Avoid the FOMO: The CRE News You Need to Know—August 25

The Latest Data, News, and Analysis Impacting the Commercial Real Estate Market

U.S. homebuilders broke ground on new homes at the fastest pace in five months in July, but permits for future projects fell to their lowest level since 2020. New residential construction rose more than 5% to an annualized rate of 1.4 million units, surpassing forecasts despite weak sentiment among builders. Multifamily starts led the gains with a 10% monthly increase, while single-family activity, accounting for the bulk of new construction, rose by about 2%. Looking forward, however, the picture is less encouraging. Building permits, a leading indicator of future supply, slipped nearly 3% to 1.35 million, about 6% below last year’s pace. That decline signals ongoing caution among builders, constrained by mortgage rates near 7%, rising costs from tariffs, and labor shortages tied to tighter immigration policy. While July’s stronger activity offers a temporary lift, the broader housing sector remains a drag on growth and is unlikely to recover meaningfully until rates begin to ease.

The LightBox Take: The July data highlights a housing sector pulled in two directions: rising starts today but shrinking pipelines tomorrow. Multifamily’s surge reflects still-strong renter demand, yet fewer permits could fuel rent pressures in tight markets. It’s also important to remember that multifamily permits accelerated dramatically in the years post-COVID and are resetting back to a pre-COVID normal. For CRE, higher costs and labor shortages complicate development, but also create opportunity as capitalized players find value in financing or repositioning stalled projects. This slowdown is both a warning sign and an opportunity. Residential weakness will weigh on growth in the near term, but those who invest strategically now will be well-positioned when sentiment and interest rates turn.

In today’s challenging market climate, builder-developers are navigating tighter margins, elevated land prices, and rising construction costs as tariffs on steel, copper, and lumber. Against this backdrop, zoning has become a decisive factor in site selection, shaping whether projects are feasible under today’s constraints. Beyond considerations about location and acreage, developers must now assess zoning overlays, entitlement timelines, environmental risks, ownership opacity, and infrastructure capacity before engaging with a seller. The complexity is compounded by fragmented data. The reality is that zoning rules often sit in static municipal PDFs, while ownership details can be hidden behind LLCs and trusts. Environmental risk and infrastructure availability add further layers of uncertainty. These challenges delay early diligence, costing developers critical time in a market where competition for viable land is fierce. A new LightBox blog highlights the trend of developers across residential, multifamily, industrial, and mixed-use sectors investing in integrated tools to streamline front-end diligence which enable faster filtering of candidate sites.

The LightBox Take: Zoning data has moved from a background check to a frontline filter in CRE dealmaking. For multifamily and residential developers, tighter overlays and longer entitlements threaten supply pipelines. Industrial and mixed-use projects face parallel hurdles tied to infrastructure capacity and environmental compliance. By integrating zoning, ownership, and risk into a single workflow, developers are learning how to eliminate bottlenecks and align capital with viable opportunities more quickly.

Two Worldwide Plaza, a 1.8 million-square-foot Midtown tower co-owned by SL Green, RXR, and New York REIT, has suffered a stunning valuation collapse. Once appraised at $1.7 billion in 2017, the property was valued at just $345 million in April 2025, an 80% decline that effectively wipes out owner equity. The asset carries $940 million in CMBS debt and $260 million in mezzanine financing. Its loan transferred to special servicing in September 2024 after anchor tenant Cravath vacated, leaving the building 40% vacant. This tower’s troubles aren’t an isolated incident. At nearby 750 Lexington Avenue, valuation fell from $300 million in 2015 to $41 million this year, following steep occupancy losses and a foreclosure judgment against the owner. These markdowns illustrate the fragility of high-profile office assets weighed down by tenant departures, high debt loads, and shifting demand fundamentals in Manhattan’s office market.

The LightBox Take: The sharp write-downs at Worldwide Plaza and 750 Lexington highlight the twin pressures facing major office properties: elevated debt burdens and weakening tenant demand. For owners, refinancing and recapitalization challenges are mounting. For the broader market, these cases signal that pricing resets are still underway, and that distress may spread beyond a handful of assets. While some investors may see selective opportunity, the overarching story is one of continued stress for debt-laden towers navigating a structurally changed office landscape.

The LightBox Property Listings Index climbed to 197.2 in Q2, up 14% from Q1 as a steady flow of new CRE opportunities enters the market. For investors, multifamily remains the most abundant category, representing 36% of listings, while retail (18%) and land (14%) also posted strong Q2 gains. Notably, office listings climbed 12% for the third consecutive quarter of growth. Institutional capital is re-engaging with listings on assets priced more than $50 million, increasing from 11% in Q1 to 17% in Q2, while smaller private capital deals declined, shifting the balance of activity toward larger transactions. Looking ahead, data from LightBox’s Mid-2025 Market Sentiment Survey showed that 71% of brokers and investors expect to pursue new deals in the second half of 2025, in response to the expanding pipeline of distressed opportunities and further clarity on pricing. While the pace of new assets entering the market continues to be steady, macroeconomic uncertainty persists and could begin to weigh on investors’ confidence in coming quarters, but for now, the market remains active, disciplined, and ripe with selective entry points.

The LightBox Take: For investors, Q2 confirmed that CRE deal flow is active. Multifamily continues to dominate seller activity, but land and retail are emerging as sectors with growing momentum. Institutional capital’s renewed presence suggests confidence in pricing visibility, even as smaller private buyers step back. Distress in office is creating targeted opportunities for value-oriented investors. If interest rates fall, the second half of 2025 may prove to be a window for investors incentivized to jump in and put capital to work on the growing universe of buying opportunities despite near term uncertainty.

A new Yale School of Management study concluded that the Department of Government Efficiency’s (DOGE) unprecedented wave of federal lease terminations earlier this year introduced a new form of risk into CRE. Since February 2025, DOGE has listed as many as 793 federal leases for cancellation totaling nearly nine million square feet, representing the largest rollback of government office leases in U.S. history. Historically, GSA leases were seen as some of the safest in CRE, averaging 14-year terms with rare early termination. But DOGE’s aggressive use of early termination options throws this assumption into question. The study shows landlords’ net operating income in affected properties declined 5% between February and June, while CMBS securities tied to those leases lost 4% more value than comparable bonds. The impact spread beyond federal buildings: properties near DOGE-listed sites also saw NOI and bond price declines. In Washington, D.C. alone, the researchers estimate $575 million in potential value losses over five years, with a $50 million hit to property tax revenues.

The LightBox Take: These DOGE’s lease cancellations highlight a potential systemic risk for CRE. Government leases, once viewed as bulletproof, can no longer be assumed safe. For owners, the abrupt loss of long-term tenancy weakens NOI and erodes valuations. For lenders and investors, it exposes vulnerabilities in CMBS pools disproportionately tied to GSA properties. The lesson extends beyond federal leases. Pricing assumptions built on “safe” income streams may need to be reconsidered. In a fluid market, historically stable tenants can carry political or structural risks.