The Brick Breakdown

Hello Brick Brief readers, 

Thank you for your continued support! In recent news, we’re seeing economic growth stall under renewed tariff pressure, mixed retail resilience, and a cautious Fed outlook as inflation and trade risks persist. 

Today’s Brick by Brick covers rhetoric from Fed officials yesterday and their rate cut outlook.

📉 Trade Tensions Stall Growth, Fed Stays Cautious
Trump’s tariffs are back in effect after a court stay, driving up costs and weighing on growth as Q1 GDP contracts 0.2% and corporate profits see their steepest drop since 2020. While the Fed remains cautious on rate cuts amid inflation risks and softening demand, the White House says three new trade deals are nearly finalized despite legal uncertainty.

🛍️ Retailers Navigate Tariffs with Mixed Results
Retailers are absorbing tariff pressures through supply chain shifts, with Costco, Ulta, and Amazon showing resilience while Best Buy and Gap cut guidance due to rising costs. Despite inflation, brands like Burlington and Boot Barn are still expanding, suggesting stable consumer demand and a balanced retail real estate outlook.

🏘️ High Rates Suppress Buyers as Inventory Builds
Homebuyers remain sidelined as the median mortgage payment nears record highs, pending sales fall 6.3%, and competition tightens in Northeast metros. While flexible zoning boosts permitting in markets like Pittsburgh and San Antonio, constrained supply in cities like Seattle and Boston threatens long-term affordability.

This Week in Real Estate: Key Events & Data

Quick Markets

30Y Mortgage: 6.97%
10Y Treasury Yield: 4.42% (-8 bps)
FTSE NAREIT Index: 769.74 (+0.96%)
30-day SOFR Average: 4.31%

Market Pulse

Tariff-driven uncertainty and weakening fundamentals suggest the Fed will hold rates steady, keeping capital costs elevated as dealmaking and growth continue to slow

Q1 GDP contracts 0.2% – U.S. economy shrinks amid falling government spending and surging imports, while corporate profits drop $118B in biggest decline since 2020 (BEA)

Tariffs have cost firms $34B so far – Trump’s trade policies spark uncertainty, drive upsupply chain costs, and force price hikes as global companies slash forecasts (Reuters)

Trump tariffs reinstated after court stay – Appeals court pauses ruling that struck down tariffs, keeping duties near 15% as trade uncertainty clouds forecasts and slows dealmaking (Reuters)

Labor market softens and profits plunge – Jobless claims hit 240K and Q1 corporate profits fall $118B, the steepest drop since 2020, as tariffs weigh on hiring and growth (Reuters)

Three US trade deals nearly finalized – White House adviser Hassett says more are expected despite tariff court ruling, dismissing legal setback as irrelevant to negotiations (Reuters)

Fed officials signal caution amid tariff risks – Daly prioritizes inflation over cuts, Kugler warns of weakening demand for U.S. assets, Goolsbee flags prolonged trade uncertainty, and Logan says it may be "quite some time" before rate adjustments due to economic volatility (Reuters, Reuters, Reuters & Bloomberg)

Brick by Brick: Fed Cites Uncertainty as Rates Hold Steady and Inflation Risks Linger

Fed officials are signaling patience on rate cuts as inflation risks and policy uncertainty mount, driven in large part by shifting trade policy and persistent market volatility.

• San Francisco Fed President Mary Daly said the current policy remains “modestly restrictive” and emphasized that inflation is still the top concern, though she did not rule out two cuts this year
• Chicago Fed’s Austan Goolsbee said the U.S. economy could support lower rates, but only if tariff pressure eases, warning that ongoing policy uncertainty is causing businesses to pause investment
• Dallas Fed President Lorie Logan noted it could take time to assess whether risks tilt toward higher inflation or weaker growth, and said the Fed is well-positioned to remain patient
• Governor Adriana Kugler raised concerns about declining foreign appetite for U.S. assets and the growing exposure of firms to trade-related financial vulnerabilities
• Minutes from the May FOMC meeting showed officials worried about diminished demand for dollar-denominated safe-haven assets, which could raise longer-term financing costs
• Despite improved consumer sentiment following a temporary easing of trade tensions, unemployment claims are rising and inflation expectations remain elevated
• With long-term Treasury yields climbing on deficit concerns and tariff-driven inflation, the housing market and broader financial conditions are already under strain

Takeaway: In the short term, rates are likely to stay elevated as the Fed waits for clearer inflation signals and more consistent trade policy. In the medium term, policymakers could still deliver one or two cuts if labor market conditions soften or inflation trends downward. Real estate financing is likely to remain costly throughout 2025, with higher debt costs continuing to pressure deal flow, refinancing, and new development.

Policy & Industry Shifts

The loss of NOAA disaster data and looming commission bans are adding risk and complexity to both insurance pricing and residential brokerage dynamics ahead of a volatile summer

NOAA halts storm cost tracking – Insurers warn of rising premiums and reduced coverage as loss of National Oceanic and Atmospheric Administration disaster data disrupts risk modeling ahead of active hurricane season (Bisnow)

DOJ clears path for MLS PIN deal – Massachusetts MLS aligns with NAR by banning commission offers, prompting DOJ to drop objections ahead of June 10 court hearing (RisMedia)

Federal board targets 11 outdated office buildings – PBRB recommends selling 7.1M sf across 9 metros and urges GSA to replace its flawed auction system (GlobeSt)

Residential

High mortgage costs and restrictive zoning continue to suppress home sales and limit new supply, even as inventory rises and rent growth begins to firm in key coastal markets

High costs keep buyers sidelined – Median mortgage payment hits $2,860, near record high, but listings rise 11.9% and Redfin sees prices declining by year-end (Redfin)

Sun Belt buyers hold more power this spring – Zillow finds less competition in markets like Miami and Houston, while Northeast metros face 10+ buyers per listing amid tight supply (Zillow)

Building rules shape supply response – Metros with fewer land-use restrictions like Pittsburgh and San Antonio issued more permits, while Seattle, Boston, and Miami underbuilt despite demand (Zillow)

Pending home sales slump 6.3% in April – NAR index shows sharp drop as high mortgage rates outweigh rising inventory, with all regions posting monthly declines (WSJ)

Single-family rents rise 2.9% in March – Cotality data show firming growth since December bottom, with gains led by Los Angeles and D.C., but Dallas and Miami lag (GlobeSt)

Regional

Oklahoma, West Virginia, and Arkansas lead for cheapest 1BR rents – Southern and Midwestern states dominate affordability rankings as national average hits $1,576/month (CoStar)

California home insurers sued over alleged rate collusion – State Farm, Farmers, and Mercury accused of forcing fire-zone homeowners onto FAIR Plan through cancellations and premium hikes (TheRealDeal)

Office

Office occupancy dips to 53.1% – Weekly average falls 0.3 points per Kastle’s 10-city Barometer, with NYC, Chicago, and San Francisco seeing largest declines (KastleSystems)

Manhattan tech leasing rebounds – Tech firms lease 1.67M sq. ft. YTD, marking strongest start since 2000, with Amazon, OpenAI, and Stripe leading as AI demand and VC funding fuel growth (CBRE)

Industrial

Manufacturing visits dip post-tariff surge – After a March ramp-up, April and May show cooling activity as automakers and metals firms adjust to tariff uncertainty and shifting implementation (Placer.ai)

Tariff truce boosts China-US trade – Container prices hit 3-month high as Shanghai–LA freight rises 17%, though bookings and sailings begin to ease after early-May spike (Bloomberg)

Market Mix

REITs explore private exits – Paramount Group and others seek strategic alternatives to close valuation gaps, as public market pessimism contrasts with stronger private asset pricing (Bisnow)

Retail

Despite tariff headwinds and selective store closures, steady consumer demand and limited new supply are supporting continued retail expansion across major brands

Retail market holds steady – Elevated store closings and tariff concerns weigh on demand, but limited new supply keeps U.S. retail outlook balanced (CoStar)

Retailers push ahead with expansion – Burlington, Abercrombie & Fitch, and Boot Barn plan dozens of new stores in 2025 despite tariff concerns and wider economic uncertainty (CoStar)

Earnings & Real Estate Impact

Retail earnings show a split response to tariff pressures, with Costco and Ulta adapting successfully while Best Buy and Gap face margin strain and cut forecasts despite strong topline results

Costco beat Q1 earnings and revenue expectations, reporting 8% YoY sales growth, as the company managed tariff pressures by rerouting imports, accelerating shipments, and selectively adjusting prices to preserve its value proposition (CNBC) 

Best Buy shares fell 7% after beating Q1 earnings expectations, as the company missed on revenue and lowered its full-year sales and profit guidance due to tariff-related pressures. The electronics retailer has raised prices on select items to offset tariff costs and is diversifying its supply chain by urging vendors to manufacture outside high-tariff regions (CNBC)

Gap shares plunged ~15% despite beating Q1 earnings and revenue expectations due to forecasting $100M-$150M in additional costs from tariffs. The clothing retailer plans to diversify its supply chain and is not planning any meaningful price increases (CNBC) 

Cosmetics retailer Ulta Beauty’s shares rose ~8% after beating Q1 earnings and revenue expectations and raising its FY outlook despite consumer uncertainty from inflation and tariffs (MarketWatch)

Financings

Refinancings

AXA IM provides $80M Manhattan multifamily refinance – Loan backs Rockrose Development’s 152-unit luxury rental at 110 Horatio Street (CommercialObserver)

Barings lends $72M for Pittsburgh, PA multifamily– Newmark arranges refinance for SomeraRoad’s 247-unit luxury rental The Park at SouthSide Works, completed in late 2024 (ConnectCRE)

Grover Corlew secures $61M refi for Boca Raton, FL offices – Wells Fargo lends on 90% leased Palmetto Park City Center and Bank of America Tower, later moved to CMBS platform (ConnectCRE)

Structured Finance

QTS plans $1.5B data center bond deal – Blackstone-owned firm to securitize tenant lease payments from two Oregon facilities to expand fundraising capacity (CoStar)

M&A

Building & Portfolio M&A

Equity Residential to buy $535M apartment portfolio in Atlanta – Chicago-based REIT acquiring 2,064-unit, 8-property package from Blackstone as part of Sun Belt expansion (CoStar)

Palisade Group buys $97M industrial park in LA County – JV with Benefit Street acquires fully leased 544K sf Garfield Business Center in Commerce from Terreno Realty (CommercialObserver)

Montecito buys $75M medical office portfolio in Georgia – Acquires seven suburban Atlanta and northwest Georgia buildings from Harbin Clinic amid continued investor demand (CoStar)

Hines REIT pays $73M for Boston-area industrial – Buys 215K sf Upton Crossing campus from The Davis Companies as part of $309M East Coast portfolio deal (ConnectCRE)

Institutional Fundraising

Hanover Co. closes $125M development site fund – Hanover Opportunities Fund will target land, vacant buildings, and distressed office assets for multifamily or industrial redevelopment (IREI)

New Mexico SIC invests $75M in North American energy fund – Sovereign wealth fund backs Hull Street Energy Partners III fund to target North American power sector (RealAssets)