Fed Uncertainty, Stubborn Inflation, and a Shifting CRE Market: Key Takeaways from Brian Bailey’s Return to America’s Commercial Real Estate Show
By Michael Bull, CCIM
Founder, Bull Realty, TCN Worldwide
The commercial real estate world is no stranger to uncertainty, but 2025 has brought a unique mix of factors shaping investor sentiment: persistent inflation, interest rate volatility, and a lending landscape that’s slowly finding its footing.
To help make sense of it all, I recently sat down with Brian Bailey, former Federal Reserve real estate expert and now Senior Managing Director and Head of Research at Trimont, for a deep dive into where the market stands — and where it might be headed next.
From the Fed to Trimont: A Broader View of the Market
After years at the Federal Reserve analyzing commercial real estate risk, Bailey has joined Trimont, the largest commercial real estate loan servicer in the United States. Trimont manages more than $700 billion in loans, including $625 billion domestically, spanning CMBS, banks, and private equity lenders.
That scale gives Bailey access to a front-row view of the market — one that reflects real-time borrower performance and lending trends across nearly every property type.
The Fed’s Dilemma: Less Data, More Guesswork
Bailey notes that the Fed’s job hasn’t gotten any easier this fall. With the recent government shutdown disrupting access to federal data, including key reports like the monthly jobs release, policymakers are having to make decisions with fewer inputs.
“Without the usual data flow,” Bailey explained, “it’s harder to make data-driven decisions. That uncertainty now extends to the Fed itself.”
Private indicators, such as ADP employment data, suggest the job market remains soft. While Fed futures point to the possibility of a 25-basis-point rate cut, Bailey isn’t convinced. With inflation still above target, he expects a cautious, “wait-and-see” approach.
The Long End of the Curve: Government Borrowing Keeps Pressure On
Even if the Fed trims short-term rates, longer-term yields like the 10-year Treasury may not follow suit. Bailey points out that persistent government borrowing continues to exert upward pressure on long-term rates.
“We’ve seen the 10-year come down recently,” he said, “but that’s largely due to growing economic uncertainty — not a change in fundamentals.”
Bailey likens the current environment to a mild replay of the 1970s: modest growth combined with elevated inflation — a form of modern stagflation that could weigh on commercial real estate performance.
Rising Delinquencies: The Payment Strain Is Growing
Trimont’s internal data tracks borrower payment behavior through a proprietary index established in 2022. The findings aren’t comforting: over the last 18 months, the ability of borrowers to cover principal and interest has declined by 3–4% across sectors like multifamily, retail, industrial, and hospitality.
Hotels catering to budget-conscious travelers are struggling the most as consumer spending cools. Office delinquencies remain high, driven by continued hybrid work patterns and reduced demand in major metros. Even ground-floor retail that depends on weekday office traffic has felt the impact.
The Expense Side Problem: Inflation’s Lingering Effects
While rent growth has flattened, operating expenses continue to climb. Insurance costs, property taxes, utilities, and labor are all still growing faster than revenue.
“Insurance premiums spiked in 2022 and 2023, cooled briefly, and now they’re creeping up again,” Bailey said. “If local governments respond to reduced federal funding by raising property taxes, owners could face even more pressure on NOI.”
That imbalance — slow rent growth and fast-rising expenses — is eroding property values and making it harder for deals to pencil out, even as interest rates ease slightly.
Inflation Isn’t Going Away
Bailey believes inflation will remain stubborn across essentials like housing, food, and energy. That could keep the Fed from cutting too aggressively.
“If the Fed lowers rates too much while inflation stays high,” he warned, “it’s like throwing gas on the fire. You might get short-term relief, but you risk higher inflation — and higher rates — down the road.”
Lenders Re-Engage: Signs of Life in CRE Financing
There’s a silver lining. After a long period of caution, banks and non-bank lenders are slowly returning to the market. Community and regional banks, which account for roughly half of all CRE loans, are still lending — albeit at a slower pace.
Non-bank lenders are active again, particularly in multifamily, where the cost of capital has come down. Bailey also noted increased interest from family offices, which tend to be more patient and less sensitive to short-term timing.
“These investors aren’t trying to perfectly time the bottom,” he said. “They’re willing to step in when the opportunity feels right.”
Working Through Distress: Regulators and Lenders Begin to Move
Despite regulatory bottlenecks — the FDIC is reportedly operating with about 60% of its normal staff — Bailey says more lenders are starting to resolve troubled assets rather than extend and defer them.
“Lower rates and improved valuations are helping lenders clear the books,” he said. “We’re also seeing bank mergers that consolidate balance sheets and bring legacy real estate back to market.”
That, he believes, will gradually increase transaction activity over the next two years.
Price Discovery Returns
After nearly three years of limited sales and murky valuations, the market is finally seeing real price discovery. As transaction volume increases, appraisers and investors can better gauge true market value — a key step toward restoring liquidity.
Still, Bailey cautions that “extend and pretend” remains common, especially among the country’s largest institutions. Until lenders fully mark assets to market, uncertainty will persist.
The Bottom Line: A Market at Inflection
Bailey describes today’s environment as a “point of inflection.” Rates are starting to ease, lending is re-emerging, and investor sentiment is improving — but structural challenges remain.
He sees parallels with the 1970s: modest growth, persistent inflation, and shrinking margins as operating costs rise faster than rents. For owners and investors, that means focusing on operational efficiency and underwriting deals with conservative rent growth assumptions.
Trimont Talks: Data-Driven Insight for the Industry
To share more of Trimont’s research and market data, Bailey is launching a new educational webinar series called “Trimont Talks.” The series kicks off on October 23, covering inflation trends and the health of commercial real estate.
Anyone interested can visit Trimont’s website or search Trimont Talks Webinar for details.
Looking Ahead
Despite the challenges, both Bailey and I agree: opportunity is returning to commercial real estate. As pricing stabilizes and capital re-enters the market, investors who understand today’s risks — and act strategically — will be well-positioned for the next cycle.
For more interviews and insights, visit CREshow.com, or connect with me directly at Michael@BullRealty.com.
Michael Bull, CCIM is host of America’s Commercial Real Estate Show and founder of Bull Realty, TCN Worldwide, a full-service regional commercial real estate brokerage firm headquartered in Atlanta