In July, the Federal Reserve’s Federal Open Markets Committee made the decision to maintain the Effective Federal Funds Rate (EFFR). However, Fed Chairman Jerome Powell hinted at a possible rate cut in September depending on economic data. One contributing factor to this potential cut was the Bureau of Labor Statistics’ report which showed an increase in unemployment rate to 4.3%, with 114,000 jobs added.
While there has been no official confirmation from the Fed about a September rate cut, Marcus & Millichap’s John Chang noted that Wall Street is already responding with a decrease in Treasury yields. This has sparked interest among real estate investors and led to an improvement in market conditions according to Chang.
Chang also mentioned that lenders are becoming more confident that the Fed has completed its tightening cycle and are reducing their spreads as a result. The cost of debt capital is also decreasing while property values have slightly decreased and cap rates have risen enough for deals to make sense for investors.
The current spread between 10-year Treasuries and average cap rates varies by asset type: office – 390 basis points; industrial -310 basis points; retail -300 basis points; self-storage-280 basis points; multifamily-200 basis points. While these numbers may seem concerning for some sectors like office space, they still offer attractive opportunities for investment according to Chang.
He went on further explaining how at beginning of this year there was significant capital interested but it remained on sidelines waiting until recently when some major transactions closed indicating increased activity within commercial real estate sector due partially because dry powder awaiting deployment started drawing down leading race towards placing capital into investments said John chang senior vice president national director research advisory services during his video presentation released last week .
Chang concluded by asking potential investors several key questions such as whether they believe federal reserve will lower rates if so do you think it will help stimulate economy? Do you believe competition will increase? And finally he advised investors to keep an eye on longer-term outlook.
