The Latest Data, News, and Analysis Impacting the Commercial Real Estate Market
Every week, LightBox carefully selects the week’s most impactful economic news, market metrics, in-house data and analysis, and transactions shaping the CRE industry.
In This Week’s Edition:
- Topsy-Turvy Tariffs Dominate the Week’s Headlines
- Balancing Data with Market Insights: Takeaways from Manus Clancy at Clemson
- Second $2B Construction Loan Clears the Way for Major Data Center in Utah
- Portfolio Sales of Nonperforming Office Loans on the Upswing
- U.S. Economy Adds 151,000 Jobs in February, Unemployment Edges Up to 4.1%
1. Topsy-Turvy Tariffs Dominate the Week’s Headlines
Last week, trade policy was the focus as campaign promises of tariffs became a reality—sort of. Last Tuesday, President Trump announced a 25% tariff on goods imported from Mexico and Canada. That news triggered a sell-off in stocks, and companies began warning that the added costs of tariffs would drive prices higher on thousands of products, including electronics, fresh produce, cars, and new homes. Trading partners announced retaliatory measures that included a 10% levy by China on agricultural imports and a 25% tariff by Canada on various consumer goods. As the week went on, however, the administration announced exemptions and delays, including a one-month delay on tariffs to automakers whose cars comply with the U.S.-Mexico-Canada trade agreement and then Trump expanded exemptions for Canada and Mexico. The damage wrought by tariff threats and uncertainty may already be taking a toll as the uncertainty makes it challenging for U.S. companies to plan. New orders plunged in February’s ISM manufacturing report released early last week, and the measure of factory activity maintained by the Institute for Supply Management fell to 50.3 in February from 50.9 the prior month.
The LightBox Take: The rapidly changing tariff developments last week kept investors on unsure footing as the equities and treasury markets reacted to the on-again/off-again announcements. After dropping to 4.12% last Monday, U.S. Treasury yields moved up to 4.24% late in the week as investors mulled the potential tariff impacts. Until the tariff policy is clearer, traders and investors are bracing for a turbulent ride and a volatile stock and bond market.
2. Balancing Data with Market Insights: Takeaways from Manus Clancy at Clemson
In today’s challenging commercial real estate market, the ability to balance book smarts with street smarts could make the difference between profits and losses, according to a recent presentation that LightBox’s Manus Clancy delivered at Clemson University. While financial models, cap rates, and valuation methods are essential tools, long-term success in the industry often comes down to seeing beyond the spreadsheet. Current market shifts—like the retail apocalypse, rising vacancies in office, and the growing need for industrial space—underscore the importance of anticipating risks, demographic changes, and emerging opportunities. In today’s rapidly evolving market, having a broad perspective is just as critical as mastering the fundamentals. Among the major shifts that are impacting investment decisions is the boom in industrial real estate triggered by the e-commerce surge creating massive demand for industrial space. Shifts in demand for office space have created a wide bifurcation between occupied, amenitized Class A office space and more outdated Class B/C space with higher vacancies.
The LightBox Take: The message is an important reminder at this stage of the CRE market’s recovery. The most successful CRE professionals don’t just analyze spreadsheets. They anticipate broader economic, technological, and policy changes—and there are plenty in motion right now. Whether it’s the decline of malls, the remote work revolution, or the rise of AI-driven real estate demand, those who pull back the lens and adapt will make smarter decisions. “The ability to spot trends before they fully materialize is what separates the winners from those left holding the bag,” emphasized Clancy.
3. Second Construction Loan of $2B This Year Clears the Way for Major Data Center in Utah
Tech firms are investing hundreds of millions of dollars into land and infrastructure for data centers to support the exponential growth in the adoption of AI tools. The North American data center sector grew last year, with supply under construction doubling to 6,350.1 megawatts and operational capacity reaching 20 gigawatts, according to CBRE. This surge is driven in part by the increasing power demands of AI companies, and in response to this strong demand, hyperscalers and operators are expanding into peripheral markets, according to Cushman & Wakefield. This year alone there have been two major data center construction loans of more than $2 billion, a strong sign of the booming demand for investment in AI-related CRE. JP Morgan Chase and Starwood Property Trust agreed to the most recent $2 billion loan for a 100-acre data center campus in West Jordan, Utah, outside Salt Lake City. The borrower—a venture of real-estate investor CIM Group and Novva Data Centers—said the facility will be able to provide 175 megawatts of continuous service thanks to a power deal with the local electric utility, roughly equivalent to the power required for 175,000 average-size U.S. homes.
The LightBox Take: The rapid rise in AI adoption is creating strong demand from investors to build more data centers. The first this year was in Abilene, Texas and now a metro just outside of Salt Lake City. The loans are backed by large financial institutions and getting commitments from big-name tenants before breaking ground, rather than building on a speculative basis with little preleasing. These nine-figure loans reflect the market’s seemingly limitless appetite for facilities that feed the AI trend. And building these mega projects in areas like Utah or Texas likely face less opposition than plans in more populated areas like Northern VA, Atlanta, and Chicago that ran into concerns about power limitations and strong public opposition.
4. Loan Portfolio Sales on the Upswing
For the past several years, financial institutions and other lenders have been juggling the challenge of having non-performing loans (NPL) on their books by extending deadlines or renegotiating terms. These measures have kept loan sales at bay, much to the disappointment of opportunistic buyers with capital. Recent developments indicate growing momentum as larger loans and property portfolios change hands. For example, a Texas private equity firm, Lone Star Funds, just picked up a portfolio of eight NPLs from Flagstar Financial (previously New York Community Bank). The loans are backed by office and retail assets in New York City totaling $343 million. Lone Star purchased the debt at a small discount to par, and the debt package includes an $80 million loan made in 2022 tied to the leasehold for Steller Management’s office building at 220 Fifth Avenue. Other loans that are part of the sale involve a $77 million loan on Olnick Organization’s office property at 130 Fifth Avenue, originated in 2022, and a $66 million loan on RXR’s Standard Motors Building at 37-18 Northern Boulevard in Long Island City, Queens, from 2013.
The LightBox Take: Whether it’s buying struggling office properties outright or portfolios of NPLs backed by office assets, investors are out shopping around for opportunities to invest in office if the numbers make sense. Bahrain-based Investcorp just sold a pair of Garment District office buildings in NYC for approximately 68% below what it paid to acquire them in 2017. While the properties may remain offices, Empire Capital could also turn them into storage facilities, sources told Bloomberg. Recent transactions demonstrate that investors are increasingly targeting distressed office asset purchases outright or NPL portfolios coming on the market as banks look to offload struggling office-backed debt amid ongoing valuation declines. This uptick in activity reflects a growing appetite for opportunistic acquisitions, as buyers seek to capitalize on deep discounts and reposition underperforming office properties either through renovations or conversions.
5. U.S. Economy Adds 151,000 Jobs in February, Unemployment Edges Up to 4.1%
Employment data showed another month of solid job gains with the economy adding 151,000 jobs in February and extending a 50-month job growth trend, according to the latest report from the Bureau of Labor Statistics. The unemployment rate rose to 4.1%, a slight uptick from 4% the month before, and just above record lows. This news came just after the volume of unemployment claims came in lower than economists anticipated. While the data reflects a still-healthy labor market, momentum is progressing at a slightly slower pace. The data showed a decline of 10,000 in federal employment, but the report is based on surveys conducted in early February so the mass firings, buyouts, and hiring freezes at federal agencies are not likely to surface until reports later this spring. The Fed is watching closely for any signs of weakness in the economic data, especially after recent measures are showing declines in business and consumer confidence in response to the rapid pace of policy moves by the Trump administration, including federal layoffs, taxes, funding cutbacks, and the back-and-forth on tariffs last week. “It feels like the economy is gagging on the uncertainty. And the longer the uncertainty hangs around, the more likely the economy is going to start choking,” Mark Zandi, chief economist at Moody’s Analytics told CNN last week.
The LightBox Take: The jobs report from late last week show that the pace of job gains has slowed, as expected, but the labor market has not collapsed. It came as the impacts of the large-scale slashing of government jobs continues, along with the dizzying pace of tariff announcements, both of which are unsettling businesses and consumers and putting undue pressure on the economy. If job growth in future reports shows a sharp slowing or even turns negative, or if the unemployment rate were to spike significantly, it could spook the market. The uncertainty is clouding decisions businesses make about hiring or firing employees, expanding or contracting operations, and raising or lowering prices. The Federal Reserve may face challenges in shifting monetary policy from addressing inflationary pressures to responding to potential labor market weakness. If labor market concerns take priority, it could increase the likelihood of rate cuts, whereas persistent inflation may keep rates elevated.
Important dates and industry events this week
- Tuesday, March 11:
- NFIB optimism index and job openings
- Wednesday, March 12:
- February Consumer price index and monthly federal budget
- Thursday, March 13:
- February Producer price index and initial jobless claims
- Friday, March 14:
- Preliminary March consumer sentiment
Did You Know of the Week
Did You Know that Phase I environmental site assessments (ESA), an early indicator of CRE transactions, increased by 9% in February over the prior month and by an even more robust 20% on a daily basis? LightBox RCM data on property listings more than doubled in January over December as sellers hit the ground running the new year, and February’s increase in U.S. Phase I ESA volume to just over 18,000 assessments indicates that the uptick in available properties is working its way through the environmental due diligence process. If, in response to growing concerns about tariffs, inflation, and the broader business climate, make the market more jittery in the coming months, demand for Phase I ESA could weaken.
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