Latest Jobs Report Signals Cooling Labor, Falling Inflation

The latest jobs report, showing 199,000 new jobs, brings a mixed bag of implications for the economy, particularly regarding a potential recession and the Federal Reserve’s interest rate plans.

Latest Jobs Report Signals Cooling Labor, Falling Inflation

The latest jobs report, showing 199,000 new jobs, brings a mixed bag of implications for the economy, particularly regarding a potential recession and the Federal Reserve's interest rate plans.

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Good morning. While Jerome Powell's stance with the Fed on not signaling lower rates next year might have cast a shadow on holiday cheer, our real estate sweaters are here to brighten things up! Act fast – there are only a few days left to snag one before they disappear.

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ECONOMIC CROSSROADS

Latest Jobs Report Signals Complex Implications for U.S. Economy

The latest jobs report, showing 199,000 new jobs, brings a mixed bag of implications for the economy, particularly regarding a potential recession and the Federal Reserve's interest rate plans.

A cooling trend: The latest jobs report indicates a healthy labor market, with 199,000 new jobs and a drop in unemployment to 3.7%. This positive trend, coupled with a 4% increase in average hourly earnings and subdued inflation, suggests a robust job market that's not fueling inflationary fires.

Balancing act: While the job market remains strong, signs of a slowdown are emerging. The rate of job growth has decreased compared to last year, and demand for workers is cooling. With interest rates at their highest in two decades, the economy feels the pressure. However, the alignment of wage growth with productivity gains, close to the Fed's 2% inflation target, suggests the possibility of rate cuts soon.

Downward trend: Inflation, often the villain in economic narratives, appears to be losing steam. Core inflation metrics show a rise of 3.5% year-over-year in October but indicate a slowing pace. Declines in prices of various goods and a slowdown in rent inflation further support this trend. This cooling inflation landscape could influence the Fed’s policy decisions.

➥ THE TAKEAWAY

Risk on, risk off: As the Federal Reserve prepares for its upcoming meeting, a cautious stance is expected, ready to respond to any potential inflation spikes. However, if the ongoing trends of slowing job growth and declining inflation persist, the Fed might lean towards cutting rates. This strategy aims to guide the economy clear of recession risks, reflecting the Fed's intricate task of balancing economic stability and growth.

SPONSORED BY RM COMMUNITIES

A note from Todd Hanson, Managing Director of RM Communities

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  1. Benefit from Highly Favorable Long Term Fixed Rate Debt at 3.33%: Assuming a well-below-market fixed interest rate Fannie Mae loan with nearly eight years of term remaining and nearly two years of interest-only period left.

  2. Experience in Market and with Seller: Hunters Ridge is our second purchase from this specific seller. The previous property we purchased from them is located in St. Louis and is arguably our best performing asset in the entire RM Communities portfolio. Our closest owned asset in Michigan is in nearby Lake Orion, which has performed well with a very similar value-add plan and the same property management firm we will be teaming with at Hunters Ridge.

  3. Tested and Proven Value-Add Business Plan: The seller previously renovated 22% of the units and achieved significant rent premiums, providing an opportunity to capture proven value-add upside on the remaining 132 units.

*See the disclosure from the sponsor at the bottom of the newsletter.

TRENDING HEADLINES

  • Breaking leases: UBS has incurred $400 million in real estate expenses related to its acquisition of Credit Suisse, primarily from terminating leases on properties previously used by the now-defunct competitor.

  • Handing back the keys: Billionaire Hussain Sajwani anticipated difficulties in the global commercial real estate sector, but the extent of the challenges has surpassed his expectations.

  • One less hurdle: A judge dismissed Namdar Realty Group's lawsuit against Bloomingdale over the Stratford Square Mall with prejudice, clearing a significant obstacle for the city's acquisition plans.

  • In limbo: Life sciences real estate sales dropped significantly to $386.6M by July 2023 from $6B in 2022 due to slower biotech sector growth, decreased VC funding, and a shift towards smaller leases.

  • Buying the O's: Carlyle Group co-founder David Rubenstein is reportedly in talks to buy the Baltimore Orioles from Peter Angelos amid lease negotiations for Oriole Park at Camden Yards.

  • Moving closer to home: Blackstone is expanding its industrial footprint in Dallas-Fort Worth by acquiring a 1.4 MSF warehouse portfolio, aiming to capitalize on the increasing trend of nearshoring.

PROPERTY REPORT

Declining Industrial Property Sales Amidst High Prices

Recent trends in the capital markets show a significant drop in the number of industrial property sale closings despite high price gains, a contrast to the widely known record-setting asset values.

Sharp fall: Since early 2022, the number of industrial property sales closings has plummeted to levels last seen in late 2012. From a peak of 29,728 transactions in the first quarter of 2022, the figure dropped to 18,258 by the third quarter of 2023, marking a notable downturn in deal flow.

Some background: Reflecting on the Great Recession, industrial property transactions had fallen 49% from their 2007 peak before hitting the lowest point in 2009. In the current cycle, there's been a 39% decline in closing volumes since 2022, indicating a potential further decrease in transactions, possibly mirroring the early 2007 figures.

Dollar volume remains high: Despite the fall in transaction counts, the total dollar volume of industrial property sales remains high, outpacing pre-COVID levels. This is primarily due to a 53% spike in industrial pricing post-pandemic, although a recent pullback in pricing has occurred.

➥ THE TAKEAWAY

Why it matters: The current discrepancy between high valuation gains and dropping sale transactions in the industrial property market hints at potential pricing risks. The market's reluctance to adjust prices significantly, despite fewer sales, may signal more pronounced adjustments ahead, mirroring the 38% value decline seen in the previous economic cycle.

QUICK HITS

📖 READ: While uncertainty around interest rates and office remain top of mind, performance varies across asset classes. Read JP Morgan 2024 commercial real estate outlook here.

🧑‍🍳 COOK: This Hanukkah-themed dish provides a latke method for making either soft, thick pancakes or thin, crispy ones, adaptable with toppings like applesauce, sour cream, or salmon roe.

🎧 LISTEN: In this Capital Allocators episode, Michael Levy, CEO of Crow Holdings, discusses his career journey, managing during the financial crisis, and insights into Crow's unique real estate investment culture.

CHART OF THE DAY

The chart displays the performance of FDIC-insured institutions' multifamily mortgages and other CRE-backed loans, including both owner-occupied and income-producing properties. It highlights the percentage of loans 30-89 days delinquent (blue) and "noncurrent" loans (red) – those over 90 days delinquent or in non-accrual status, indicating unlikely full repayment. The lower section shows the net percentage of loans charged off by banks year-to-date, reflecting losses from unrecoverable loans.

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* The Sponsor’s assumptions and projections (collectively “Projections”), including target IRR, target cash-on-cash, and target equity multiple (“Targets”), are hypothetical, are not based on actual investment results, and are presented solely for the purpose of providing insight into RM Communities’ investment objectives, detailing its anticipated risk and reward characteristics and for establishing a benchmark for future evaluation of the Sponsor’s performance. The Sponsor’s Projections and Targets are not a predictor, projection, or guarantee of future performance. There can be no assurance that Projections or Targets will be met or that the Sponsor will be successful in meeting these Projections and Targets. Forward-looking statements, including  Projections and Targets, are inherently subject to a variety of risks and uncertainties, and the actual results achieved may vary significantly and materially. All of the information in this message is qualified in its entirety by reference to the more complete information about the offering contained in the relevant offering documents, including the relevant private placement memorandum, operating agreement, and subscription agreement (“Offering Documents”), which should be carefully reviewed prior to any investment, including disclosures relating to forward-looking statements and “Risk Factors”. Forward-looking statements, including Projections and Targets, should not be used as a primary basis for an investor’s decision to invest. RM Communities does not provide any assurance of returns or the accuracy or reasonableness of Projections or Targets. Past performance is not indicative of future results.  This real estate investment is speculative and involves substantial risk. A loss of part or all of the principal value of your investment may occur. You should not invest unless you can readily bear the consequences of such loss. For additional information on risks and disclosures visit https://www.realtymogul.com/investment-disclosure.

Nothing in this message should be regarded as investment advice, either on behalf of a particular security or regarding an overall investment strategy, a recommendation, an offer to sell, or a solicitation of or an offer to buy any security. Advice from a securities professional is strongly advised, and we recommend that you consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks associated with any real estate investment.

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