Fed Holds Course for 2024 Rate Cuts Amid Inflation Volatility
The Fed maintained interest rates amidst higher inflation, with Powell indicating three possible cuts in 2024 to achieve the 2% inflation goal.
Jordan B. & Han-Gwon Lung
March 21, 2024
Together with
Good morning. The Federal Reserve holds interest rates steady as they hurry up and wait for inflation to fall a bit more. Meanwhile, retailers rely heavily on cellphone data and analytics to choose prime store locations.
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Market Snapshot
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*Data as of 3/20/2024 market close.
STEADY AS SHE GOES
The Fed Holds Steady on Interest Rates—For Now
Federal Reserve Chair Jerome Powell answers reporters’ questions during a press conference Wednesday. (Flickr/Federal Reserve)
The Fed maintained interest rates amidst higher inflation, with Powell indicating three possible cuts in 2024 to achieve the 2% inflation goal.
Rate recap: The FOMC’s decision marks the fifth consecutive meeting where rates remain unchanged, keeping the central bank’s discount rate steady at 5.25–5.5%, the highest since 2001. They also penciled in just three reductions in 2025, down from the four forecast in December, based on the median projection.
Inflation nation: Despite lower inflation rates compared to previous years, inflation remains above the target, with the CPI reading at 3.2% in February. The core inflation rate, excluding food and energy sectors, is even higher at 3.8%.
Between the lines: “We’re kind of right back where we’ve started,” said Omair Sharif, president of Inflation Insights LLC. “We need something to get us over the finish line on rate cuts, and that has to be at least one report that shows that inflation is going back to cooling.”
CRE impact: High rates, along with factors like office underutilization, are hurting industry fundamentals. The CMBS delinquency rate for office assets rose to 6.63% in February, much higher than the 2.38% reported a year ago. CMBS delinquencies across all property types rose to 4.71% from 3.12% a year earlier. At the start of 2023, 19.6% of office space in major U.S. metros stood vacant.
➥ THE TAKEAWAY
Big picture: Powell maintained the Fed’s goal for a gradual decrease to 2% inflation, unaffected by recent high inflation figures. He highlighted a steady pursuit of evidence supporting a sustainable drop toward this target, suggesting future rate cuts remain probable. Additionally, Powell addressed the cautious approach to reducing the Fed’s balance sheet, aiming to avoid market disruption, with plans to slow asset runoff to ensure a smoother financial transition and minimize market stress. Said differently, rates will need to stay higher for longer in the future.
TOGETHER WITH REDWOOD
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Tailored for multifamily investors, this session provides an in-depth analysis of the effects of job trends, wages, and capital markets on the BTR sector.
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✍️ Editor’s Picks
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Swinging shenanigans: LA golfers face tee time booking woes due to a Korean black market, where brokers charge up to $40 per tee time per person.
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Everlasting shame: Evergrande faces historic financial fraud accusations, including inflating revenue by $78B, resulting in a $581M fine and $332B in liabilities.
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Rising sales signal: In February, CA’s housing market showed resilience with 290K single-family homes sold, up 12.8% from January and 1.3% YoY.
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Looming crisis: The regional banking crisis looms large due to $900B in underwater CRE loans, which means around 300 banks are at risk.
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Golden exodus: The ultra-wealthy are selling Gold Coast homes at a loss in Chicago, including Ken Griffin, with some properties seeing over a $3M loss.
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Real estate reality: Suisse’s flagship Real Estate Fund International lost 22% in 2023 amid the backdrop of a global real estate decline and rising interest rates.
🏘️ MULTIFAMILY
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Coastal investment: StoneSteps Real Estate and DMJ Capital Partners are thrilled to present their latest investment offering, a value-add reposition of a 53-unit community in Imperial Beach, CA. (sponsored)
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BTR boom: The build-to-rent market is sky-high with rising single-family rents nearing pre-pandemic levels, offering affordability and comfort to renters.
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Wholesale wisdom: Southeast Property Group acquired a 328-unit multifamily portfolio in Jacksonville for $20.3M with a $9.7M renovation plan.
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Freedom debate: The FCC proposal to ban bulk WiFi billing for apartments could give tenants more options. But providers are protesting, citing affordability and access concerns.
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Unlocking opportunity: Housing Filtering: New market-rate apartments benefit many by creating opportunities for low- and moderate-income renters through filtering.
🏭 Industrial
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Boom or bust: CoStar Group’s Christine Cooper predicts a potential slowdown in the U.S. industrial real estate market despite strong GDP growth.
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Cloud expansion: Oracle (ORCL) plans to invest $10B to enhance data centers as it shifts focus to cloud services, according to its CEO.
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Billion-dollar boom: Two West Coast logistics projects secure $1.2B in financing, with a key partnership for a 6.6MSF hub in Fontana.
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Phoenix rising: Phoenix’s industrial market thrived in 2023, leading in industrial development with 42.6MSF under construction and a 3.7% vacancy rate.
🏬 RETAIL
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Private bid: Nordstrom’s (JWN) shares surged 10% after reports of a potential privatization deal led by its founding family with Morgan Stanley (MS).
🏢 OFFICE
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Co-working chaos: Winter Properties’ $55M loan for a WeWork-occupied office building is in special servicing after bankruptcy.
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Office building acquisition: Fracht Group acquired a Houston office building from Southwest Greenspoint Property Management, sold by Colliers and Caldwell Cos.
A MESSAGE FROM StoneSteps RE
StoneSteps Real Estate and DMJ Capital Partners are thrilled to present their latest investment offering, a value-add reposition of a 53 unit community in Imperial Beach, CA (San Diego County).
Key highlights include:
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Acquiring at 20% less than recent sales comparable
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Seller owned for 30+ years
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Low leveraged acquisition at 35% LTC
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Rarely available property in a desirable beach community
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The team has successfully executed three other similar projects
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DATA-DRIVEN
Mobile Footprints Are Revolutionizing U.S. Retail Expansion
Cellphone data convinced Untuckit that a planned second store in a particular location wouldn’t cannibalize an existing one. PHOTO: JEENAH MOON/BLOOMBERG NEWS
Retailers are leveraging advanced analytics, especially cellphone data, to strategically pinpoint prime locations for new stores.
Granular insights: Retailers like Untuckit are utilizing cellphone data to identify optimal store locations. By analyzing customer movement patterns and preferences, retailers gain valuable insights into potential store success. For example, Untuckit’s decision to open a store at Walt Whitman Shops was supported by data showing distinct customer bases at different locations, leading to informed expansion plans.
In the driver’s seat: Retailers witnessed a trend of more store openings than closings, and expect the same this year. Companies are leveraging sophisticated data analytics to select locations with precision, contributing to a decline in nationwide retail vacancies.
Enhanced decision-making: The increasing sophistication of data analytics tools, including cellphone tracking and GPS signals, empowers retailers to make data-driven decisions with unprecedented accuracy. Insights gathered from shopper behavior, combined with proprietary retail data, enable precise location selection and forecasting.
➥ THE TAKEAWAY
Future of retail: The evolution of retail location analytics is reshaping the landscape of retail expansion. With machine learning and AI on the horizon, retailers are at the forefront of a new era where data-driven insights will continue to shape and drive strategic expansions and constant operational efficiencies.
📈 CHART OF THE DAY
In this fascinating chart from JLL, it’s clear that certain amenities help command higher rents. Roof/sky terraces are coveted most, followed by large communal courtyards, fitness centers (with showers), LEED certification, and EV charging stations.
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