For the week of Nov. 18th-22nd
After inflation reports ended the cooling trend in pricing, the futures markets pulled back from the once-high likelihood of a third rate cut in December amid growing uncertainty. Speculation is swirling about what Trump’s proposed policies could mean for the future path of inflation and the implications for Fed interest rate decisions. The latest LightBox research highlights the challenges faced by commercial appraisers in an environment characterized by intense competition and a lack of comparables. While large deals get all the attention, data shows investor interest in small cap opportunities is expanding. A confusing mix of major retailers’ earning reports could spell trouble for some big names as the holiday spending season gets into full swing.
Here’s our latest top 5 list of the biggest weekly CRE news stories and why they matter.
- Futures Market Prices in High Likelihood of a December Pause in Interest Rate Cuts
The 10-year Treasury is now hovering near a four-month high, and both the PPI and CPI inflation reports for October showed more stubborn inflation in core prices (without help from declining food and energy prices). This came as a strong reminder that the last mile of the Fed’s inflation fight is going to be a slow slog. In light of recent mixed barometers, the once-sure bet of another interest rate cut by the Fed at the December meeting seems less and less likely. Before the latest inflation report, futures markets had been pointing to a 60% chance that the Fed would cut rates for a third time next month. Now traders are pricing in a 45% chance of the Fed holding fast to current levels compared to only 17% the prior week. Federal Reserve Bank of Boston President Susan Collins said that although more interest rate cuts are needed, policymakers should proceed carefully to avoid moving too quickly.
Why It Matters: With the election in the rearview mirror, the focus has turned to what policies will come out of a second Trump term. If he implements higher tariffs on imported goods, it could create inflationary pressures that would weigh in on future rate cut decisions. The Fed’s first two rate cut decisions in September and November marked an important inflection point for the market not just for rates and what they mean for borrowing costs but also for the positive impact it had on market sentiment. A pause by the Fed could reel that optimism back in as the market reverts back to a wait-and-see mindset.
- Appraisers Face Competitive Pressures During Market Recovery
Commercial appraisals are seeing an influx of projects from borrowers seeking updated valuations to secure refinancing under slightly lower interest rates. The appraisal segment continues to be extremely competitive with intense pressure to turn reports around quickly. Recent data from LightBox’s Collateral360 and RIMS platforms shows that the average appraisal fee for lender-driven projects was $3,185 in Q3, an increase of 5% compared to $3,044 one year ago, while the average turnaround time continues to tighten, averaging 13.3 days in Q3 compared to 13.8 one year ago. Appraisers are also challenged by limited comparables given that transaction volumes for commercial properties are still low. Experienced appraisers are going beyond the data to rely on their own insights and professional technical knowledge to arrive at valuations that reflect current market conditions.
Why It Matters: As the market recovery marches on and transactions and borrowing levels rebound, commercial appraisers will play a pivotal role in informing key decisions for sellers, lenders, and investors. Their valuations will set the benchmark for pricing properties as transactions, refinancing, and originations increase, particularly as the growing wave of loan maturities and distressed assets come into play.
- Investors Ramping Up Interest in Small Cap Deals Below $25 Million
Although major deals of $100 million or more dominate the headlines, there has also been a surge in smaller deals that are keeping brokers busy. In the multifamily sector alone, the number of listings in the LightBox RCM platform with price tags of $25 million or less more than doubled in the six-month period from April to September 2024 compared to the prior six months. Recent small multifamily sales include an $18.2 million sale for Royster Apartment in Wisconsin, and the $15.3 million sale of the Westporter in southwestern Connecticut.
Why It Matters: The data show that although deals in the hundreds of millions drive the headlines, private investors are scouting listings for smaller deals as well. For deals with price tags of $25 million or less, an average 115 world-be buyers fill out confidentiality agreements on average compared to 200 unique buyers on larger deals, indicating that competition could be less intense on smaller deals. The steady rise in sales over the past six months shows the buying pool especially for smaller multifamily assets is growing.
- Construction Lending on the Upswing
Recent developments point to early signs of recovery in CRE construction lending. Jeff Rinkov, CEO and Chairman of the Board at Lee & Associates, and a member of the LightBox CRE Market Advisory Council recently observed that “Lenders appear to be more open to development and construction financing than they have been in recent years,” and a few recent news stories support his position. Among them, Eichner just secured a construction loan from private equity valued at $205 million for a luxury Murray Hill multifamily development. In related news, Rockpoint, Related Group, and Two Road Development secured a $424 million loan for a luxury oceanfront condo project, and Witkoff Group and PPG Development close on $273 million in construction financing for Shell Bay, a residential and hospitality project—both in south Florida.
Why It Matters: Construction financing has been slow to recover so news of new construction loans is encouraging. Private equity is stepping in to fill the void left by traditional bank lending. Brookfield, for instance, is looking to double its CRE lending volume over the next four years. Others like Nuveen, PGIM, and LaSalle are also aggressively growing their lending portfolios and raising private real estate credit funds looking to provide financing for construction projects.
- Revenue Reports from Retail Giants are a Mixed Bag as Holiday Season Gets Underway
In a somewhat confusing mix of revenue reports, Walmart hiked its full-year forecast after Q3 results showed same store sales growth of 5.3% while Target posted its biggest earnings miss in two years and cut its forecast. Target cited a “deceleration in discretionary demand” and consumers who are “shopping carefully as they work to overcome the cumulative impact of multiple years of price inflation.” As consumers exhibit more price-sensitive behavior, it gives value-focused retailers like Walmart, Costco, and TJ Maxx the upper hand heading into peak holiday shopping season.
Why It Matters: Holiday retail sales will be a very telling sign of consumer spending habits and will likely reflect wide disparity between higher-end retail and discount chains. Major retailers like Walmart and Lowe’s also included warnings in their latest reports about potential trouble with costs if President-elect Trump goes ahead with proposals for a 60% tax on goods from China and 10-20% levies on all other imports. The National Retail Federation reported that some retailers are already factoring in price increases.
For commentary on these CRE developments and more, tune in to the LightBox CRE Weekly Digest podcast.
Did You Know of the Week
Did you know that there are at least 1,400 important and useful data points locked away in every narrative appraisal report according to data from LightBox’s Collateral 360/RIMS platforms? That means that YTD through the end of October, the 53,000 appraisal awards procured through LightBox’s lender platforms contained more than 75 million data points.
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