One of the keys to success as someone once said is to keep you head while those around you are losing theirs! Needless to say, the markets are once again in turmoil over the realization the Fed may have been right and the road ahead on inflation will be bumpy.
Hence, you see all the chaos ensuing after the inflation data this week. As always, however, there are pretty positive nuggets in the data that the superficial don’t take the time to find along with some realities of the commercial real estate buying space right now.
On the data side, when you compare the numbers to the first 3 months of last year at the core level, we are on par. From that point forward, monthly rates simmered the balance of last year leading to a lot of optimism that inflation had been defeated and the cries for rate cuts began (with me included). However, Shelter Costs remain a challenge which means was a risk inflation could appear to be getting worse, when in reality there is only one category driving the numbers.
No one in the trading markets seems to have noticed that 60% of the overall CPI increase in the past 12 months was in that Shelter Costs category with most of the other categories remain flat to declining. And, many have questioned exactly how BLS calculates those figures. To bolster the evidence of inflation continuing to cool, you have the
PPI data released which presented a stark contrast to the CPI being much lower. Yet the markets seem to be ignoring that report continuing the ongoing knee jerk responses to individual pieces of data rather than the whole.
On the commercial real estate side of the ledger, the situation is slowly continuing to improve. Sellers have reset expectations to some degree with cap rates continuing to increase. At the same time, more and more seasoned potential buyers are coming off the sidelines to bid on those properties. As an example, we have an apartment purchase loan currently in process with a Freddie Mac Small Balance product (thank you Thomas Marcus and Regions Bank!) at 80%. That is not a typo and will be the first full leverage transaction in nearly 2 years.
It came about as the result of a seller looking to exit the multifamily space and a buyer with several other properties in the immediate market coming together on a price agreeable to both. In fact, we have 3 current purchases in total where it’s been a case of both buyers and sellers meeting in the middle to get those properties under contract. So despite what you may be reading in the news or in blog posts, the CRE thaw is underway and I expect the trend to continue the balance of the year and returning to normal by the end of the year.
The key for both buyers and sellers is to stay calm in the storm and remain level headed. That will increase opportunities going forward. However, that does not mean we won’t see turbulence in the market, interest rates, lenders, etc. These remain very unusual times and nothing like I have seen in over 30 years of lending.
I remain committed to helping our clients navigate these times in a way that’s profitable and a win-win situation for our clients and sellers. The challenge on our side remains sorting out which lender is the right fit. It is the reason why those of us in commercial mortgage brokering are of more value now than at any time I can remember.
The key takeaway for everyone should be – as has been pointed out in recent posts – stay calm! The months ahead may be bumpy, but opportunities are there, you just have to look for them.
