Location Strategy Chartbook 05.24.25

Joe Weisenthal, Bloomberg: Friday a.m., US dollar down against most major currencies

WSJ: Investors hate bonds right now. Treasury yields have surged on the back of President Trump’s tax-and-spending bill, which is expected to further widen the U.S.’s whopping budget deficit. That coincided with a weak 20-year government-bond auction, weighed down by Moody’s downgrade of the U.S. credit rating.

“Bond vigilantes” are also putting pressure on government debt elsewhere—Germany, which is ramping up defense spending; Britain, where borrowing figures are higher than expected; and Japan, long the poster child for high-debt normalcy.

Concern about public indebtedness periodically rises and then falls, and deficits have so far proven sustainable. Even so, the broader question facing many investors is: Why buy a 10-year Treasury yielding 4.5%, and especially a 30-year one yielding 5%, when cash pays 4.3%? That spread made sense when many interest-rate cuts were expected. With the Federal Reserve turning hawkish and the risk of tariff-induced inflation looming, less so.

The yield on 30-year Treasury bonds has passed 5%, injecting a dose of harsh economic reality into Trump’s fiscal policy. Last week, Moody’s joined other bond-rating providers in lowering the US sovereign grade. The market has been manifesting unease over the US fiscal profile and the repeated unwillingness of its political parties to address a calamitous state of budgetary affairs. Investors are beginning to question whether they would loan the US government money—and other warning signs are emerging that America’s interest bill alone could accelerate fiscal deterioration.

Meanwhile, Deutsche Bank’s Tim Baker warns that the US dollar may end up paying the bigger price if fiscal concerns persist. The dollar has already borne the brunt of the market’s early reaction to the Moody’s downgrade. A Bloomberg gauge of the US currency is now down nearly 1% on the week and more than 7% so far this year—its worst annual start on record in data going back to 2005

WSJ: Private credit has more money than it knows what to do with

Direct-lending strategies, which involve funds lending to risky companies, are raising more money than ever. Investors are increasingly attracted to this corner of the private market, which allows them to diversify while still generating high returns. The challenge now is deploying the money.

Private-equity funds have been holding on to past investments longer, drying up cash flow back to investors in those funds. This hinders the deployment of funds for new deals. “The industry has been beating the drum on M&A returning partly to justify the amount of capital they’ve raised,” Josh Easterly, co-chief investment officer of alternative-asset manager Sixth Street, told analysts earlier this month on the earnings call for the firm’s publicly traded business-development company Sixth Street Specialty Lending TSLX -2.13%decrease; red down pointing triangle. “The problem is that people paid too much for assets between 2019 and 2022, and nobody wants to sell those assets without an acceptable return.” This dynamic may also lead to lower yields on any new deals that do emerge, as lenders will be competing with each other on pricing.

Consider an estimate of the future performance of business-development companies. These are listed funds that raise public equity to invest in private loans. Back in 2021, the average BDC’s annualized return on equity was 14.9%, according to figures from a recent letter by Easterly to shareholders of Sixth Street Specialty Lending. But in the letter, Easterly estimated that at the level of base rates expected by the market over three years, plus typical spreads for loans in the fourth quarter of 2024, the forward return on equity for a BDC would be 5.2%. “At these spreads, the sector is not earning its…cost of equity,” he wrote. All of this helps explain why the biggest private-credit managers, such as Apollo Global, Ares Management , Blue Owl OWL and Sixth Street, have put such an emphasis on originating new and proprietary kinds of loans, ranging from finding niches of consumer borrowing to multifaceted projects such as data centers.

Payments by importers of US customs duties rose to a record $16.5 billion for goods received in April as the full weight of President Donald Trump’s tariffs came down on companies. But if the levies—currently the subject of lawsuits asserting they’re illegal—are upheld and continue at their present rate, the Republican’s pledge that they will pay for record GOP tax cuts will come up short.

The new levies being collected consist largely of a 10% baseline tariff for most of the world, a 25% duty on steel and aluminum and 25% on autos. The tariff rate on China was about 20% when Trump took office, hit a high of 145% and is now 51%.

With monthly collections for April now accounted for, the Treasury will bring in at least $22.3 billion in customs duties and other excise taxes this month, data show. Measured in dollar terms rather than as a share of GDP, that would be a monthly record, according to data compiled by Bloomberg.

Brandon Roth, IPA: The chart below shows the 5-year treasury yield, which has increased 40 basis points this month. I added callouts highlighting what's driving rates up.

As you'll see, the majority of the increase is due to positive economic news and the announcement of trade deals that resulted in investors moving away from safe-haven assets and taking on more risk.

However, yields have been rising for the past week due to concerns about the growing national debt and budget deficit. Moody's downgraded the US credit rating last Friday, and the White House promoted their tax cut bill on Tuesday, which is projected by the Congressional Budget Office to increase the deficit by $3.8 trillion over the next decade.

Bridge Loan Survey: The bridge market is a highly fragmented space with 300+ active lenders. In an effort to show what deal types are getting financed today, I asked bridge lenders if they'd provide the deal profile and terms for loans they're currently closing.

A few outliers stood out to me:

• SOFR + 2.30% for a multifamily lease-up deal at 72% LTV

• SOFR + 2.63% for 50% occupied industrial

• SOFR + 5.50% for a multifamily lease-up deal at 90% LTV

Costar: Two decades and $1.3 billion later, largest US hotel under construction becomes year's biggest opening in C

The Gaylord Pacific Resort & Convention Center, with 1,600 rooms, the West Coast's biggest hotel ballroom and amenities including a water park, is putting the city of Chula Vista on the national hospitality stage.

The property has already signed more than 1 million hotel room-nights tied to meetings and conventions booked for the next decade, according to Julius Robinson, Marriott International’s chief operating officer for the U.S. Western region.

The $1.3 billion project near San Diego is the nation’s second-largest hospitality property to debut in the past five years and the largest to open so far in 2025. It sits within a 550-acre swath that is now the largest piece of oceanfront land still available for development on the West Coast.

The 36-acre resort, more than 20 years in the making, was developed by Houston-based RIDA Development and is operated by Marriott International’s resort- and convention-focused Gaylord brand.

With its swooping exterior building design resembling ocean waves, 12 bars and eateries, luxury spas and a water park with a lazy river and winding chute slide, the Gaylord is seeking to compete by presenting Chula Vista’s first-ever resort featuring full amenities and convention space.

One of its four large ballrooms — measuring 140,000 square feet and with a capacity for 10,000 attendees — is billed by Marriott as the biggest hotel ballroom on the West Coast.

Currently in early construction phases about a block from the Gaylord is developer Pacifica Companies’ $1 billion Amara Bay project, with multiphase plans calling for 1,500 residential condos in seven towers with adjacent retail and office space. A future phase of that project includes a 250-room hotel, though branding and other details have not been finalized.

City filings show developer MountainWest plans to build a project near that site with two residential towers with a total of more than 400 apartments, a portion of which will be designated as affordable. Still in early planning, that project also calls for about 40 for-sale condo units and a 400-room hotel.

Heading into mid-2025, vacancies among properties 50,000 square feet or smaller remain tight. Construction has been minimal in this segment. Market participants note there is a scarcity of higher-quality, turn-key small-bay space.

Conversely, for properties 100,000 square feet or higher, where the bulk of new construction has been in recent years, vacancies are now 7.8%, which is 170 basis points above the 2019 year-end tally.

Over the past five years, the inventory base of properties 100,000 square feet or larger has grown by roughly 30%, whereas among properties 50,000 square feet or smaller, it has grown by just 5%.

Among large-bay properties, those 250,000 square feet or more, local brokers note longer lead times from tours to lease signings. Also, tenant leverage has increased on concessions like tenant improvement packages, free rent and annual rent escalations. Standard free rent on new five-year, big box deals has increased to roughly three months, up from one month two years ago. Tenant improvement packages have increased by around 15% to 20%, commensurate with rising construction costs. While annual escalations on new leases were around 4% in early 2024, more recent deals are averaging 3.75% for five-year leases and 3.5% for 10-year leases.

Looking ahead, tariff uncertainty could cause some occupiers to opt for a "wait-and-see" approach and postpone making space commitments, which would keep vacancies higher for longer.

Less than 16 million square feet are anticipated to be completed this year, which would put new supply at its lowest annual tally since 2018. Groundbreakings remain near seven-year lows, and with interest rates and construction costs unlikely to fall meaningfully anytime soon, they could ease furt

National home prices rose +0.7% year-over-year between April 2024 and April 2025, according to the Zillow Home Value Index—a decelerated rate from the +4.4% year-over-year rate between April 2023 and April 2024.

31 of the nation’s 300 largest housing markets (i.e., 10% of markets) had a falling year-over-year reading in the January 2024 to January 2025 window. 

42 of the nation’s 300 largest housing markets (i.e., 14% of markets) had a falling year-over-year reading in the February 2024 to February 2025 window. 

60 of the nation’s 300 largest housing markets (i.e., 20% of markets) had a falling year-over-year reading in the March 2024 to March 2025 window

80 of the nation’s 300 largest housing markets (i.e., 27% of markets) had a falling year-over-year reading in the April 2024 to April 2025 window. 

While 27% of the 300 largest housing markets are currently experiencing year-over-year home price declines, that share is gradually increasing as the supply-demand balance continues to shift directionally toward buyers in this affordability-constrained environment.