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Avoid the CRE FOMO: The 5 Leading News Stories of the Week

October 14, 2024 5 mins

For the week of Oct. 7th-11th

In the latest news developments, as investors digested a spike in jobless claims and higher-than-expected inflation, the 10-year Treasury rose above 4%, raising questions about whether the Fed was too aggressive with September’s 50 basis points (bps) cut in interest rates. On the heels of Hurricane Helene in late September, another extreme storm, Hurricane Milton, struck the Gulf Coast of Florida. The latest LightBox Appraisal Activity Index rose for the third consecutive quarter, and a slew of multifamily deals provide the latest evidence of opportunistic investors ramping up activity early in the 4th quarter.

Here’s our latest top 5 list of the biggest weekly CRE news stories and why they matter.

  1. The 10-year Treasury Rose Above 4%.

The yield on the 10-year Treasury note rose nearly 5 bps to 4.114% with the release of the latest inflation and jobless claims data. Raising some concerns was a jump in jobless claims to 258,000, the highest levels since early August 2023. This news came just one week after a promising report of a 254,000 uptick in jobs in September—notably higher than the consensus estimates of 150,000. On the inflation front, the latest data revealed that although core consumer inflation isn’t moderating quite as much as forecast, shelter costs are finally starting to moderate.   

Why It Matters: The surge in jobless claims, while concerning, could be attributable at least in part to the effects of Hurricane Helene in Florida and North Carolina, and are likely to be viewed by Federal Reserve officials as temporary. The next inflation and labor market reports will be very telling as they will factor into the Fed’s November decision about another interest rate cut following the 50-bps cut in September.   

  1. The LightBox Appraisal Index Increases in Q3 for the Third Consecutive Quarter.

In Q3, despite a slight September decline in appraisal awards after a stronger summer season, the LightBox Appraisal Index came in at 67.1, more than 3 points above Q2. This was the third consecutive quarter of gains, and a sizable jump from 58.3 one year ago. These results in the appraisal segment are consistent with the September LightBox CRE Activity Index, an aggregate measure of activity in functions that support commercial real estate (CRE) transactions, which reached 98.2, an increase of 8.3 points over August and a more significant 10.3 points compared to one year ago.

Why It Matters: The Q3 Appraisal Index hits its highest level of the past eight quarters but is still well below the Q1 2021 baseline of 100 that preceded the Q1 2022 market high. Appraisal demand in support of refinance activity is likely to continue as rates trend downward and a growing swell of loans reach their maturity dates. Property prices are also beginning to stabilize and even rise in some sectors, marking a significant pivot point in the market cycle and signaling to investors that the time to move may finally be here.

  1. Hurricane Milton—on the Heels of Helene—Highlights Dangers of Extreme Natural Disasters

Hurricane Milton made landfall last week as a Category 3 storm near Siesta Key on the Gulf Coast of southern Florida. A review of LightBox data revealed that of the nearly 500,000 structures at risk of one-foot storm surges, over 480,000 structures faced inundation exceeding the building foundation height, amounting to a potential estimated damage of $10.6 billion, down from the earlier projection of $24.6 billion just from flood damages. In addition to damage from flooding and wind, extreme storms like these recent hurricanes also present environmental risks. In Milton’s path were hundreds of manufacturers that store hazardous materials and utilities with coal ash ponds on site. As a result of extreme flooding, there are two to three times more pollution released after hurricanes than during normal weather conditions as storage facilities are compromised.  

Why It Matters: As the massive amounts of damage from Helene and Milton are assessed in the coming weeks and months, estimates of the impact on residential and commercial real estate will be quantified. During this important risk assessment phase, it is also critical for officials to have accurate information on where hazardous substances and contamination are located in a storm’s area of impact to minimize any further impacts to human health and the environment.

  1. Recent Multifamily Sales Highlight Price Appreciation  

Several recent multifamily transactions illustrate that investors are actively shopping for deals that present a strong return on investment in some markets and offer the latest evidence that for the right asset, prices are appreciating. In one, The Quaye at Wellington, a luxury 350-unit property sold for $144.2 million, more than $20 million above the previous purchase price. The buyer also assumed the outstanding balance of a $60 million loan from State Farm, due to mature in 2028. In Tempe, AZ, Sargard Real Estate purchased a 290-unit apartment building for $77.3 million, $11 million above the $66.3 previous purchase price.

Why It Matters: Both buyers in these examples are expanding their portfolio of multifamily properties and are specifically looking in metros that offer strong demographic growth, business climates, lifestyle and amenities. Sun Belt markets, in particular, are attracting opportunistic investors who are becoming more active in Q4.  

  1. Risks of PFAS, or “Forever Chemicals,” Making CRE Headlines

PFAS, also known as “forever chemicals,” refers to a family of chemicals widely used in consumer products. The risk of PFAS is getting more attention in CRE as awareness about their long-term impacts on human health and the environment increases. It challenges the CRE community to figure out how to make PFAS assessment a standard part of environmental due diligence and understand how PFAS can impact property lending and investment decisions. The results of the LightBox September Benchmark Survey on PFAS Assessments revealed that 30% of environmental consultants have already been involved in CRE deals that have been impacted by PFAS concerns, and this number is likely to climb.

Why It Matters: Regulations are catching up to science as federal and state agencies develop policies and regulations to limit PFAS risk exposure. Any CRE professionals who are not yet aware of PFAS will likely be reading more about it in CRE publications like the Wall St. Journal, Commercial Observer, and others as PFAS assessments become more commonplace and investors and lenders get more proactive in understanding the risk it may present.  

For commentary on these CRE developments and more, tune in to the LightBox CRE Weekly Digest podcast.

Did You Know of the Week

Did you know that in the extremely competitive appraisal market, the average fee for a lender project decreased slightly to $3,185 in Q3 compared to Q2, and that the average turnaround time on an appraisal project continued to tighten, averaging 13.3 days in Q3 compared to 14 days in Q2?

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