The Brick Breakdown

Hello Brick Brief readers, 

Thank you for your continued support! In yesterday’s news, we saw April producer prices fall, the Fed signaling an end to low-rate policy, Blue Owl launching a $7B data center fund, and housing affordability continuing to decline.

📉 Producer Prices Fall, But CPI Pressures Build
April’s 0.5% drop in producer prices, the steepest in five years, shows firms are absorbing tariff costs and limiting inflation pass-through for now. However, Walmart’s warning of near-term price hikes suggests CPI could rise this summer, complicating the Fed’s outlook as Powell signals an end to the low-rate policy era.

🏠 Housing Affordability Worsens Despite Rising Inventory
Homebuilder sentiment fell in May to its lowest since 2023 as high rates, tariffs, and weak buyer traffic pushed more builders to cut prices. Despite more listings, affordability remains strained with first-time buyer demand declining and only 21.2 percent of homes affordable to mid-income earners.

💾 Blue Owl Bets Big on Data Infrastructure
Blue Owl’s $7 billion close of its Digital Infrastructure Fund III reflects strong investor demand for AI and cloud-focused assets. The firm plans to expand its U.S. build-to-suit strategy as digital infrastructure becomes a top target for long-term capital.

This Week in Real Estate: Key Events & Data

Quick Markets

30Y Mortgage: 6.96% (+1 bps)
10Y Treasury Yield: 4.42% (-12 bps)
FTSE NAREIT Index: 766.67 (+1.85%)
30-day SOFR Average: 4.32%

Market Pulse

Falling producer prices and Powell’s shift away from low-rate policy highlight a complex inflation environment, where absorbed costs limit short-term CPI but persistent supply shocks keep long-term rates elevated

Producer prices unexpectedly fell 0.5% in April, most in five years – Decline driven by shrinking margins as firms absorb tariff costs, signaling limited inflation pass-through to consumers (Bloomberg)

Powell signals shift from 'lower-for-longer' era – Fed is reworking its policy framework to reflect persistent inflation and higher real rates, aiming to move past 2020’s average inflation targeting amid rising supply shocks (WSJ)

Brick by Brick: Walmart Flags Tariff-Driven Price Hikes as Retail Inflation Builds

 Walmart’s Q1 earnings confirmed that tariff pressures are moving past corporate margins and beginning to reach U.S. consumers, with price increases set to accelerate into summer.

• Walmart beat earnings expectations but missed slightly on revenue, citing growing cost pressures tied to tariffs on goods from China, Latin America, and Southeast Asia
• CFO John David Rainey warned that shoppers will start to see higher prices by late May, with more widespread increases in June as stockpiled goods run out
• While Walmart can absorb some cost increases through margin compression and vendor negotiations, smaller retailers lack that flexibility and will need to raise prices more directly
• Roughly one-third of Walmart’s U.S. inventory is imported, making it a clear indicator of how tariff costs travel through supply chains
• Even with duties temporarily cut to 30%, executives emphasized that the current level still creates meaningful upward pressure on consumer prices
• As major retailers prepare to pass through costs, CPI could rise in the coming months, adding complexity to Fed policy and stalling any potential rate cuts
• Upcoming earnings from Target, Home Depot, and Lowe’s will provide further insight into how widespread this pricing shift will become

Takeaway: Walmart’s earnings show that tariff-driven inflation is beginning to flow into CPI. While large retailers may buffer some of the impact, smaller businesses will pass through higher costs more quickly. If CPI begins to climb, interest rates will likely stay elevated, tightening financial conditions and weighing on real estate investment, development, and pricing.

Policy & Industry Shifts

Trump administration cuts may slow housing recovery – Report says halted GSE programs and tighter lending at Fannie and Freddie are reducing credit access for first-time and disadvantaged homebuyers (Bloomberg)

DOGE walks back real estate cuts – Federal office lease cancellations revised down to 563 from 748, slashing claimed savings from $660M to $262M (Bisnow)

Residential

Housing affordability continues to deteriorate despite rising inventory and lower mortgage costs, with weak first-time buyer demand, deepening builder incentives, and persistent pricing pressure signaling a strained residential market

May Homebuilder sentiment drops to lowest since 2023 – Index falls to 34 as tariffs, high rates, and weak buyer traffic weigh on pricing, with 34% of builders cutting prices amid rising cost uncertainty (Bloomberg)

Home price growth continues to cool – U.S. median rose just 1.3% YoY in April as Sun Belt markets saw declines, while Northeast and Midwest cities led national price gains (RisMedia)

First-time buyer demand hits new lows – Despite builder mortgage buydowns near 5%, sales are lagging as affordability worsens, forcing greater incentives and raising risks for entry-level-focused homebuilders (WSJ)

Buyers hesitate despite lower mortgage costs – Newly pending sales fell 2.5% YoY in April as economic uncertainty keeps households cautious, while new listings rose 7.6% and price cuts hit a record high for the month (Zillow)

Inventory rises but affordability lags – Only 21.2% of listings are affordable to $75K–$100K earners, well below 2019 levels, highlighting a 416K-home shortfall (Realtor.com)

Multifamily vacancy hits 2-year low at 5% – Strong absorption, high retention, and slowing permits bolster fundamentals despite tariff pressures (GlobeSt)

Industrial

Industrial activity remains sluggish as rising costs and weak manufacturing data weigh on momentum, though tariff relief is driving a surge in U.S.–China freight demand and select logistics gains

Industrial production flat in April – Manufacturing and mining fell 0.4% and 0.3%, offset by a 3.3% utilities gain, while capacity utilization dipped to 77.7%, below long-run average (FederalReserve)

NY manufacturing dips again in May – Empire State index falls to -9.2 as costs rise and hiring weakens despite gains in orders (Reuters)

Philly Fed manufacturing remains weak in May – General activity index rose to -4.0, with new orders turning positive, employment improving, and price pressures climbing to their highest since 2022 (PhiladelphiaFed)

Hapag-Lloyd bookings from China to U.S. surge 50% – Tariff relief boosts demand as carrier plans rapid capacity ramp-up, with Q1 profit up 45% on strong volume and freight rates (FreightWaves)

Market Mix

CRE lending remains sluggish amid high costs and weak demand, but capital is flowing into stable segments like net-lease retail and grocery-anchored formats, while D.C. hotels and department stores face uneven performance

​​CRE loan growth slows to 11-year low – U.S. banks posted just 0.14% growth in Q4 2024 as high costs, weak demand, and rising rates dampen new development and lending appetite (StLouisFed)

Net-lease investment rises 9% YoY in Q1 to $9.6B – Retail leads gains as cap rates stabilize at 7%, with industrial taking nearly half of volume and office share shrinking (CBRE)

Hospitality

D.C. hotels face steep declines – Federal cuts and cancellations drive sharp RevPAR drop, though protests and lobbying offer some demand relief (Bisnow)

Retail

Luxury and mid-tier department stores show mixed results in 2025 – Nordstrom (+3.3%) and Bloomingdale’s (+2.7%) led Q1 visit growth, while Macy’s, Belk, and JCPenney saw spring gains amid broader retail volatility (Placer.ai)

Grocery stores show resilience in 2025 – Despite rising competition and shorter dwell times, foot traffic grows as consumers favor quick trips to value, fresh-format, and ethnic grocers, with smaller formats outperforming larger stores (Placer.ai)

Earnings & Real Estate Impact

Walmart’s earnings signal that tariff-driven cost pressures are beginning to flow through to consumers, raising the risk of sustained inflation that could complicate the Fed’s policy outlook in the months ahead

Walmart beat Q1 earnings expectations but reported slightly lower-than-expected revenue due to the impact of tariffs. The retailer reaffirmed its full-year sales and earnings guidance despite tariff uncertainty, but warned that consumers could start seeing price hikes later this month, with broader increases expected in June (CNBC) 

M&A

Building & Portfolio M&A

MKF Realty affiliate buying Vornado’s NYC Chelsea office for $205M – Deal for 512 West 22nd Street gives MFK a 172K SF Class-A asset (CommercialObserver)

Institutional Fundraising

Blue Owl’s $7B fund close highlights surging institutional demand for digital infrastructure, as AI and cloud growth drive long-term capital into build-to-suit data center strategies

Blue Owl closes $7B fund for data centers – Digital Infrastructure Fund III exceeds target as firm expands U.S. build-to-suit strategy amid strong demand from AI and cloud hyperscalers (CommercialObserver)

Distress Watch

Blackstone’s Willis Tower, Chicago’s tallest skyscraper, value drops to $1B, below $1.3B loan – Despite 86% occupancy and strong income, Blackstone faces appraisal decline amid refinancing, though long-term recovery is expected (CoStar)

Wanamaker Building heads to foreclosure auction amid 21% occupancy – TF Cornerstone holds $120M in debt  is poised to take control and pursue an office-to-resi conversion (TheRealDeal)

Crown and Morgan Stanley face foreclosure at NYC’s 170 Broadway – Deutsche Bank moves to seize FiDi retail after $64M loan default (TheRealDeal)

Proptech & Innovation

Property management software firm Entrata secures $200M from Blackstone at $4.3B valuation – Funding supports AI-driven tools for payments, maintenance, and finance (Reuters)