📊 Investors Hit Pause in 4Q23 per Burns + CRE Daily Fear and Greed Index. See the full report here.

Cooling Rental Market Forecasts a Downward Trend in Inflation

Plus: Goldman Sachs broke ground on a $500M office campus in DFW

Cooling Rental Market Forecasts a Downward Trend in Inflation

Plus: Goldman Sachs broke ground on a $500M office campus in DFW

Together with

Good morning. Inflation in the U.S. is showing signs of cooling down. The real estate lending market shows signs of stabilization despite a decline in loan volume. Meanwhile, Goldman Sachs (GS) is breaking ground on a $500M campus in Dallas to consolidate its Texas employees. 

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Market Snapshot

S&P 500
GSPC
4,495.70
Pct Chg:
1.9%
FTSE NAREIT
FNER
644.58
Pct Chg:
-0.9%
10Y Treasury
TNX
4.451%
Pct Chg:
-3.9%
SOFR
1-month
5.32%
Pct Chg:
0.0%

*Data as of 11/14/2023 market close.

INFLATION NATION

Cooling Rental Market Forecasts a Downward Trend in Inflation

Inflation in the U.S. is showing signs of cooling down, primarily due to a slowdown in rent increases. This trend is expected to continue, impacting overall inflation rates in the coming months.

Inflation trends: October's consumer price report revealed a 3.2% increase in overall prices from the previous year, with core inflation, excluding food and energy, at 4%—the lowest since September 2021. Shelter costs, accounting for a significant portion of core spending, have notably influenced this decline. The Labor Department's measure of rents, a key driver of shelter costs, increased by 7.2% from the previous year, down from 8.8% in March.

Understanding rent dynamics: The Labor Department's rent measure not only reflects new lease signings but also older leases, causing a delayed reflection of market changes. In contrast, Zillow's rent index, showing quicker adjustments, reported a 3.2% rise in September compared to the previous year, down from a peak of 16.1% in early 2022. This difference highlights the slower pace at which official rent inflation figures respond to market shifts.

➥ THE TAKEAWAY

Looking ahead: Based on Zillow's index trends, the adjusted index could halve to 7.3% by next September, suggesting a significant drop in the Labor Department's rent inflation measure. While exact predictions are uncertain, it's evident that both rent and shelter inflation rates are set to decline, contributing to a broader cooling of inflationary pressures.

A MESSAGE FROM REDWOOD LIVING

Contribute to Redwood's Flexible Note Program

For a limited time, Redwood Living, Inc—known for their single-story apartment neighborhoods across the Midwest—is offering the opportunity to contribute to their Flexible Note Program. Interested parties will earn a strong yield on their cash through a promissory note, with flexibility on the hold period.

By participating, you will receive a 10% interest rate for your contribution, and you can choose from a 9-month, 18-month or 24-month term!* The funds raised will be used for predevelopment costs, real estate acquisition, and preferred equity investments.

*Term options limited for lenders who do not qualify as accredited investors.

TRENDING HEADLINES

  • Really, really dumb: Just before its bankruptcy, WeWork received a surprise buyout offer at over $9 per share, significantly higher than market value. This unusual proposal has now drawn the attention of the SEC, leading to an investigation.

  • AI-bnb: In a strategic move, Airbnb has acquired Gameplanner.AI, a startup led by Siri co-founder Adam Cheyer, for approximately $200 million. This marks Airbnb's first significant acquisition as a public company.

  • Touchdown: NFL icon Terry Bradshaw has sold his 800-acre Oklahoma ranch. The property, which lingered on the market for five years and experienced a previous unsuccessful sale attempt, was last listed at $22.5 million.

  • Powering the future: The U.S. is on track to purchase over 1 million electric vehicles in 2023, signaling a robust growth in the market and an increased need for charging stations. This trend aligns well with Elon Musk's vision for the future of transportation.

  • Midtown meltdown: RXR Realty faces a challenging situation with a $670 million loan on the Helmsley Building in Midtown Manhattan nearing maturity on December 8, raising concerns over a potential default.

  • Boat loan blues: Unibank has initiated a lawsuit against developer Rishi Kapoor and his wife regarding a $4 million boat loan, resulting in the seizure of their yacht. This legal action highlights the complexities of high-value asset financing.

  • Blackstone’s big bet: In a recent interview, Blackstone's CTO John Stecher revealed the company's significant investment in genAI technology, indicating a strategic pivot towards innovative solutions in the finance sector.

  • West Coast warehouses: According to a Moody's Analytics CRE report, Los Angeles's industrial sector ranked second in the nation for rent growth and eighth for absorption in 2022, demonstrating robust market dynamics.

  • Still disruptable: Despite the consolidation of major self-storage REITs, NYC-based self-storage startup Stuf tripled its footprint last year and aims to double its locations by the end of 2024.

LENDING LANDSCAPE

Real Estate Lending Market Stabilizing, According to CBRE Analysis

CBRE Lending Momentum Index

The latest CBRE Lending Momentum Index hints at peaked borrowing costs, signaling a possible stabilization in the commercial real estate lending market amid limited transactions.

By the numbers: The index decreased by 3.0 percent since the second quarter, a smaller drop compared to the 47.9 percent year-over-year fall. With a base value of 100 representing the average activity for 2005, the index closed the third quarter at 187, hinting that the market downturn could be leveling off.

Lending dynamics: Banks remained the dominant lenders in Q3, comprising 38.4 percent of CBRE's non-agency loan closings. Construction loans were a significant portion of this volume. Life insurance companies increased their market share to 33.5 percent, focusing mainly on fixed-rate acquisition and refinancing loans. James Millon of CBRE notes signs of stabilizing lending conditions and an increase in deal volume in the latter half of the next year.

Beyond the banks: Alternative lenders, including debt funds and mortgage REITs, faced challenges due to high short-term borrowing costs, yet accounted for 27.5 percent of the loan volume. Collateralized loan obligations and CMBS conduits saw a reduction in activity, with industrywide CMBS origination dropping significantly compared to the previous year. The average underwritten cap rate and loan-to-value ratio showed slight increases.

➥ THE TAKEAWAY

Why it matters: The CBRE Lending Momentum Index's latest figures suggest a gradual stabilization in the commercial real estate lending market. Despite current challenges, there's a shift in the lending landscape with diverse players adjusting to the new economic conditions, setting the stage for potential growth in the coming months.

QUICK HITS

📖 READ: The IRS is ramping up its efforts to target HNWIs and complex corporate structures, focusing on partnerships, pass-through entities, and digital assets as it seeks to increase tax compliance and generate additional revenue.

🎧 LISTEN: John Kim, BMO Capital Markets senior analyst, talks about US REITs and discusses the Q3 earnings season on this episode of Bisnow Reports

🖥️ WATCH: Bank bonuses aren’t what they used to be, and expectant Wall Street bankers are set to face another “disappointing” bonus season, according to Bloomberg.

BREAKING GROUND

Goldman Sachs Starts Building $500M Mega-Campus in Dallas

Goldman Sachs breaks ground on $500M campus in Dallas

Goldman Sachs’ Dallas campus will be the firm’s second-biggest site in the country, trailing only its headquarters location in Manhattan.

Goldman Sachs (GS) is expanding its presence in Dallas, TX with the construction of a new $500M campus.

Touring the grounds: The new campus will consolidate the company's Dallas-Fort Worth employees, bringing them together in one unified location. Currently, Goldman Sachs has around 4,000 employees in the region spread across different offices. This expansion showcases the firm’s confidence in DFW and its ability to attract big business.

A deal with big incentives: Goldman Sachs accepted an $18M economic incentives deal for its expansion in Dallas. This deal, approved by the Dallas City Council, is one of the highest in the nation for a project of its type. Of course, the money is contingent on Goldman creating or retaining 5,000 jobs in the city.

Designed for collaboration: The new campus, designed by Henning Larsen Architects, will feature spaces that encourage collaboration among employees. It will include amenities such as an on-site cafe, fitness center, back-up childcare, underground parking, conferencing spaces, and access to outdoor gardens and terraces.

Commitment to community: In addition to expanding its workforce, Goldman Sachs will continue to invest in Dallas. The company's "OneM Black Women" initiative, with a $10M investment in North Texas, aims to support Black female entrepreneurs. Goldman Sachs has also been actively involved in its "10,000 Small Businesses" initiative, with more than 700 businesses from Dallas participating since 2014.

➥ THE TAKEAWAY

DFW looking better than ever: Goldman Sachs' new campus in Dallas signifies the city's immense potential for attracting global businesses and talent. As the population of the Dallas-Fort Worth region is projected to double by 2050, this expansion aligns with the city's growth trajectory. The new campus serves as a symbol of the city's capacity to create opportunities for both businesses and residents.

📈 CHART OF THE DAY

Florida Apartment Performance Slows Notably, According to RealPage

QoQ change in effectie rents by metro

Apartment operators in Florida recently lowered rents, with a 1% decrease in the Q3, contrasting with the 0.5% increase nationwide. Florida had outperformed the US in rent growth for two years but fell behind in Q2 for the first time since 3Q22. 

This is the fourth time since 2019 when average nationwide rent increases exceeded Florida's. Naples and Cape Coral saw severe contractions, despite having the highest rent growth nationwide in the last five years. Only Tallahassee had positive rent growth in Q3.

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