Fed Holds Steady on Rates, Hints at Possible September Cut

Federal Reserve Chair Jerome Powell said that a rate cut could come as early as September, provided inflation continues to cool and the labor market doesn't weaken significantly.

Jordan B. & Han-Gwon Lung
August 01, 2024

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Good morning. The Federal Reserve has maintained the federal funds rate between 5.25% and 5.50%, hinting at a potential cut in September. Plus, It’s the end of an era for Sam Zell’s Equity Commonwealth.

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CENTRAL BANK

Fed Holds Steady on Rates, Hints at Possible September Cut

Federal Reserve Chair Jerome Powell said that a rate cut could come as early as September, provided inflation continues to cool and the labor market doesn't weaken significantly.

Balancing Act: The Federal Open Market Committee maintained the current rate of 5.25% to 5.5%, emphasizing caution against prematurely loosening monetary policy. The Fed is particularly wary of the delicate balance between preventing inflation resurgence and avoiding further labor market deterioration.

CNBC

Zoom in: A potential rate cut would benefit the commercial real estate sector, where current activity is already picking up due to improved price discovery and the necessity of lower pricing. Commercial Observer reports that market adaptations and the approaching loan maturities are contributing to this trend.

Dual mandate: Powell's recent comments signal a shift from a strict anti-inflation stance to a more nuanced approach, considering both employment and price stability. While the unemployment rate has edged up to 4.1%, hiring has slowed, and the Fed aims to manage this without triggering a recession.

➥ THE TAKEAWAY

Why it matters: The Fed is walking a tightrope, signaling potential rate cuts while keeping policy options open to avoid locking into a specific course of action, especially as inflation remains a concern. Meanwhile, it continues to gradually reduce its balance sheet by shedding Treasury securities, agency debt, and mortgage-backed securities.

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✍️ Editor’s Picks

Liquidation: Sam Zell's former firm, Equity Commonwealth, will liquidate its assets and shut down following shareholder pressure and an inability to secure a major acquisition.
Rate outlook: Jerome Powell signaled a positive outlook on inflation, raising hopes for a September rate cut, despite the FOMC leaving interest rates unchanged.
Net lease news: Carlyle's net lease business anticipates larger portfolio transactions this year, following a modest $100 million in deals last year due to market challenges.
Umbrella insurance: As inflation drives up costs, more people are tapping into umbrella insurance for extreme incidents, leading to higher premiums and stricter approval processes.
Not too shabby: Private equity giant KKR's (KKR) strong Q2 included $32B in new capital raised, $601B in AUM, $4.1B in revenues, and $37B of total deployment.
Fool me twice: WeWork is expected to file for bankruptcy this month, as it withholds a $6.4 million interest payment and negotiates lease concessions amid financial turmoil.

🏘️ MULTIFAMILY

Lending fluctuations: HUD's multifamily and healthcare loan guarantees totaled $2.64 billion in Q3, a slight increase from the previous quarter but down 8% year-over-year, with New York City HDC leading in loan activity.
Creative solutions: Hines acquired land in Loudoun County and Manassas, VA, to address the nearby Washington, D.C. housing shortage, where over 242K units are underused.
Diving deeper: Decron Properties is set to acquire over 1K Austin apartments at $77.15M for a 334-unit complex, targeting tech worker-heavy Pflugerville.
Parking to plots: Texas Christian University (TCU) and Endeavor plan to convert surface parking lots into 5-acre tracts for multifamily and retail spaces.
Brooklyn bonanza: KKR (KKR) and Dalan Management are ready to buy the 327-unit Paxton Tower in Brooklyn for $240M, expanding their residential portfolio.

🏭 Industrial

Securing financing: Overton Moore Properties has raised $150 million in equity, giving them $300 million in acquisition capital to purchase industrial and logistics properties across California.
On sale: Artis Real Estate Investment Trust plans to sell nine industrial properties in the greater Phoenix area and Twin Cities region.
Acquisition: CIP Real Estate has purchased the 143,221-square-foot Tully Business Center in San Jose for $40 million, expanding their portfolio in a key Silicon Valley industrial market.
Expansion: Storage Units Capital has obtained a $75 million construction loan to develop 4,000 self-storage units across five new locations in Florida.

🏬 RETAIL

Deal of the day: Casey’s General Stores (CASY) will acquire Fikes Wholesale for $1.15B, adding 198 stores and expanding to nearly 2.9K locations, mainly in Sunbelt.
Merged: Realty Income Corporation has completed its all-stock merger with Spirit Realty Capital, with the combined company's shares now trading under the symbol "O" on the NYSE.
A sweeter deal: ShopOne Centers will buy a Tamarac shopping center in South Florida for $36.4M, which Site Centers previously purchased for $28M in 2003.
Market-ready: SJC Ventures and Nuveen Real Estate (JRS) secured a $69.40M loan for Doral Marketplace, an 83.33 KSF shopping center in Florida.

🏢 OFFICE

Wellness office: Tom Brady's family office is leasing space in The Well Bay Harbor Islands, a Miami building known for luxury amenities like vitamin B12 drips and acupuncture.
Taken the L: South Korean investment groups are facing significant losses on U.S. office debt, selling off positions at steep discounts.
Beating expectations: Boston Properties (BXP) exceeded analyst expectations with $278.4M in FFO, despite lower leasing activity in its portfolio.
Trophy triumph: Cousins Properties is optimistic about its Sun Belt office portfolio, citing increased demand and limited new supply, particularly in Atlanta, where they see 88% occupancy.

🏨 HOSPITALITY

Cash flow makeover: Ben Ashkenazy secured an $85 million loan from Citigroup for the Arthouse Hotel on the Upper West Side, refinancing a previous $80 million loan amid ongoing financial challenges and recent property foreclosures.
Wielding debt wisely: Ashford Hospitality Trust (AHT) aims to pay off its debts by selling 6 US hotels and refinancing a $267.2M mortgage, with $98.2M of financing remaining.

A MESSAGE FROM NEUTRAL

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