In July, the Federal Reserve’s Federal Open Markets Committee decided to maintain the Effective Federal Funds Rate (EFFR). However, Fed Chairman Jerome Powell hinted at a possible rate cut in September depending on economic reports. One factor influencing this decision was the Bureau of Labor Statistics’ report showing an increase in unemployment to 4.3% and 114,000 jobs added.
While there has been no official confirmation of a rate cut in September from the Fed, Marcus & Millichap’s John Chang noted that Wall Street is already responding with a decrease in the 10-year Treasury below 4%. This has sparked interest among real estate investors as they see potential for market improvement. Chang believes that Chairman Powell’s comments combined with the jobs report have triggered this response.
Lenders are also starting to believe that the Fed has completed its tightening cycle and are reducing their spreads accordingly. Additionally, debt capital costs have decreased while property values have slightly declined and cap rates have increased enough for deals to make sense for investors.
Chang provided data on cap spreads based on asset type:
– Office: 390 basis points
– Industrial:310 basis points
– Retail:300 basis points
– Self-storage:280 basis points
– Multifamily:200 basis points
He also mentioned that although industrial properties may seem like they have a wide spread compared to other asset types, it is important to consider different subtypes within this category when analyzing data. While office numbers may be concerning at first glance, some investors are beginning to see potential due to wider spreads over ten-year Treasuries.
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