on size. Total Swiss government debt outstanding is roughly $155 billion, against a global reserve pool 80 times larger. If even 5% of reserves tried to rotate into CHF, the franc would appreciate 40%+, Swiss exports would collapse, and Bern would re-impose capital controls within a quarter. At that point CHF is disqualified as a reserve asset. It’s a lifeboat, not a ship.

The yuan fails on institutions. A reserve currency requires free capital mobility and an independent legal system. China maintains capital controls precisely because it values monetary-policy autonomy over reserve status, and the CCP is not going to reverse that trade to accommodate foreign duration buyers. After fifteen years of determined Chinese policy promotion, CIPS, digital yuan, Belt-and-Road settlement, the petroyuan push, the RMB is 2.3% of global reserves and has been stuck there for three years.

Crypto is too volatile and too small. Bitcoin’s total market cap is a rounding error against global reserves, and no pension or insurance general account is moving duration into an asset that can swing 30% in a month. Its likely crypto will take on a portion of the money that is leaving bonds, but the asset is far too volatile for pension funds or older Americans to use as a major investment option.

The absence of a credible substitute itself is the floor under Treasuries. Capital can’t rotate out of an asset class if there’s nowhere reasonable to rotate into.

Paulson knows this, it’s why warning is about policy planning, not investor action.

What This Means for Your Deals

You don’t underwrite 30-year sovereign-debt dynamics. You underwrite to refi windows, exit caps, and DSCRs on a 3–7 year horizon. Paulson’s tail risk sits outside that horizon, and too many factors are at play to truly estimate the long-term bond yield a decade from now.

The refi wall gets meaningfully more forgiving. The 2026–2027 maturity wave looks punishing at today’s rates and manageable 50bp lower. We think it prints lower.

If you have the flexibility to wait one or two quarters to recap, wait. If you don’t, the refi window is already softer than the 2023–2024 trough and getting softer.

If you get the opportunity to buy from a seller hitting this wall, take a long look at the deal. It might be the best pricing we see rest-of-decade.

Volume moves before pricing does. Cap rates always lag. Transaction volume inflects first, then bid-ask narrows, then quoted caps compress. Don’t wait for the screen to confirm what the pipeline is already saying. By the time the data prints, the best deals are signed.

The Bottom Line

Paulson’s warning is real and the concession stands: the long-term fiscal path is not sustainable, and a Fed-as-sole-buyer endgame is a legitimate thing to have insurance for. But insurance is not a forecast.

Long-term rates will drift lower as geopolitics plays itself out. Debt costs will ease. The refi wall will get flatter.

By the end of this year the picture will be a lot clearer, and I think many investors will regret not moving on deals sooner.

The de-dollarization bond-crash Paulson is highlighting is worth flagging as a risk if we don’t get the debt under control, by this is far from a likely near-term outcome.

You’ve probably seen the headline by now. Fox Business ran it right at the start of 2Q:

There’s just one problem: that’s not what the data actually says.

Yes, LA County lost roughly 54,000 residents between July 2024 and July 2025, the largest raw-number decline of any county in the country. That’s real. But here’s what the coverage left out: San Bernardino County grew. Riverside County grew.

Riverside–San Bernardino added 21,000+ residents over the same period. 40% of the people Fox Business is counting as “fleeing” LA. Are just moving a county over.

The year prior, Inland Empire, Orange County, and Santa Barbara added more combined people than LA County lost.

People aren’t fleeing Southern California in masse, they’re spreading out within it.

The headlines are technically true but analytically troubling.

And for commercial real estate investors who know how to dig a little deeper, it’s an opportunity hiding inside a misleading headline.

The LA Economy Is Healthy

Before we get into asset classes, let’s anchor to something the Fox Business piece didn’t mention: the Greater Los Angeles metro generated over $1.3 trillion in GDP in 2025, ranking it among the top 20 economies on the planet if it was its own country.

Los Angeles’ metro GDP is higher than Switzerland or Belgium and is roughly the size of Saudi Arabia in terms of output.

Total CRE transaction volume in the LA metro (LA, OC, & Inland Empire) hit $28 billion in 2025 within our tracked property types, up from $23 billion in 2024.

Private capital is flooding back in. 60% of all buyers in the LA metro last year were private capital. This is one of the rare markets where private buyers are returning more quickly than institutional capital.

Massive economy, diverse buyer and seller pool, and high incomes? LA isn’t a nightmare for CRE owners that the media pretends it is.

The Regulatory System Hurts Renters and Users, But Boosts Existing Assets

Southern California’s regulatory and cost environment is among the most punishing for new development in the country. For investors who already own assets here, that’s not entirely bad news. Between CEQA environmental review processes that can add 12 to 18 months to any project timeline, impact fees that stack tens of thousands of dollars per unit before a foundation is poured, and a discretionary approval process that gives neighbors and local councils repeated opportunities to slow or kill projects entirely, the barriers to new supply in Greater LA are deeply entrenched. We’re running a story on the Mansion Tax next week, but these hurdles and more once a project is complete ensures development activity across property types is minimal.

For renters and end users, that’s a real hardship.

For owners of existing stabilized assets, it’s a durable competitive moat.

Every month that new supply can’t come online is another month that existing multifamily, industrial, and retail assets absorb demand with no meaningful competition from newly delivered products. In a market this hard to build in, owning what’s already standing is a position worth holding.

A Nation Leading Housing Shortage

California cannot build its way out of its housing deficit, and LA County cannot lose enough people fast enough to change that reality in any near-term investment horizon.

Vacancy in the LA multifamily market sits at 4.7%, 30 bps below the U.S. average. Asking rents are running $2,835/month, with LA and OC holding two of the top 6 highest rents in the country.

These are not the fundamentals of a market that’s struggling or suffering.

At the same time LA has some of the most well-funded renters in the country. The average mortgage payment on the average home in LA is more than $3,500 higher than the average rent, making homeownership nearly impossible for many households, but also extremely unwise for even some that could afford to buy a home.

LA renters are paying a smaller percentage of their income on rent than renters in Florida are, and that’s a huge factor in long-term rent expectations.

Performance vs Narrative

The most intriguing factor in this analysis is the impact negative narratives and headlines have had on the CRE market in LA. The below graph takes a look at how revenue has changed vs sales price, with revenue outpacing valuation significantly over the first 6 years of this decade.

Now graphics like this may be bad news for a syndicator or speculative investor that’s looking to buy and sell in a 1–3 year window. But if you’re an investor that is in it for the long haul, actively invests in your properties and is looking for the monthly cashflow over the next decade, LA remains one of the most lucrative investment markets in the country.

What Smart Investors Are Actually Doing

The investors pulling back from Greater Los Angeles because of media coverage are the same investors who will be calling their brokers in 2027 asking why they missed the cycle.

The metro economy is as large and as globally connected as it has ever been. The population is spreading across a broader footprint that creates new investment corridors in the Inland Empire, the Central Coast, and the outer rings of Orange and Ventura counties.

For CRE investors, the question is never whether a market is perfect. It’s whether the market is mispriced relative to its fundamentals. Right now, Los Angeles and Southern California are being priced by sentiment rather than by the $1.3 trillion economy underneath it.

That gap between narrative and reality is where opportunity lives in CRE.

Yesterday, the BEA released the third and final estimate of Q4 GDP. This morning, the BLS dropped the March CPI. Taken together, they present a new risk that CRE investors need to take seriously.

If you’ve been reading this newsletter, you know we’ve been watching the base effect closely in the CPI numbers since January. The math was supposed to be on our side heading into spring, but global conflict threw cold water on the idea of reaching 2% inflation during 1H, and we now are losing the lowest monthly readings from 2025 as the energy shock shows its effects.

Today’s CPI

The Consumer Price Index rose 0.9% month-over-month in March and 3.3% on a 12-month basis, the highest annual reading since May 2024 and a sharp jump from February’s 2.4%.

This was also the largest monthly pace since 2022. Monthly inflation tripled from February’s level.

But the story is almost entirely energy. Gasoline prices surged 21.2% in a single month, the largest monthly increase in six decades. This is the Iran conflict showing up in the data.

Core CPI, which excludes food and energy, rose just 0.2% month-over-month and 2.6% year-over-year. That’s barely changed from February’s 0.2% monthly and 2.5% annual reading. In other words, the gas price explosion has not yet spread to the broader economy. Services inflation isn’t accelerating. Goods prices outside of energy are relatively contained.

The key question going forward: does the energy spike stay isolated, or does it bleed into core? The lag between energy costs and broader price pressures typically runs 2–4 months. Energy is the universal input in production. Companies can’t produce goods and services without it. Next it will work its way into domestic PPI, then will show up in Core CPI as well by the end of this summer.

The “universal input” status makes the peace negotiations critical to investors and the Fed. If these peace talks hold, it’s likely we’ll see a one-time bounce in general inflation that dissipates as trade through the Strait of Hormuz resumes. If these peace talks collapse, expect higher general inflation and fewer rate cuts for the rest of the year.

Yesterday’s GDP

The BEA’s third and final estimate of Q4 2025 GDP came in at +0.5% annualized, revised down from +0.7% in the second estimate. For context, Q3 was 4.4%. And the revision went the wrong direction, which tells you the underlying data was softer than we initially thought.

This is a growth story that matters for CRE. When GDP decelerates this sharply, the Fed has to weigh that against the inflation picture. Normally, 0.5% growth with a downward revision is the kind of print that gets the committee talking about easing. The problem is that PCE inflation still came in at 2.9% in Q4, with core PCE at 2.7%. The economy is slowing fast enough to justify easier policy, but prices aren’t cooperating enough to give them cover.

That tension is the whole story right now.

Is this a soft landing or stagflation? That is the conversation happening at the Fed right now. And the answer largely depends on these peace talks.

Putting CPI And GDP Together

Here’s the tension.

The headline CPI print of 3.3% looks like it should kill any hope of rate cuts. But the core tells a different story. At 2.6% annual and 0.2% monthly, underlying inflation is barely moving. The Fed knows that gas prices driven by a geopolitical shock are not the same as broad-based demand-driven inflation. Powell has made that distinction explicitly in the past.

At the same time, GDP just came in at 0.5%. The economy is clearly losing momentum. Consumer spending is decelerating. Structures investment is contracting. Government was a drag. The growth side of the equation is asking for more dovish policy.

This doesn’t mean cuts are coming at the May FOMC. They’re not.

But it does mean the Fed is likely to look through the headline CPI number and focus on core. If core stays well-behaved in the 2.5–2.7% range over the next couple of prints, and if the energy shock doesn’t bleed into broader prices, the second half rate cut thesis is still very alive.

What This Means For CRE

The fact that the energy spike hasn’t bled into services and goods prices yet is genuinely encouraging. If a ceasefire is reached and oil stabilizes, this could be a one-month anomaly that fades from the data by the end of 3Q.

The rate cut timeline hasn’t changed much on today’s print. The market was already pricing no cut until the second half. Today’s core number, if anything, keeps that timeline intact, for now.

Treasury rates are going to stay volatile while the situation is unresolved. If you’re looking to finance or refinance, be ready to move when the window opens rather than waiting for the perfect rate environment. Borrowing conditions are still better than they were 12 months ago, and that trend could accelerate quickly if geopolitical risk comes down.

Start the process on deals today. By the time clarity returns to the rate picture, the best opportunities will already be priced in.

The CMBS delinquency rate surged 41 basis points in March 2026 to 7.6%, erasing February’s decline and hitting the highest level since this cycle of distress began. Year-over-year, the overall rate is up 90 basis points. February’s 33 basis point drop to 7.1%, driven by extensions on a handful of large office and mall loans didn’t continue into March.

Four of the five major property types moved higher in March. Lodging (Hospitality) led the move, jumping 137 basis points to 7.3%. This was mostly driven by a large loan tied to a Hilton San Francisco hotel portfolio that fell into delinquency in March.

This is the same story that’s been playing out in SF hospitality for years. The original $725 million CMBS loan backed the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55. Park Hotels & Resorts walked away from that loan back in 2023, and the properties went through receivership and eventually sold.

Office climbed 51 basis points to 11.7%, and retail rose 32 basis points to 6.6%. Multifamily increased 30 basis points to 7.2%, edging past its October 2025 high. Industrial was the lone holdout, dipping slightly to 0.6%. Retail holding lower than multifamily this late in a downturn is a testament to retail’s performance strength, as traditionally retail has a much higher delinquency rate.

Including loans past maturity but current on interest, the effective delinquency rate would be 9.07%, nearly 150 basis points above the headline number and a clear signal that maturity-related stress continues to build beneath the surface.

The big-picture takeaway is that delinquency relief in CRE right now is largely a function of servicer activity, extensions, modifications, and negotiated workouts, rather than organic demand recovery or successful refinance agreements. When the headline rate moves because a handful of large loans get extended, the improvement can reverse just as quickly if those workouts don’t ultimately lead to resolution. Some of the extensions recorded this year are only extensions for a few months.

So, the pace of extensions is slowing, and more lenders are refusing to work out deals on properties that aren’t performing. We at Matthews expect the number of forced deals to rise throughout 2026.

As MBA’s Chief Economist has noted, 2025 was a transition year in which the maturity wall began shrinking and lenders moved beyond simply extending loan terms. This is great news for any patient buyers that are ready to add to their portfolios this year.

Rising Distress as a Deal Catalyst

The convergence of maturing debt and elevated rates is already producing measurable distress, and that distress is translating directly into deal flow.

The gap between the delinquency rate and the specially serviced rate underscores that many loans are already inside workout processes but have not yet formally defaulted. Forward indicators from CRED iQ suggest the overall distress rate could approach 13% by mid-2026 without a meaningful shift in financing conditions.

Distressed Sales Are Accelerating

Distress-related apartment sales have risen steadily since the pandemic, with rolling 12-month troubled volume climbing from approximately $1.1 billion in early 2020 to $13.8 billion by 2025.

Loan modifications, maturity extensions, and forbearance agreements remain the dominant workout tools for special servicers. However, as CRED iQ notes, servicers are becoming increasingly aggressive toward distressed assets, and the pipeline of forced resolutions continues to build, echoing the MBA chief economist. The loan market is growing easier for lenders than it was 12 months ago, but harder for owners looking for extensions on underperforming properties.

The Data

The March employment report was a jolt of adrenaline for a labor market Americans had been growing more pessimistic about.

The U.S. economy added 178,000 nonfarm payroll jobs in March, roughly triple the consensus expectation of 57,000 to 60,000 and the strongest monthly gain since late 2024.

The unemployment rate ticked down to 4.3% from 4.4% in February.

Average hourly earnings rose 0.2% month-over-month, keeping year-over-year wage growth near 3.8%.

February Data Gets Revised

The headline number is undeniably positive, and it came in higher than all major economists’ estimates.

Much of March’s strength was a reversal from February’s distorted weakness. The February print was revised lower, from −92,000 to −133,000, making the prior month even worse than initially reported.

But two sectors that were especially weak in February reversed course in March:

Healthcare: The sector added 76,000 jobs in March after losing 28,000 in February. The Kaiser Permanente strike that pulled roughly 31,000 workers off California and Hawaii payrolls in February resolved by the end of that month. Those workers returned in the March survey period. Strip out the strike reversal and healthcare’s gain drops to roughly 45,000..

Construction and transportation: Both sectors rebounded from weather-related losses in February. Severe winter storms across the Midwest and Northeast had depressed construction and transportation payrolls last month. The spring warm-up brought workers back.

Labor Force Contracting Is A Surprise

Unemployment fell to 4.3%, but not because more people found work. The labor force contracted by 396,000 workers in March, meaning fewer people were actively seeking employment. Labor force participation remains near its lowest level since late 2021.

It should also be noted, most of March’s survey data was collected before the Iran war’s economic impact materialized. The April and May reports will be the real test of whether this labor market can absorb surging oil prices and deteriorating consumer confidence.

What This Means for the Fed and Commercial Real Estate

A strong jobs report is normally good news. For commercial real estate borrowers waiting on rate relief, it’s the opposite. This print gives the Federal Reserve zero cover to cut rates at or before the April 28–29 meeting. It may push the first cut of 2026 even further out.

The Fed has held the federal funds rate at 3.50% to 3.75% since January. At the March meeting, the committee projected only one additional cut this year and revised core PCE inflation expectations upward to 2.7% for 2026. Fewer cuts and higher inflation is the Fed’s new forecast.

If Inflation stays above 2.5%, and the job market stays manageable, the argument for rate cuts weakens, even as elevated bond yields signal the market isn’t expecting relief anytime soon.

J.P. Morgan no longer expects a cut this year. Traders are now pricing July at the earliest, with many strategists projecting the Fed holds through 2026 entirely if inflation re-accelerates on the back of higher energy costs and tariff pass-through.

The disconnect between short-term Fed policy and long-term CRE borrowing costs has been one of the defining features of this cycle. The bond market is moving more on news than it is Fed policy.

The Bottom Line

For investors with capital and patience, this crunch is creating the most compelling buying environment in commercial real estate since the post-GFC recovery. Properties unable to refinance will come to market this summer unless interests rates dive soon.

Industrial and data center assets continue to command the lowest borrowing costs and strongest fundamentals. Multifamily in supply-constrained coastal markets retains pricing power as the frozen for-sale market keeps renters in place. Office, particularly Class B and C in suburban locations, remains the most distressed sector and the most likely source of discounted acquisitions.

March’s jobs report was a welcome surprise for the broader economy, but it changes nothing about the structural headwinds facing commercial real estate. The labor market is resilient enough to keep the Fed on hold. The Fed on hold means rates stay elevated. Elevated rates mean the maturity wall gets harder to climb.

For CRE investors, the playbook remains: get deals started through the system today to take advantage of any rate volatility that emerges from this wacky economic turbulence.