What Powell’s Criminal Case Means for Real Estate Capital

• Federal penitentiary: A criminal inquiry into Fed Chair Powell is shifting interest rate-cut expectations.

• Investment gone cold: Canadian real estate funds are preventing clients from pulling capital amid valuation and liquidity stress.

• Setting Sun Belt: In Sun Belt housing markets once known for rapid growth, rising supply is cooling price and rent increases.

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What Powell’s Criminal Case Means for Real Estate Capital

Federal prosecutors have opened a criminal investigation into Federal Reserve Chair Jerome Powell, a development that sharply intensified concerns over the independence of the central bank and the future of U.S. interest-rate policy. The inquiry centers on whether Powell misled Congress about a multiyear, $2.5 billion renovation of the Fed’s Washington headquarters. Powell himself has said the investigation is a pretext aimed at pressuring the Fed to follow the White House’s preferred rate path. He has maintained that monetary policy decisions should remain grounded in economic data rather than political influence.

The backdrop to this clash is the Federal Reserve's resistance to the Trump administration's request to lower rates, citing that the economic data shows that it isn't warranted. Even with the criminal investigation, analysts and traders don't see the Fed lowering rates in the short term due to a combination of lingering labor market resilience and worry of further inflation pressures. Betting markets and futures pricing show that traders now overwhelmingly expect the Fed to leave rates unchanged at the January meeting, with roughly 95 percent odds that the Federal Open Market Committee will hold the fed funds rate steady.

Recent economic data reinforced that view before the Powell news broke. Following a December jobs report that showed slower payroll growth but a drop in the unemployment rate to about 4.4 percent, major Wall Street firms pushed back forecasts for rate cuts. Goldman Sachs, which once anticipated cuts as early as March and June, now expects only two modest reductions in June and September, and sees the fed funds rate ending 2026 around 3 percent to 3.25 percent. J.P. Morgan has taken an even more striking view, forecasting that the next potential move by the Fed could be a hike—not a cut—not until 2027.

Mortgage rates, commercial borrowing costs, cap rates and yield spreads all trace back to Federal Reserve policy. A Fed that stays on hold longer than markets once expected means higher financing costs for acquisitions and refinancing, and it can slow transaction volumes or shift the risk-reward calculus on leverage. A pivot toward future rate increases could further tighten pockets of credit just as segments such as office or retail search for stabilization.

Powell’s term as Fed chair is set to expire in May 2026, and the unfolding saga has put an unusual spotlight on who might replace him. Reports have circulated about several possible successors, including Kevin Hassett, director of the National Economic Council and long-time Trump economic adviser, current Fed Governors Christopher Waller and Michelle Bowman, and former Fed Governor Kevin Warsh. The selection of a new chair, subject to Senate confirmation, could significantly alter the likely trajectory of monetary policy. A Trump-aligned nominee perceived as more willing to cut rates could prompt markets to price in easier policy sooner, resetting the world's expectations when it comes to the future cost of capital.

What makes this moment especially fraught is the intersection of political conflict and monetary policy expectations. The Powell inquiry and the leadership transition create uncertainty about how interest-rate decisions will be made in practice, even as the underlying economic data remain mixed. For the real estate industry, policy risk is now as salient as economic fundamentals when forecasting financing conditions, cap-rates, and capital markets. Whether the Fed holds, hikes, or ultimately cuts will shape liquidity and pricing across property types for years to come, and the road to that outcome is suddenly less predictable than it was just weeks ago.

Overheard

Canadian Real Estate Funds Freeze Redemptions as Liquidity Strains Mount

A group of Canadian real estate funds valued at roughly C$22 billion have halted investor redemptions, meaning clients cannot pull money even if they want to. Managers say the move is necessary to protect remaining investors and prevent a fire sale of assets that are hard to price and even harder to sell right now. These funds — particularly open-ended private real estate pools — are struggling with liquidity because property values in Canada have softened, trades are slow, and looming debt maturities make it risky to meet large outflows when the nearest buyers are thin on the ground.

This dynamic has emerged more sharply in Canada than in the United States because of how the funds are structured and how each market has evolved. Many Canadian real estate funds are open-ended vehicles that allow investors to subscribe and redeem on a frequent basis, sometimes quarterly or monthly, with valuations linked to periodic appraisals rather than active market pricing. When values are stable, that works fine. But in a market where prices are dragging and sales cycles are stretched, periodic appraisals become stale quickly and liquidity mismatches grow. If many investors request redemptions at once, the fund must sell underlying properties into a weak market or suspend redemptions to protect asset values.

By contrast, U.S. real estate funds often use closed-end structures, listed vehicles, or longer notice and lock-up periods that give managers time to line up buyers, stagger sales, and handle debt maturities without abrupt liquidity stress. U.S. investors also have a wider array of publicly traded REITs and nontraded REITs that provide liquidity mechanisms independent of direct property trades, cushioning pressure on private funds. Canada’s equivalent universe is smaller and less liquid, so private funds there face sharper pain when investors want out and the market for office, retail, or multifamily is slow.

What makes the Canadian case particularly telling is that it is unfolding in a market still grappling with weak commercial property performance, a long period of elevated interest rates, and fewer institutional buyers willing to step in at depressed bid levels. Without a robust pipeline of secondary market trades, these funds are left balancing appraised net asset values with real-world buyer pricing, a gap that widens when economic confidence softens. Blocking redemptions preserves the status quo for remaining investors but also signals that Canadian real estate liquidity, especially in private open-ended funds, is far more fragile than in the U.S. Investors and managers on both sides of the border will be watching closely to see whether this episode prompts structural changes in fund terms or spurs demand for more liquid alternatives in property investing.

As Sunbelt Inventory Rises, Prices and Rents Adjust

An ongoing uptick in housing supply is reshaping conditions across key Sun Belt markets, softening the once-rapid pace of home price and rent growth that defined much of the post-pandemic period. In cities like Phoenix and Austin, elevated inventory and slower absorption have led to marked price cuts and declining rents, even as active listings have climbed and homes are spending longer on the market than in recent years. This shift reflects a broader correction after years of outsized supply growth fueled by pandemic-era migration, construction booms and investor buying that outpaced underlying demand.

The impact shows up in several measurable trends. In some Sun Belt metros, rents have fallen several percent year-over-year, reflecting an oversupply of apartments and reduced urgency among renters as developers brought new units online. Luxury concessions are rising too. For example, Phoenix landlords are offering widespread free rent and perks as an inducement, with some leases featuring multiple months of incentives to attract tenants. At the same time, single-family home price growth in many Sun Belt markets has moderated or even turned negative, with sellers cutting prices to entice buyers now that affordability has become a hurdle and mortgage lock-in effects have eased.

Looking ahead, the data points to a rebalancing rather than a collapse. Construction pipelines are shrinking as starts slow, easing the wave of new supply in 2026 and beyond and allowing vacancies and rents to stabilize. Markets like Oklahoma City and parts of Florida are still posting modest rent gains, while supply-driven price corrections are creating selective buying opportunities. Over time, the Sun Belt’s lower housing costs, job growth, and net migration should reassert themselves as excess inventory clears, shifting the region from overheated to more balanced.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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