Retail Sales Decline Again, Strengthening Argument for Rate Cut
May saw weak consumer spending as economic conditions worsened for American households.
Jordan B. & Han-Gwon Lung
June 19, 2024
Together with
Good morning. Shoppers are tightening their belts, signaling a potential shift in the economy. Plus, Blackstone offers seller financing for the first time to sweeten a $1B student housing deal.
Today’s issue is brought to you by Viking Capital.
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Market Snapshot
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*Data as of 6/18/2024 market close.
STATE OF THE CONSUMER
Retail Sales Decline Again, Strengthening Argument for Rate Cut
Source: Illustration: Aïda Amer/Axios
May was another lackluster month for consumer spending as softening economic conditions took a toll on American households.
Retail report: Recent data reveals that May’s retail sales saw a modest 0.1% increase, following a 0.2% decline in April. Five of the 13 tracked categories saw declines, with cheaper gasoline and Memorial Day discounts at furniture outlets contributing to the mixed results. This data highlights a slowdown in consumer spending, a trend economists attribute to persistent inflation, a cooling job market, and signs of financial stress.
A tale of two consumers: Paul Ashworth of Capital Economics noted that slowing services consumption and plummeting consumer confidence suggest households are more affected by higher interest rates than previously thought. Despite this, Federal Reserve Chair Jerome Powell indicated that consumer spending remains solid and households are in “pretty good shape.”
Economic indicators: Treasury yields dropped as the retail sales report indicated economic softening. The so-called control-group sales, used to calculate GDP, rose 0.4% in May after a 0.5% drop in April, leading to a revised, slower GDP growth forecast for Q2 by Morgan Stanley and Oxford Economics.
Goods vs. Services: Retail figures mainly reflect goods purchases, a small portion of overall consumer spending. Notably, spending at restaurants and bars fell 0.4%, the largest decline since January, indicating tighter consumer budgets.
➥ THE TAKEAWAY
Big picture: Lower-income consumers are cutting back on spending as their pandemic savings run out, and more people are missing credit card and car payments. While this slowdown might help the Federal Reserve curb inflation, it also risks triggering a deeper, more difficult-to-reverse economic downturn.
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✍️ Editor’s Picks
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Debt game changer: Blackstone (BX) offers seller financing for the first time to sweeten a $1B student housing deal with KKR (KKR), facilitating the sale amid market challenges.
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Sun Belt shift: Sun Belt housing prices are stabilizing, presenting potential buying opportunities, although FAU researchers report overvaluations of up to 24.2% in places like El Paso.
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Credit card capers: Wells Fargo (WFC) partnered with Bilt and lost up to $10M per month due to unexpected card usage while attracting over 1M customers.
🏘️ MULTIFAMILY
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Rent riddle: Rising rents in Northeast/Midwest cities threaten the Fed’s inflation fight, although the Sunbelt sees flat rates.
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Downtown dwellings: DFW tops the nation for Q1 multifamily deliveries, with 600 in downtown Dallas. A highlight is Centurion’s 182-unit complex, priced at $3K per unit per month.
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Farm-to-table tower: Downtown Phoenix will soon see a new 30-story tower with 273 apartments, a farm-to-table restaurant, and a farmer’s market for local produce.
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Student housing shines: Crow Holdings and Preiss sold the 220-unit, 694-bed Luxx student housing complex near UTSA to Palladius Capital Management.
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Family drama: A lawsuit by his mother led to developer Michael N. Lerner’s removal from managing multiple Chicago multifamily buildings.
🏭 Industrial
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Real estate rumble: Blackstone Real Estate and rivals raise their bids for Mexican industrial real estate fund Terrafina after recent election results.
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Storage reimagined: PGIM Real Estate loans $100M to Carlyle Group (CG) and Sabharwal Properties for an NYC self-storage portfolio, retiring $75.8M in debt.
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Concord commerce: Development in Concord will soon bring a 1.35MSF industrial complex, part of an uptick in vacancies in the city.
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Lights, camera, action: East End Capital secures $130M financing to build a 250KSF film studio in LA, part of a larger $1B project.
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Port problems: Negative net absorption has been reported in many port markets nationwide as imports revert, rents decline, and shippers diversify their port entries.
🏬 RETAIL
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No longer fresh: Red Lobster, once serving 64M customers a year in nearly 600 locations, finally filed for bankruptcy after sale-leasebacks left it financially crippled.
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Retail retreat: Major box stores and pharmacies are scaling back as medical office investment drops sharply.
🏢 OFFICE
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Foreclosure fallout: A 10-story Oakland office building sold for $4M after losing 70% of its value due to a failed foreclosure auction with no bidders.
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Closer and closer: Beacon Capital may have to default on a $243M loan for a DC office complex, even as key government tenants plan to vacate the property.
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Florida expansion: Savills (SVS) aims to boost its South Florida market share by hiring Donna Abood, doubling its headcount, and expanding operations statewide.
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Refinancing success: An office building in LA’s Westwood secured $36M in refinancing and is 77% occupied, despite 17% lower net cash flows in 2023.
🏨 HOSPITALITY
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Follow the lawyers: A new Florida law, HB 1021, shifts control of mixed-use common areas from condo associations to developers, sparking legal battles.
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IHG continues expansion: IHG Hotels & Resorts (IHG) is focused on growing its loyalty program and hotel portfolio, recently opening 5 luxury hotels in the Caribbean and Latin America.
PRODUCT REVIEWS & GUIDES
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CRED iQ |
📈 CHART OF THE DAY
The CRE CLO market is facing challenges, with CRED iQ reporting a distress rate of 9.74% in May, up 114 basis points, according to the Commercial Observer.
Right now, 36.5% of CRE CLO loans are on servicer watchlists, a drop of 2.1% from the last report. When you add the distress rate and the watchlist percentage together, you get 46.2% of these loans having some kind of issue.
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