Weekly digest: September 21 to 28, 2026

IRS scrutiny of GRATs, trust litigation data, 5% Treasury yields, office CMBS stress, and California insurance and tax credit changes.

Fiduciary, estate and ownership

IRS scrutiny of GRAT strategies, with $736 million at issue in a Nashville case

What was reported

• The Wall Street Journal reported on September 21 that the IRS is challenging a structure combining grantor retained annuity trusts (GRATs), asset substitution powers and promissory notes.
• In the lead case, a Nashville couple created three irrevocable GRATs in 2018 and later swapped appreciated assets into them in exchange for interest-bearing notes, parts of which were later forgiven. The IRS argues the GRATs failed technically and seeks about $736 million, roughly $614 million in gift tax and $122 million in penalties.
• The matter, Elcan v. Commissioner (U.S. Tax Court Docket No. 3405-25), is pending. No ruling has been issued.

Why it mattersGRATs are commonly used to move appreciating real estate and closely held entity interests to the next generation at a discount. Heightened scrutiny of substitution power and note forgiveness mechanics, though unresolved in court, is worth reviewing with counsel for any existing GRAT holding real property.

Question to considerFor families using GRATs to transfer real estate interests, does the documentation of substitution transactions hold up to the scrutiny the IRS is now applying?

Sources: WSJ (may be paywalled) · Kiplinger · Bessemer Trust case background

Study links one person serving as trustee and beneficiary to trust litigation

What was reported

• CNBC reported on September 25 on a study in the Washington University Law Review (Horton, Weisbord and Ryan) of 640 contested trust disputes filed in San Francisco Superior Court between 2014 and 2020.
• About a quarter involved a descendant suing a sibling or relative serving as trustee, and 74% involved allegations of trustee misconduct. Average case duration was 481 days.
• Mediated cases settled 85% of the time, versus 47% for cases that went unmediated. The article's central example was a family home where one son held lifetime rent-free occupancy, leading to more than five years of litigation before a court-ordered sale.

Why it mattersReal property is overrepresented in family trust disputes because it is illiquid, emotionally significant and often occupied by one beneficiary. The data suggests that who is named trustee over jointly inherited property is itself a risk factor. It comes from one court over one period, so it is a signal, not a rule.

Question to considerWhere one beneficiary also serves as trustee over shared real property, is the current arrangement still the least contentious way to administer it?

Source: CNBC, 9/25/2026

California reportedly closes a Proposition 19 gap for special needs trusts (SB 974)

What was reported

• The Governor's legislative update of September 27 was reported to include SB 974 (Seyarto) among signed bills. It amends Revenue and Taxation Code section 63.2 so that special needs trusts are expressly covered by Proposition 19's parent-child and grandparent-grandchild exclusion.
• A Board of Equalization staff memo characterizes the change as clarifying existing eligibility, not expanding it. The BOE is expected to issue a Letter to Assessors and a revised claim form. No state revenue impact is projected.
• The bill number and signing details remain unconfirmed. The Governor's list has also been read as showing the same subject as AB 974, and the chaptered text has not been reviewed. See the October 5 digest for the open question.

Why it mattersIf the change was enacted as described, families holding California property for a disabled beneficiary in a special needs trust would face less reassessment uncertainty that previously depended on how a county assessor read the trust. Confirm the final text with an estate attorney and the assessor before relying on it.

Question to considerFor California real property held in, or being considered for, a special needs trust, does this clarification change the timing or structure of the intended transfer?

Sources: Governor's update, 9/27 · Bill text · BOE staff memo

IRS opens comment period on Opportunity Zone rules (Notice 2026-55)

What was reported

• The IRS issued Notice 2026-55 asking for comment on updating Qualified Opportunity Zone regulations under IRC section 1400Z-2 after the One Big Beautiful Bill Act.
• Topics include single-family housing development and inventory sales, the working-capital safe harbor, a new 30-year cap on fair market value basis step-ups for post-2026 investments, and pass-through distribution and disguised-sale issues.
• Comments are due November 23, 2026, through the Federal eRulemaking Portal (docket IRS-2026-1156).

Why it mattersFamilies and family offices holding real estate through Opportunity Funds have a defined window to seek clarity on basis step-up timing and holding-period rules before regulations are finalized.

Question to considerFor real estate held through a Qualified Opportunity Fund, is it time for a tax advisor to review the fund's structure against the issues now open for comment?

Sources: Current Federal Tax Developments · IRS Opportunity Zones page

Citi's 2026 family office report flags succession planning

What was reported

• Citi Wealth surveyed 351 family offices across 41 countries, with an average family net worth of $2.1 billion, between June and July 2026. Nearly 90% reported positive year-to-date performance, and public equities were the top destination for new capital.
• One third of respondents expect a leadership transition within five years. The report does not break out real estate allocations.

Why it mattersThe report does not isolate real estate, but leadership transitions are typically when illiquid, single-asset or geographically concentrated holdings come under the closest scrutiny.

Question to considerIf a leadership transition is expected within five years, is the real estate holding structure one the next generation can administer as easily as the current one?

Sources: Citigroup press release · Full report (PDF)

Real estate, capital and portfolio strategy

Ten-year Treasury yield tops 5%

What was reported

• CRE Daily reported on September 26 that the 10-year yield exceeded 5% for the first time in nearly two decades, and that the 30-year reached its highest level since 2004.
• Reporting attributes the move to federal debt above $40 trillion, a projected $2.1 trillion annual deficit, weaker foreign and central bank demand, and a term premium up more than three points from 2020 lows.
• Bloomberg noted that higher long-bond yields feed into mortgage and corporate borrowing costs even without further Fed short-rate increases.

Why it mattersLong-term Treasury yields, not just the Fed funds rate, set the floor for fixed-rate commercial real estate debt. A sustained move above 5% raises the return a refinancing, recapitalization or acquisition has to earn.

Question to considerAt current long-term rates, does a refinancing planned for the next 12 to 18 months still clear the return threshold originally underwritten?

Sources: CRE Daily · Bloomberg background

Office CMBS special servicing and delinquency reach record levels

What was reported

• Per Trepp data cited by CRE Daily on September 27, covering $189.6 billion of transactions, office loans in special servicing reached 15.7% and delinquency 13.2% in August, both records for the dataset.
• About 71% of the distressed office balance reflects failed or imminent refinancing, not missed payments. Over the past year, 51% of office loans that moved to special servicing did so while still current, an average of 11 months before maturity.
• Roughly $39 billion of office CMBS matures over the next 12 months, with $13.9 billion already flagged.

Why it mattersLenders increasingly flag refinancing risk well before a default. For a trust, estate or family portfolio with office debt maturing in the next one to two years, that argues for opening refinancing conversations early.

Question to considerFor office assets with debt maturing in the next 12 to 24 months, has a lender conversation started, or is the plan to wait?

Source: CRE Daily

Philadelphia's Centre Square office towers sell for $70 million

What was reported

• The Real Deal reported on September 25 that a court approved a $70 million sale of Philadelphia's Centre Square complex, down about 85% from a $471 million appraisal in 2019. Bloomberg and Briefs.co reported the same.
• Occupancy was reported to have fallen from about 93% in 2020 to 28% by June 2026. CMBS recovery is estimated near 44 cents on the dollar, reaching a previously AAA-rated tranche, with PIMCO the largest holder.
• The buyers plan to convert portions to a hotel of up to 300 rooms and up to 500 apartments.

Why it mattersEven senior, highly rated CMBS exposure is not insulated from office distress. The sale is a data point on how far values have moved and what an adaptive reuse path can look like. It is a single asset, not a market trend.

Question to considerFor a legacy office holding under occupancy pressure, would conversion to another use produce a better outcome than holding it as is?

Sources: The Real Deal · Bloomberg · Briefs.co

August CRE sales volume jumps 127%, but one merger accounts for most of it

What was reported

• CRE Daily reported on September 26 that August commercial real estate sales totaled $107 billion, up 127% year over year.
• Roughly $70 billion of that came from one transaction, a reported merger of AvalonBay Communities and Equity Residential. Excluding it, property-level volume fell about 21%.
• Industrial sales rose 14% to $11.5 billion. Hotel sales fell 45%, and office, retail and development site volumes declined.

Why it mattersHeadline volume this month overstates market liquidity. A trustee benchmarking a hold-versus-sell decision should adjust for the merger rather than conclude that buyer demand has broadly returned.

Question to considerIs the comparison being drawn against underlying transaction volume, or a headline figure inflated by an unrelated merger?

Source: CRE Daily

Record construction lending capital, but access is narrowing to established sponsors

What was reported

• Commercial Observer reported on September 28 that U.S. housing starts fell 2.6% in August, with multifamily starts down nearly 22%, while commercial real estate debt funds held a record $56 billion of uncommitted capital.
• An April 2026 Federal Reserve senior loan officer survey found many banks easing certain CRE loan terms. The apparent contradiction is that capital is abundant but relatively few projects and sponsors qualify.

Why it mattersFor a family or trust considering development, a recapitalization or a development partner, capital availability appears to depend heavily on sponsor track record and balance sheet, not only project economics.

Question to considerIf a plan depends on outside capital, does the sponsor's track record meet the bar lenders and debt funds are applying?

Sources: Commercial Observer · Federal Reserve SLOOS, April 2026

California, Washington and Texas

California signs a FAIR Plan and insurance package

What was reported

• Per the Governor's September 27 update, signed bills include AB 1680 (the Make It FAIR Act, requiring the FAIR Plan to add water damage and liability coverage, publish annual reports and take steps to move policyholders to the standard market), AB 69 (FAIR Plan notice and renewal rules), SB 876 (fire and residential property insurance) and SB 1301 (detailed nonrenewal reasons, 90 days' notice and a remediation pathway).
• SB 877 and SB 878, which would have required more detailed loss-estimate and business-practice disclosure, were vetoed.
• The signings follow a Department of Insurance examination that found 17 compliance failures at the FAIR Plan. FAIR Plan exposure has been reported to have grown roughly 250% since 2022.

Why it mattersFor trusts and families holding wildfire-exposed or high-value California property, this changes notice timelines and the pathway back to standard coverage. It does not mandate the loss-estimate transparency the vetoed bills would have required, so carrying-cost uncertainty is only partly addressed.

Question to considerFor a property insured through the FAIR Plan, has the insurance cost been re-underwritten against these rules, and does the plan to return to standard coverage change?

Sources: Governor's update · AB 1680 · Department of Insurance

California renews its historic rehabilitation tax credit (AB 1265)

What was reported

• Per the Governor's September 27 update, AB 1265 (Haney) renews and strengthens California's tax credit for rehabilitating certified historic structures.
• AIA California, a co-sponsor, says the credit is meant to close the financing gap that makes converting underused historic buildings uneconomical without a subsidy.

Why it mattersFor an owner of an older or historically designated California building where redevelopment has not penciled out, a renewed credit can change the highest and best use analysis. Eligibility and credit terms should be confirmed with a tax and development team.

Question to considerFor older or historic property previously ruled out for redevelopment on economics, does this credit change that conclusion?

Sources: Governor's update · AIA California · Bill text

Washington

No development this week met the editorial and source threshold.

Texas: Greenspoint Mall to become a $150 million industrial park

What was reported

• Houston Public Media reported on September 23, and Bisnow and Community Impact corroborated, that Lincoln Property Company and New York Life Investment Management plan a $150 million redevelopment of the 80-acre former Greenspoint Mall site in north Houston.
• CityNorth Industrial Park would include 1.2 million square feet of cross-dock and rear-load buildings plus retail and service space. Demolition is slated to begin in October 2026, with first-phase completion targeted for the first quarter of 2028.

Why it mattersA retail-to-industrial conversion of this scale is a market signal that institutional capital still sees redevelopment value in obsolete retail land near major infrastructure. It is one project, useful as a comparable for owners of legacy retail.

Question to considerDoes the property's current use still represent its highest and best use, or would a repositioning study clarify the options?

Sources: Houston Public Media · Bisnow · Community Impact

Texas: off-market multifamily and industrial trades in Houston

What was reported

• Commercial Property Executive reported that Fat Property bought two Midtown Houston apartment buildings (131 units) off market, brokered by Berkadia. The same roundup noted a 36,000 square foot industrial campus and a 12.2-acre industrial outdoor storage portfolio changing hands in the Houston area.

Why it mattersA modest but useful valuation and liquidity signal for owners benchmarking Houston holdings against current buyer demand.

Question to considerBased on recent comparable activity, do the portfolio's Houston valuation assumptions reflect current buyer demand?

Source: Commercial Property Executive

Crest Capital perspective

This week's developments sit on two tracks that look contradictory but read better as complementary. On the capital markets side, long-term rates above 5%, record office CMBS distress, and a transaction market whose headline growth is mostly one merger all point to tighter, more selective conditions. Financing is available, but increasingly only for strong sponsors and well-positioned assets.

On the ownership side, the signals point the other way. California is lowering the cost of some redevelopment through its historic tax credit, and capital is still willing to reposition older assets rather than abandon them. Read together, this is not an environment that argues uniformly for holding or for selling. It argues for revisiting assumptions asset by asset. A maturing office loan deserves an early conversation with the lender. A historic or underused building may pencil differently than it did a year ago. And the trust litigation data and IRS scrutiny of wealth transfer structures are reminders that the structure around an asset can create as much risk as the asset itself.

The question worth returning to is not simply what a property is worth, but what role it should continue to play in the larger portfolio, and whether the structure holding it still serves that role.

Dates to watch

• October 20, 2026: expected Census Bureau release of September new residential construction data, following August's reported slowdown.
• October 27 and 28, 2026: next Federal Reserve FOMC meeting.
• November 23, 2026: deadline for comments on IRS Notice 2026-55 (Opportunity Zone regulations).