Location Strategy Chartbook 01.25.25

GS: There's a “Goldilocks flavor” to the job market, as its strength doesn't suggest the labor market will overheat, Hatzius writes. “It's still a low-hiring / low-firing labor market,” he says.

Goldman Sachs Research's composite measure of labor market tightness — which includes unemployment, job openings, quits, and surveys of conditions as perceived by both firms and workers — has stabilized at a level below the 2018-2019 period, when inflation was slightly under the Federal Reserve's target. Hatzius points out that, given the 1.5-2% productivity trend over the past five years, it's not surprising that wage inflation is decelerating into the 3.5-4% zone that's consistent with 2% price inflation.

According to a recent U.S. Census Bureau report , retail and food services sales in December rose 0.4% over the prior month, while November monthly sales were revised higher to 0.8%, proving the continued resilience of consumers. Moreover, the surge in spending in the fourth quarter pushed real retail sales back into positive territory after such growth largely trailed the inflation rate earlier in the year. Total sales in December were up 3.9% from December 2023, outpacing the 2.9% growth in the overall consumer price index during the same period.

While restaurant spending had long been increasing as a share of Americans’ food budget, the post-COVID period has solidified restaurant spending as a bigger portion of Americans' budgets than at-home dining costs. In 2024, the share of retail sales represented by “food services and drinking places” reached an all-time high of 13.5%. On the other hand, spending at “food and beverage stores” made up about 11.6% of all retail spending. That was an inversion from a decade earlier in 2015, when food and beverage stores made up 13.1% of retail sales and food services and drinking made up 11.7%.

Bloomberg: To hear some locals tell it, the arrival of a supermarket-size gas station with pumps for 120 cars is the biggest thing to hit West Memphis, Arkansas, since Elvis Presley had his broadcast debut at the local radio station in 1953.

Buc-ee’s, a 43-year-old Texas-based chain, is expanding rapidly across the South, where its “world’s cleanest restrooms,” wall of beef jerky, soda fountains with more than 90 selections and bucktooth beaver dolls are much in demand. Sixty miles north of Atlanta, the line of cars leading into Buc-ee’s from Interstate 75’s two exit ramps sometimes stretches a mile. And a future store near Gulfport, Mississippi, is projected to draw 5 million people a year, about the same visitor count as Yellowstone National Park, Buc-ee’s Ltd. told local officials.

Impressed by these kinds of numbers, rural towns in the South are dangling millions of dollars in tax breaks and infrastructure assistance—the kind of perks usually lavished on manufacturing plants and distribution centers—to snare their own Buc-ee’s. Critics of these sorts of incentives consider them an unwelcome development, saying local businesses derive fewer benefits from the arrival of a large retailer than they do from the influx of other types of industries.

ten31: This week, a group of concerned Texans (i.e. businesspeople & lobbyists) met w/ Rep. Gary Gates to discuss one of the thorniest issues in state politics today: Traveling HFCs, property-tax absolving 🤲 vehicles being used by multifamily players as lifelines on their most troubled deals while putting a permanent dent in city coffers. A new bill to determine the fate of the vehicle is doing the rounds in the legislature, and so now’s cattle-trading time, w/ champions of the loophole squaring up against those who think it’s an abomination.

If syndicators could find a way to do away with property taxes, they had a fighting chance. If they could shoo away annoyances like sales tax on building materials, even better. And IF they could find a takeout that would give them a spectacularly low cost of capital, then even bad deals could metamorphose into great deals, the kind of deals that allow one to indulge in private jets and California mansions. 🛩️

In ‘15, the Texas legislature introduced an incentive for affordable housing: if a developer built apartments through a special vehicle known as a Public Facility Corporation, and committed to reserve at least half the units for households making below 80% AMI, then property taxes would be waived entirely. The spirit of the incentive was that you cut developers a deal in exchange for bringing much-needed AH to the community - “after all,” as Don Barzini says, “we are not Communists.”

“It worked for a long time, but then it started being abused,” said one local developer. PFCs began being used in places where the delta between the 80% AMI rent and the market rent didn’t exist, in effect making it a freebie. And then, some PFCs went full cowboy: since the state legislature had neglected to restrict PFC activity to the locality, they began peddling their wares in much hotter markets: Austin, Dallas, Houston. A rando school or water district 🚰 in Travis County or Garland could, in exchange for a nice upfront per-unit fee, create several dozen PFCs all across the state, PFCs that became a magnet for syndicators’ “dogshit deals,” as one market participant put it 🐕. These deals were typically structured as ground leases – The Promote has reviewed a number of the agreements and will dive into them in upcoming eds. – and resulted in hundreds of millions of dollars being wiped off city tax rolls for 75Y – here’s an e.g. from a UT Austin study.

WSJ: Reinsurers have at times been able to push through higher rates, or provide less coverage for the same money. But the shift has been cited as a reason why some primary insurers have left parts of tricky markets.

Verisk’s Extreme Event Solutions group this week estimated that the insured loss of the two fires could be between $28 billion and $35 billion, broken down into $20 billion to $25 billion for the Palisades fire, and $8 billion to $10 billion for the Eaton fire. Opting to seek reinsurance for two catastrophes, rather than one, could make a big difference to some primary insurers’ loss exposure.

Mercury said in the statement that it hasn’t yet determined if it will consider the wildfires as two events.

If it was treated as two events, Mercury said it could use its reinsurance limit of up to $1.29 billion for the first event, then, after paying to reinstate its coverage, a limit of $1.238 billion for the second event. That would make Mercury responsible for a $150 million retention for each event, plus the cost of an up-to $101 million reinstatement premium, according to the company. Depending on the ultimate insured loss levels, going the two-event route could result in a smaller loss for the company than from a single larger event, according to Neuberger Berman global insurance analyst Chai Gohil.

If similar math were to play out across many carriers, it could make a big difference in how much of the industry’s losses are ultimately borne by primary insurers. Right now, the market appears to be pricing in a single event, based on how many primary insurance stocks have traded, says Neuberger’s Gohil. “But if this is two events, it may shift more of the losses to reinsurers,” he said.

How disasters are designated has been contentious in the past, including after the Sept. 11 attacks. The developer that controlled the World Trade Center at the time fought with insurers for years over whether it could receive coverage for two occurrences rather than one after planes hit each Twin Tower.

Bay Area apartments face foreclosure: New monthly notes by a loan servicer for a $955 million commercial mortgage-backed security on Parkmerced, San Francisco’s largest apartment complex, show the owner failed to complete a debt modification last month. In addition, the lender is proceeding to enforce remedies that may include seeking receivership of the property or foreclosure, according to bond rating firm KBRA.

The debt matured in December without being paid off, KBRA said in downgrading five classes of related securities. The loan is part of a larger $1.5 billion mortgage financing the 3,221-unit complex.

Occupancy at Parkmerced was 81% last month, according to CMBS data supplied to CoStar Group.

The loan transferred to special servicing in March even though repayments were current, CMBS data shows. The borrower requested the move, citing low occupancy and the upcoming December maturity. The borrower is otherwise current on monthly payments through this month.

Parkmerced comprises 11 high-rise apartment towers and 154 townhouse buildings on 152 acres. The property was last appraised in July at $1.39 billion, down from $2.1 billion in 2019.

An upscale hotel in one of Dallas' hottest office hubs has landed $95 million in financing to pay down debt and provide additional capital for investors at a time when it's difficult to secure new loans.

NexPoint Diversified Real Estate Trust, a publicly traded real estate investment trust, and its Dallas-based partner, Alamo Manhattan, refinanced the Marriott Dallas Uptown, a 14-story, 255-key hotel located on Fairmount Street in Dallas.

The financing was provided by KKR through its opportunistic real estate credit strategy. About $87.5 million is expected to be used to replace the property's outstanding debt and the remaining $7.5 million provides the borrowers the potential to access additional capital, according to a statement.

The financing provides "significant interest expense savings" that will result in about $19 million in cash proceeds to the REIT and Alamo Manhattan, officials said. The deal also creates an option to access about $6.5 million in cash proceeds on future draws, the companies said.

WSJ: U.S. Homes Sales in 2024 Fell to Lowest Level in Nearly 30 Years

Higher mortgages rates and record home prices kept sales subdued for the second straight year.

High costs related to homeownership sapped sales again. The average rate for a 30-year fixed mortgage has hovered between 6% and 8% since late 2022, making it prohibitively expensive for many Americans to buy homes at current prices, which hit record highs last year. Rising home insurance and property tax costs are also adding to homeowners’ expenses.

According to John Burns Research and Consulting’s Burns Homebuilder Survey for December, which was published this month, homebuilders in Florida and Texas are spending the most on sales incentives, while homebuilders in the Northeast and Southern California are spending the least.

“And although both new and existing home inventories have increased from historically low levels, the supply of homes at affordable price points is generally still limited. To help spur demand and address affordability, we are continuing to use incentives such as mortgage rate buy-downs, and we have continued to start and sell more of the small -- more of our smaller floor plans,” D.R. Horton CEO Paul Romanowski told analysts this week.