Chatter has once again turned to interest rates — namely, that future cuts will perhaps be smaller than was predicted a week ago.

First, there’s the jobs report, which showed 254,000 jobs created in September and unemployment at 4.1%.

Then there’s a 10% spike in crude oil prices. U.S. equity markets gained for the fourth straight week, and the dollar had its best week in two years. The two-year Treasury yield spiked, and benchmark interest rates rose.

That hurt real estate equities. The Equity REIT Index fell 1.6% last week, and Hoya Capital reports 16 of 18 property sectors are in negative territory (the outliers: farmland and regional malls were both up about 1%). The Mortgage REIT Index is down 5%, and homebuilders are down 3%. The mess in the Middle East and other geopolitical tensions could push real estate stocks further down.

The rub: The markets are now predicting a 25-basis-point cut in November and another in December, while last week they were pricing in that one could be a 50-bps cut. Bank of America is in that camp and revised its November rate cut forecast to 25 bps, citing a stronger-than-expected economy. 

CME’s Fed Watch tracker this morning has an 86.2% chance of a 25-bps cut in November — up sharply from 50% a week ago. 

For CRE, 25 bps versus 50 bps may not matter that much. Some deals are in trouble regardless of incremental changes in rates, and lenders worried about shoring up their balance sheets likewise have bigger concerns than exactly what the rate is.

On the flip side, the bulk of the industry is going to be happy as long as cuts of any kind keep coming. It’s largely psychological and is more about the trend line than the actual change, players keep telling us, and the industry is feeling better and starting to make moves again. 

The vibes are a little less immaculate this week than last, but our inboxes are full of sentiment surveys that say CRE is feeling pretty darn good. 

Plus, the Fed told everyone when it dropped rates in September that it most likely would reduce by another 50 bps over the rest of the year, so we’re right on track.

— Catie Dixon, Mark F. Bonner, Kayla Carmicheal and Jay Rickey

Not getting The First Draft in your inbox? Click here to sign up. Got any feedback or want to send us a mailbag letter? Email firstdraft@bisnow.com.

On Our Radar

• Hurricane Milton intensifies to Category 4. Now packing 155-mph winds, Milton is predicted to strike near Tampa Bay on Wednesday, potentially as a Category 5. Officials warn of life-threatening storm surges as the storm looms. Meanwhile, Asheville is still grappling with the widespread wreckage caused by Hurricane Helene. That storm, which killed more than 200 people, left Asheville without power, water or internet — whole towns have been erased from the map, Bisnow has learned. The death toll is second only to Hurricane Katrina, and its total economic losses, estimated at $250B, could be the costliest in U.S. history. 

• Tennessee, Texas, Idaho, Florida, Colorado, Utah and Arizona have all brought their housing inventories back to prepandemic levels. Across the U.S., active home listings are up 34% year-over-year but remain 23% below prepandemic levels, which would seem to indicate a cooling market as homes linger longer on the market. Markets in the Sun Belt and Mountain West, which experienced the greatest pandemic-driven price growth, are now leading inventory increases. The Midwest and Northeast are less affected due to limited new construction. 

• Parents, seven new Bluey episodes were released today on Disney+. From our UK editor, Mike Phillips, the father of two darling young lads: Forget The Sopranos, The Wire, Mad Men or Breaking Bad, Bluey is the peak of TV's golden era. In eight minutes, the episode Sleepytime manages to convey the awe-inspiring pressure and privilege of being a parent in a way no other piece of art has ever managed. New episodes will be devoured by kids and parents alike.

Today’s Deep Dive: Inside Cosm, The Viral Entertainment Venue That Wants To Change How The World Watches Sports

As a 275-pound linebacker came barrelling toward the crowd, viewers of the Louisville-Notre Dame college football game on Sept. 28 jumped out of the way.

But they were in no danger of being tackled — the audience was at Cosm Dallas. While an 87-foot diameter, 12K LED dome screen made patrons feel they were right in the action, they were actually in the climate-controlled comfort of plush stadium seating, served by a waitataff offering up wagyu burgers, pork belly banh mi and signature cocktails.

“I think it’s an awesome experience,” Notre Dame fan Patrice Murphy said. “It’s better than being there.” 

A long list of sold-out events at Cosm’s first two locations and a bevy of viral videos show that’s a popular take. Cosm opened its first location in Los Angeles in July. The Dallas Cosm opened about a month later in The Colony, and a third is on the way to Centennial Yards in Atlanta.

Yet Cosm is far from done.

The immersive sports entertainment company is actively looking for locations in at least 10 U.S. cities, aligning with its long-term vision to become a ubiquitous presence both at home and abroad. And it has the means to make it happen: The company was valued at more than $1B during a funding round in July that saw it raise $250M-plus marked for growth.

Read the full story here.

This Morning’s News

INVESTMENT — ​Advenir, Azora Join Forces In $3B Housing Partnership (Azora): The newly formed JV aims to invest $3B in multifamily properties to help alleviate the U.S. housing shortage. It intends to build 10,000 single-family homes and buy 5,000 more. Get more details about the venture.

INDUSTRIAL — Warehouse Construction Falls As Vacancies Rise (WSJ): Construction of warehouse spaces dropped 43% YOY as vacancy rates climbed, the steepest fall-off in development since 2008. As a result, payrolls are also shrinking.

OFFICE — Distress Hits New Peak (Cred iQ): Office property distress has nearly tripled over the last 18 months to 14.8% of loans. The overall special servicing rate rose to 8.4% last month, though the delinquency rate held steady at 6.8%. Dig into the numbers.

CAPITAL MARKETS — Hedge Fund Eyes Distressed Property Debt (Bloomberg): Deer Park is looking at distressed property debt opportunities. It is looking to raise $500M for its first commercial mortgages fund targeting office buildings at steep discounts. Dive into Deer Park's strategy.

HOSPITALITY — Sonder Seeks To Avoid WeWork's Fate (WSJ): Short-term rental company Sonder is struggling to manage costs and occupancy as it works to differentiate itself from the challenges faced by WeWork by renegotiating leases and partnering with Marriott. Sonder has never been profitable. Read into Sonder's damage control plan.

PEOPLE — CPPIB Hires New Real Estate Head (Bloomberg): Sophie Van Oosterom served as global head of real estate at Schroders since January 2021 after a seven-year stint at CBRE Global Investors. Get more details about Van Oosterom's resume as she takes over at Canada Pension.

HOSPITALITY — Concerts, Events Increasingly Driving Hotel Market (Bisnow): Taylor Swift’s Eras tour has boosted the economy and hospitality industries of cities worldwide, and she isn’t alone. Mega events are becoming a crucial part of the hotel business, and UK hoteliers are banking on the Oasis reunion boosting their bottom lines. This era has been the most lucrative.

SUSTAINABILITY — CDPQ, Nuveen Launch $600M Sustainable Program (CDPQ and Nuveen): CDPQ and Nuveen Green Capital have unveiled a $600M financing program to support sustainable commercial real estate development, focusing on energy efficiency and carbon reduction. Here's what you need to know.

HOUSING — Bipartisan Support For Using Federal Lands (CoStar): Using federal lands to address housing shortages has gained rare bipartisan backing. One proposal would allow local governments to nominate parcels of land to the Bureau of Land Management for residential construction that meets outlined standards. Get the full breakdown.

ECONOMY — CoreLogic Releases Final Hurricane Helene Damage Estimates (Core Logic): Final property damage estimates for Hurricane Helene are projected between $30.5B and $47.5B. Read more here.

REITs — Public REITs See Nearly 40% Return (Wealth Management): Publicly traded REITs have experienced a 39.1% increase in total returns since last October. They rose 16.8% in Q3, and gains span all property types except residential. Dive into the numbers.

CONSTRUCTION — Project Abandonments Drop (Construction Dive): Construction project abandonments, or projects that have been paused, abandoned or have a delayed bid date, plummeted 49.8% in September, according to ConstructConnect’s Project Stress Index. Dive in.

CAPITAL MARKETS — Property Price Gains Set To Continue (Green Street): The Green Street Commercial Property Price Index indicates continued price appreciation across CRE. The firm’s CPPI was unchanged last month, but the all-property index has risen 3% this year. Access the full report.

CAPITAL MARKETS — Early Rate Cuts Spur CRE Activity (LightBox): September’s LightBox CRE Activity Index surged, reflecting a positive reaction to the recent interest rate cut. The index was 98.2 in September, bringing it close to the baseline of 100 set in Q1 2021. LightBox predicts a new growth cycle for CRE.

FINANCE — Steward's Hospital Solutions Spark New Concerns (Axios): Restructuring moves by Steward Health have raised fresh concerns related to private equity ownership and risky sale-leasebacks of healthcare properties. Discover why some are raising eyebrows.

HOTELS — Golf Revenue Above PAR, POR For Hotels (CBRE): Golf revenue increased by 42% at properties in the CBRE sample on a per-available-room basis. The combination of new on-course and off-course golfers makes golf the largest growing sport in America. That growth is good news for hotels.

RETAIL — Another Rough Year For Department Stores (Retail Dive): Several department store chains have started turnaround efforts or are looking at changes "that could be a final test of a challenged retail model." Will the troubled brick-and-mortar companies survive?

HOUSING — Vacation Home Startup Turns To Retail Investors (Yahoo Finance): A vacation home startup led by ex-Zillow execs called Pacaso is seeking fresh funds. Pacaso, which distances itself from timeshare companies, sold 329 one-eighth shares in its properties in 2023, down from 593 in 2022. Here's what you need to know about the startup.

MULTIFAMILY — GSE Volume Declined In First Half Of 2024 (Multifamily Dive): GSEs were responsible for 48% of newly originated apartment loans in H1 2024. They captured 59% of the market in 2023, according to MSCI. Read more here.

FINANCE — NexPoint Secures $1.5B Refi (TRD): NexPoint has completed a $1.5B refinancing deal for 34 multifamily complexes in the Sun Belt. CRE players are hoping refis will be easier to come by following rate cuts.

ECONOMY — The Great Florida Migration Slows Down (WSJ): Florida’s home sales are decelerating as economic shifts and extreme weather events disrupt recent migration trends. Learn more about the shift.

***

The First Draft is produced by Director of Newsletters Jay Rickey, Managing Editor Catie Dixon, Editor-in-Chief Mark F. Bonner and Deputy Newsletter Editor Kayla Carmicheal, with an assist from ChatGPT. We’d love your feedback! Email us at firstdraft@bisnow.com.