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U.S. consumer prices rose more than expected in January amid a surge in the cost of shelter, but the pick-up in inflation did not change expectations that the Federal Reserve will start cutting interest rates in the first half of this year, Reuters reported. The largest increase in prices in four months reported by the Labor Department on Tuesday came against the backdrop of labor market strength and economic resilience. Some economists also blamed difficulties adjusting the data for seasonal fluctuations for the stronger-than-expected inflation readings. "Today's data is not what markets or the Fed would have liked to see, but it's important not to over react and jump to the assumption that an inflationary resurgence is developing," said Seema Shah, chief global strategist at Principal Asset Management. "A March cut is completely off the agenda, but May could still be in play if economic activity plays ball and finally starts to show the impact from prior Fed tightening." The consumer price index (CPI) increased 0.3% last month after gaining 0.2% in December, the Labor Department's Bureau of Labor Statistics said. Shelter, which includes rents, accounted for more than two-thirds of the rise in the CPI. New weights, published last week, which saw the housing share rising and that of new and used cars lowered, were used to calculate the January consumer price data.

While banks issue around half of all commercial real-estate loans in the U.S., they don’t always give much detail about the health of the loans or the buildings they have lent against until it is too late, according to a Wall Street Journal commentary. The first investors hear of problems may be when lenders set aside hundreds of millions of dollars as provisions for likely future losses, as happened recently at New York Community Bancorp and Japan’s Aozora Bank. The lenders’ shares have tanked 53% and 34%, respectively, since they revealed souring U.S. office loans in recent weeks. There is an indirect way to get a picture of the pressures building on some banks’ loan books, according to the commentary. Commercial mortgage-backed securities account for 14% of U.S. commercial real-estate lending and are a good proxy. Helpfully, the CMBS market spews monthly data about default rates and the latest building valuations. What happened to the billions of dollars of office CMBS debt that matured last year, which property watchers have been so worried about? According to CRED iQ, a real-estate data provider, only 26% of the $35.8 billion of office CMBS loans that matured in 2023 was actually paid off in full, as borrowers struggled to get refinancing or to sell their properties. Some maturing mortgages were extended, others were transferred to a special servicer — a third party who tries to find the best outcome for the debt, which may include an extension, renegotiated terms or foreclosing on the property. More than 1,000 CMBS office loans with a total value of $14.8 billion are now with a special servicer.

Nearly 20% of outstanding debt on US commercial and multifamily real estate — $929 billion — will mature this year, requiring refinancing or property sales, Bloomberg News reported. The volume of loans coming due swelled 40% from an earlier estimate by the Mortgage Bankers Association of $659 billion, a surge attributed to loan extensions and other delays rather than new transactions. With the Federal Reserve signaling that it’s done hiking interest rates, it’s likely more deals will get done this year, according to Jamie Woodwell, head of commercial real estate research at the bankers group. “Volatility and uncertainty around interest rates, a lack of clarity on property values and questions about some property fundamentals have suppressed sales and financing transactions,” Woodwell said in a statement Monday. “This year’s maturities, coupled with greater clarity in those and other areas, should begin to break the logjam in the markets.” About $4.7 trillion of debt from all sources is backed by U.S. commercial real estate, ratcheting up concern among regulators and investors as building values slide. Increasing defaults and write-downs have hit lenders such as New York Community Bancorp, KKR & Co.’s commercial mortgage real estate investment trust and holders of commercial mortgage-backed securities. Read more.

ABI will be presenting a program that will address CRE exposure: the 2024 Distressed Real Estate Symposium, to be held April 30-May 2 in Ojai, Calif. Details and registration information will be posted soon at abi.org/events.

When New York Community Bancorp posted large losses last month and warned of more difficulties to come, it pointed to a significant cause for concern: troubled loans in a sinking corner of the New York City apartment market, the Wall Street Journal reported. NYCB is the city’s largest lender on rent-stabilized apartments. About $18 billion of its loans are backed by the city’s rent-stabilized units, representing more than 20% of its total loan book. Many of these loans were made when developers had more flexibility to upgrade rent-stabilized units and then boost the rent to market rate, or convert them to condominiums. In 2019, new laws capped the amounts that landlords can raise rents at these properties. Though these buildings could still deliver steady returns, business plans that were based on steeper rent increases no longer penciled out. Property values started to plummet. Sale prices of buildings containing rent-regulated units have fallen 34% since then, according to Maverick Real Estate Partners, a private-equity fund manager. Some rent-stabilized multifamily buildings have sold for half — or even less than half — of what owners paid for them before the 2019 law went into effect.

Turmoil in commercial real estate is sending jitters through regional banks and other lenders. But one group is pleased with the turbulence: investors sitting on piles of cash they raised to scoop up distressed properties, the Wall Street Journal reported. Many of these investors have been stockpiling funds since early in the pandemic. They have been frustrated because most property owners haven’t agreed to sell at big-enough markdowns, in large part because lenders have been willing to offer loan extensions and modifications. Now, that is starting to change. Lenders are stepping up the pressure on owners of office buildings crippled by remote work. They are getting tougher on hotel owners who have neglected repairs. They are calling in loans to apartment building owners who fell behind on construction schedules owing to supply-chain shortages. Soaring interest rates are the main reason. Property owners who used floating rate debt or bought properties before the interest rate shock began in 2022 are struggling to afford higher debt-service costs, which often are more than 4 percentage points higher. Investors with cash on hand have begun to snap up these properties or provide rescue capital to struggling owners in exchange for preferred returns. Recent activity includes deals by a venture of investment giant Ares Management and New York office landlord RXR. The venture is buying discounted interests in 3 million square feet of office space and has made offers on more than $500 million worth of senior debt. Read more. (Subscription required.)

Occupancy issues are at the heart of many significant retail cases, as detailed in the ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available at the ABI Store.

Bankrupt coworking-space provider WeWork said it owes 160 landlords no rents for the month of November, according to a court filing, WSJ Pro Bankruptcy reported. The company said in a Wednesday bankruptcy court filing that those landlords who disagree with the listed amount of the so-called stub rent “must first engage in a good-faith attempt to resolve such disagreement with [WeWork] before filing their proof of claim.” WeWork filed for bankruptcy on Nov. 6 after struggling with a downturn in the office market. Unless the company rejected the leases as of that date, it owes its landlords the stub rent from the petition date to the end of November, according to bankruptcy code and case law in the Third Circuit Court of Appeals. That circuit covers the U.S. Bankruptcy Court of New Jersey that handles WeWork’s bankruptcy case. The filing came as a surprise for those landlords listed in the document along with the amount zero.

Four years after COVID-19 filled hospital emergency rooms, closed schools and emptied out cities, U.S. offices remain about half vacant, Bloomberg News reported. Office occupancy in 10 of the largest U.S. metropolitan areas rose to a new high of 53% for the week ended Jan. 31, according to Kastle Systems, a firm that provides security to buildings. The firm’s barometer on how corporate return-to-office policies is going has been hovering around that level for 13 months. Yet, cities are shrugging off empty offices and its implications for the commercial real estate market because they can, for now. “Commercial real estate is not a key driver of general fund revenues for the majority of local governments,” said Michael Rinaldi, head of U.S. local governments at Fitch Ratings, in an email. “Declines can be managed through careful expenditure management and/or stability in other revenue sources, including residential property taxes, sales tax, utility taxes, etc.” The reluctance or in some cases refusal of workers to return to offices has shaken the real estate market, with New York Community Bancorp being cut to junk this week by Moody’s Investors Service after it said it was slashing payouts and stockpiling reserves to cover troubled loans tied to commercial real estate. Read more.

ABI will be presenting a program that will address CRE exposure: the 2024 Distressed Real Estate Symposium, to be held April 30-May 2 in Ojai, Calif. Details and registration information will be posted soon at abi.org/events.

The Consumer Financial Protection Bureau (CFPB) announced yesterday that it resolved an appeal in a long-running enforcement suit against a foreclosure relief scam operation for $12 million in consumer redress and penalties, according to a CFPB press release. Consumer First Legal Group, LLC and four attorneys, Thomas G. Macey, Jeffrey J. Aleman, Jason Searns, and Harold E. Stafford, charged millions of dollars in illegal advance fees to financially-distressed homeowners for legal representation the defendants promised but did not provide. This case was part of a coordinated effort against various foreclosure relief scam operations by the CFPB, Federal Trade Commission (FTC), and 15 states in 2014. The CFPB filed three lawsuits, the FTC filed six lawsuits, and the states took 32 actions. The CFPB won a judgment against the defendants in 2019. The case has been ongoing given multiple appeals. Today’s settlement brings the case to an end. Under the resolution announced today, the defendants will pay $10.9 million in consumer redress and a $1.1 million penalty into the CFPB’s victims relief fund. The individual defendants are covered by 8- or 5-year bans from the mortgage assistance industry, under the district court’s original order.

The U.S. Treasury Department's financial crimes unit on Wednesday proposed a plan that will require real estate professionals to flag suspicious activity, in a bid to curb illicit funds flowing through residential real estate, Reuters reported. The plan, proposed by the Financial Crimes Enforcement Network, would require reporting from real estate professionals involved in cash transactions for residential real estate. Anti-corruption advocates have long pushed for regulators to close a loophole seen as allowing illicit funds to flow through cash home purchases. Last year, Treasury Secretary Janet Yellen acknowledged that criminals for decades have anonymously hidden ill-gotten gains in real estate, estimating $2.3 billion was laundered through U.S. real estate between 2015 and 2020. Financial institutions have long been expected to flag suspicious activity to regulators, but cash real estate transactions generally have not been subject to such rules. Now, certain people involved in real estate closings would have to file and keep records of suspicious activity, according to FinCEN's proposal filed with the U.S. Federal Register. Officials first said in 2021 that they planned to implement such a rule.