For the week of Oct. 28th-Nov. 1st
Last week, the latest round of pricing and labor market data got a lot of attention given this week’s Fed meeting on the next interest rate cut. The latest round of big tech earnings points to the urgency of AI investment and demand for data centers and other supporting infrastructure. The LightBox Q3 Capital Markets and Investment Snapshot report highlights growing momentum in property listings, particularly in multifamily, industrial, and retail. A new study of CMBS portfolios with office assets raised concerns about distress, while a new round of leases for office space signals some much-needed stabilization in that sector.
Here’s our latest top 5 list of the biggest weekly CRE news stories and why they matter.
- Inflation and Jobs Data Under the Spotlight in Advance of Fed Meeting
The latest inflation data showed that prices rose in the U.S. modestly in September. Over the past 12 months, the inflation increase has slowed to 2.1% from 2.3%, bringing it closer to the Fed’s 2% target. In the labor market, the latest Labor Department data showed that U.S. job openings fell to 7.44 million in September—a 3½-year low—as the demand for labor ebbed and businesses waited for the economy to speed up.
Why It Matters: Fed Chairman Powell has repeatedly said that the Fed is taking a data-dependent approach to interest rate cut decisions, so the latest round of inflation and labor market data takes on great significance. Although the latest data showed a modest increase in inflation and job creation in October that slowed to its weakest pace since late 2020 due to the impact of hurricanes in the Southeast, it’s not enough to raise concerns that would prevent the Fed from lowering rates again this week.
- LightBox Q3 Data Reveals 12% YoY Increase in Properties Brought to Market
Based on the just-released Q3 Capital Markets and Investment Snapshot report, the volume of commercial property assets brought to market on the LightBox RCM platform increased by 12% in Q3 compared to one year ago. A significant 66% of property listings were for multifamily, industrial, and retail properties.
Why It Matters: The stronger volume of property listings is an early sign for the CRE market that sellers are encouraged by recent transactions and getting more comfortable putting assets on the selling block. Investors are showing an affinity for multifamily deals with strong ROI potential, with notable recent deals including the $152 million purchase of the Pearl Biltmore by Covenant Capital in Phoenix, and the purchase of the Mark Apartments in a Chicago suburb at a purchase price that was 32% above the 2018 prior price.
- Big Tech Earnings Dropped as Leaders Scramble to Keep Up with AI
Major tech firms, like Alphabet, Meta Platforms, Microsoft, and Amazon, released their latest round of quarterly earnings reports, falling a collective 3.5% since early July, a development that highlights the challenges of keeping up with rapid growth and demand of AI. Alphabet, the parent company of Google, also announced it spent $607 million to shrink its worldwide office footprint in an effort to cut costs and “generate strong revenue growth” as it improves efficiency.
Why It Matters: Tech companies have dramatically increased their spending on infrastructure this year as they’ve raced to satisfy surging demand for artificial intelligence and cloud computing. This spending challenges financial reports as they struggle to justify higher spending on AI services.
- Bloomberg Analysis of SASB Markets Reveals Fault Lines in CMBS
A recent Bloomberg analysis of the SASB (Single-Asset, Single-Borrower) market showed that, for the first time since the Great Financial Crisis, buyers of top-rated commercial mortgage-backed securities are suffering losses as the result of steep declines in property values, particularly in office. In fact, a review of every SASB tied to a U.S. office property revealed that creditors are on track to get only a portion of their original investment back, and that, in many cases, the losses likely reach all the way up to buyers of the AAA portions of the debt.
Why It Matters: SASBs, unlike conventional CMBS, are typically backed by just one mortgage on a single building so the losses can be more pronounced if an asset’s value is reappraised at a fraction of its former value. Although the SASB market, and CMBS overall, are beginning to rebound, more than a dozen SASBs tied to offices that once held pristine credit grades have now been quoted below 80 cents on the dollar, which is a common market threshold for distress.
- Office Leasing Makes Headlines
Among last week’s office leasing news came word that Amazon is in advanced negotiations to sign a lease for office space ranging between 60,000 and 80,000 square feet at the Wynwood Plaza development in Miami. This would be a significant increase in Miami office space for Amazon, which has been operating from a 9,000-square-foot Miami office location since 2022. In related office leasing news, PwC renewed a massive lease in Irvine’s thriving Loop tower and OpenAI signed a lease for 90,000 square feet at Kushner Companies’ Puck Building in Manhattan.
Why It Matters: If the Amazon lease is finalized, it could be a much-needed boost in Miami’s efforts to establish itself as a tech hub. The rebranding effort, which took off during the pandemic, has taken a hit as interest rates have risen, making it difficult for companies to raise capital, and as San Francisco stages a comeback. These office leases by large companies are signs that leasing activity is on the upswing which could, in turn, lead to stabilization of some assets and eventually, healthier transactions activity.
For commentary on these CRE developments and more, tune in to the LightBox CRE Weekly Digest podcast.
Did You Know of the Week
LightBox RCM property listings priced below $20 million increased to 61% of total listings, a sharp jump from 48% one year ago? These smaller listings appeal to private capital so it will be interesting to see whether as interest rates come down, the distribution by asset price category shifts more toward larger institutional capital deals.
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