This is Deal Junkie. I’m Michael, it is 8:30 AM Eastern on Friday, December 12, 2025. Here’s what we’re covering today: we’ll start with the latest on interest rates, insurance costs, and what they mean for commercial mortgages and lending. Then we have a roundup of key commercial real estate news and market trends nationwide – from big deals signaling a rebound to where distress still lingers. And finally, a regional spotlight on the Sun Belt, where growth markets are making waves.
Interest Rates and Financing Conditions: The financing environment for commercial real estate is beginning to show some relief. Just this week, the Federal Reserve delivered another quarter-point rate cut, the third cut this year, bringing the benchmark rate into what officials consider a more “neutral” range. For borrowers, that means short-term interest rates have eased from their peak – a welcome change after the rapid rises of the past few years. The yield on the 10-year Treasury has dipped into the low-4% range, down from its highs, and that’s starting to trickle into slightly lower commercial mortgage rates. We’re hearing that well-qualified borrowers are now securing loans a bit below the peak rates seen earlier in 2025. It’s not a dramatic drop, but it’s a positive trend for anyone refinancing or seeking new debt for projects. Importantly, long-term rates remain somewhat elevated compared to pre-2022 norms, so debt is still expensive – but at least the trajectory is no longer straight up.
However, one cost that’s still climbing for property owners is insurance. Commercial property insurance premiums have soared over the past few years and are continuing to rise in 2025, though the pace has moderated slightly. On average, property insurance costs are significantly higher than they were just a few years ago – some estimates say nearly double the 2021 levels. In high-risk coastal markets like Florida and the Gulf Coast, insurers have pulled back due to repeated hurricanes and flood losses, driving premiums through the roof for those who remain. This is squeezing property cash flows and raising operating costs for landlords. Many owners are responding by shopping around for alternative coverage, raising deductibles, or even retrofitting properties to mitigate risks. But ultimately, higher insurance costs often get passed along, whether to investors through lower profits or to tenants through higher rents and expenses. It’s a tough pill to swallow, and it’s something to watch into 2026, especially if we see another year of active storms or other catastrophes.
Lending Conditions and Capital Markets: Despite the headwinds of high rates and insurance costs, there are signs of life in commercial real estate lending. Banks and other lenders are cautiously re-entering the CRE market after a prolonged pullback. In fact, loan originations have rebounded strongly in 2025. By the end of the third quarter, new commercial loan volume was up sharply – some reports put it around 85% higher than last year’s pace – bringing lending activity close to pre-pandemic levels. This resurgence is driven largely by the safer asset classes: multifamily and industrial properties have been the favorites, soaking up a big share of new loans. Even the beleaguered office sector is seeing a bit of lending again, as a few brave lenders and investors step up for deals at the right price. One analyst noted that when you see lenders willing to finance office acquisitions now, it suggests they feel asset values have finally adjusted to a point that makes sense. In other words, some confidence is creeping back that “the price is right” on certain office deals after the big value corrections of the past couple of years.
That said, credit standards remain tight and lenders are cherry-picking the best deals. The banking sector is still digesting a lot of troubled debt. Delinquency rates on commercial mortgages are hovering near their highest level in a decade (dating back to around 2014). Roughly 1.5% to 2% of bank-held CRE loans are delinquent – that might not sound huge, but it’s elevated and concentrated in certain property types like older offices and some retail. And with nearly $1 trillion in commercial loans coming due in 2025, many lenders and borrowers have been playing for time, using extensions and modifications to kick the can down the road. It’s a strategy folks jokingly call “extend and pretend”. Essentially, no one wants to realize a loss today if they believe conditions might improve tomorrow. So far, this approach has helped avoid a wave of foreclosures – banks are extending loan maturities, hoping that lower interest rates or a bit more leasing activity will materialize to improve the finances on these properties. And indeed, with the Fed now cutting rates and the economy still chugging along, there’s some rationale there. But the risks haven’t vanished: if the economy slips into a recession or if financing doesn’t come through as hoped, we could see more distressed sales ahead. For now though, industry experts suggest we’re in a “orderly reset” rather than a chaotic crash. The idea is that values and rents are gradually adjusting, and most owners and lenders are managing to hold on, albeit tightly, rather than panic-sell. Notably, the commercial mortgage-backed securities (CMBS) market – which had been flashing warning signs – is also more stable than many feared. The rate of loans in special servicing (a rough measure of distress in CMBS) has climbed, recently hitting its highest point in over a decade, largely due to struggling office and hotel loans. But even there, the majority of loans are still performing or getting worked out without fire sales. So it’s a mixed picture: pockets of distress for sure, but also resilience in many areas.
Market News and Trends: Turning to the deal scene – we’ve witnessed a real pickup in transaction activity recently. After a very slow start to the year, investment sales came roaring back in the third quarter. Nationwide, commercial real estate transactions – especially those big-ticket deals over $10 million – surged. Q3 saw the highest growth in large deal volume in ten years, with dollar volumes jumping by double digits compared to both the previous quarter and the prior year. In total, about $76 billion in large CRE assets changed hands in Q3, which is a striking turnaround and a sign that investors have started to adapt to the new normal of interest rates. Many had been sitting on the sidelines due to rate uncertainty and bid-ask gaps between buyers and sellers. Now, with some stability in financing costs and clearer pricing, buyers are coming back and sellers are adjusting expectations.
Not all sectors are equal in this rebound. Industrial and multifamily remain the darlings of investors – no surprise there. These sectors held their value best through the downturn and continue to benefit from strong fundamentals. For instance, we just saw a major transaction in Los Angeles: a Morgan Stanley-managed real estate fund paid over $200 million to acquire a big industrial complex in that market. That’s a hefty bet on the continued strength of warehouses and logistics facilities, which have been in huge demand thanks to e-commerce and supply chain retooling. On the multifamily front, demand remains robust in many cities. In fact, apartment rents in some high-demand markets have not just recovered from the pandemic dip – they’ve hit record highs. Here in New York City, Manhattan rents just reached a new peak last month (around $4,700 on average for a Manhattan apartment). So despite high interest rates and some economic uncertainty, people are still competing for places to live in major urban centers, driving rents up. That rent growth, plus long-term confidence in population trends, keeps multifamily attractive to investors. We also saw a notable financing deal in the multifamily space this week: Blackstone and its partner secured a massive $3.15 billion refinancing for Stuyvesant Town–Peter Cooper Village, an iconic 11,000-unit apartment complex in Manhattan. That loan, led by Wells Fargo and backed by Fannie Mae, is one of the largest multifamily financings of the year. It underscores that lenders – including government-sponsored enterprises like Fannie – are still willing to lend on high-quality, well-located rental housing assets, even in today’s climate.
Now, retail and office are the more complicated stories. Retail real estate has actually been quietly improving; the doom and gloom around retail has eased as the survivors – especially open-air shopping centers and essential retail – have proven quite resilient. High-street retail in luxury markets is also doing well. We’re hearing about “prime” retail strips in cities like New York, Los Angeles, and Miami seeing a surge in tenant demand. International retailers and new direct-to-consumer brands are leasing space, and rents on some of those corridors are climbing again. Essentially, the best retail spots are hot – while older malls and weaker locations still struggle. So it’s a bifurcated retail market, but not a dead one by any means.
Office, meanwhile, has been the sector under the microscope. We all know the challenges – remote work, high vacancies in older buildings, and valuation drops. But here’s a twist: recent data suggests the office market may be stabilizing and even staging a bit of a comeback. Absorption (the amount of office space being occupied) turned positive in the third quarter nationally for the first time in years. Companies are making decisions again about space – some downsizing, sure, but others relocating or even expanding into higher-quality offices. There’s also been a noteworthy uptick in office investment sales activity. Investors are picking up office buildings at steep discounts, either to bet on a turnaround or to repurpose them into something else (like apartments or labs). Just yesterday, for example, news broke that investor David Werner is nearing a deal to purchase One Dag Hammarskjold Plaza – a large office tower in Midtown Manhattan – for around $270 million. That price reportedly comes out to roughly $310 per square foot, which is a bargain for Manhattan office space that would have commanded far more a few years ago. Deals like this illustrate how far office values have fallen in some cases, but they also show that there are buyers at the right price. In fact, one commercial brokerage’s report highlighted that office sales volume in Q3 was up over 25% from a year ago. It’s still nowhere near the peaks of 2021 or early 2022, but it’s a clear improvement from the near standstill we saw when nobody knew how to price these buildings. Lenders are even cautiously coming back to the office arena for top-tier properties or strong business plans – another sign of thawing. All told, the office sector seems to have pulled back from the brink. We’re not declaring victory yet – far from it – but the phrase “the office is back” is being whispered by some optimists in the industry, at least for the highest-quality and best-located buildings. We’ll keep a close eye on that heading into 2026.
Regional Spotlight – The Sun Belt’s Ongoing Boom: For our regional spotlight today, we’re zeroing in on the Sun Belt – that swath of fast-growing markets across the Southeast and Southwest. If there’s one region that’s really stood out over the past year, it’s this one. Even amid higher interest rates and some national cooling, Sun Belt cities have stayed red-hot in growth. Let’s take the area around Atlanta, for example. An out-of-state developer just landed a $47 million construction loan for a newly built apartment community in suburban Atlanta. Securing financing for new development hasn’t been easy lately, so this deal signals confidence from lenders in the Atlanta multifamily market. And why are they confident? Job growth and in-migration. Metro Atlanta has been adding jobs and residents at a healthy clip, creating demand for housing, warehouses, offices – you name it. We’re seeing similar trends in places like Dallas-Fort Worth, Charlotte, and Nashville as well: strong population gains and diversified economies that are attracting real estate investment even when coastal markets slowed down.
Another Sun Belt standout is South Florida – particularly Miami. Miami has transformed into a magnet for both businesses and wealthy residents in recent years, and its commercial real estate reflects that. One interesting trend: prime retail spaces in Miami are seeing record interest. High-end retailers and restaurant groups are flocking to districts like the Design District, Miami Beach’s Lincoln Road, and Brickell. Rents for the best storefronts have been climbing, and vacancies are scarce, which is quite a turnaround from a decade ago when Miami retail was much more seasonal and tourism-dependent. Now it’s a year-round, luxury and lifestyle hub. On the office side, Miami is also defying the national doldrums – many firms relocating from the Northeast and California have snapped up top-tier office space in Miami and nearby Fort Lauderdale, keeping the Class A office occupancy relatively strong. The biggest challenge in Florida, as we touched on earlier, is property insurance. That’s a shadow over the market – everyone is paying more for insurance, which is affecting operating costs for offices, apartments, and especially those beachfront condos and hotels. So far it hasn’t stopped the deals, but it’s a watch item for sure.
And we can’t talk Sun Belt without mentioning the Texas and Southwest boomtowns. Austin and Phoenix are two cities often cited as leaders in startup formation and tech job growth lately. That influx of tech companies and talent is fueling real estate in those areas – you see it in big leases for new office campuses, strong apartment absorption, and a flurry of industrial projects (like data centers and chip fabs in Phoenix’s case). It’s no wonder developers keep building; in fact, Phoenix currently has one of the highest numbers of apartments under construction in the nation. Over in Texas, Austin’s office market has cooled a bit since the pandemic tech surge, but companies are still expanding there and industrial facilities around Austin (to support things like Tesla’s operations and other manufacturing) are in high demand. Meanwhile, the more traditional powerhouse of Texas real estate – Dallas-Fort Worth – continues to be a magnet for logistics and corporate relocations, which means solid performance for warehouses and a surprisingly steady office market in certain submarkets. And one more Sun Belt metro to highlight: Charleston, South Carolina. It’s smaller, but Charleston has one of the lowest office vacancy rates in the country right now. That’s partly due to limited new construction and a growing economy anchored by port trade and aerospace manufacturing. It’s an example of how some smaller Southeast cities are thriving with very healthy real estate fundamentals, even as big city offices struggle.
The common thread across the Sun Belt is population and jobs – people and companies moving in, rather than out. That growth tends to cover a multitude of sins in real estate. It keeps apartments filled, shopping centers busy, and even gives a boost to office occupancy. Investors have noticed; a lot of the capital that’s re-entering the market is targeting these high-growth regions. So, the Sun Belt looks set to remain a bright spot as we head into 2026, though we’ll keep watch on issues like infrastructure and climate resilience as these areas expand rapidly.
That’s all for now, but we’ll be back tomorrow. Don’t forget to hit follow or subscribe and leave a review to help others discover the show. I’m Michael—until next time!