Good morning. It's Sunday, August 2, and in this week's edition: a live look inside a retail center we have under contract right now and how the value gets made, warehouse developers breaking ground again after a two-year freeze, and why the bond market just sent the new Fed chair a message he can't ignore.
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Warehouse developers are building again. More than 305 million square feet of U.S. industrial space was under construction in Q2, up 18% year-over-year per Cushman & Wakefield - the second straight quarter of growth after groundbreakings froze in 2023. The surprise is who's driving it. Not e-commerce this time. Data-center equipment suppliers - server makers, power hardware distributors, networking vendors - need big-box space to stage and ship gear to AI campuses clustering in the Sun Belt, Mid-Atlantic, and Pacific Northwest. Warehouse demand is now following power and fiber, not ports and rooftops. That 305 million feet hits the market within 12-24 months, which means rent growth moderates in the corridors where it lands. If you own industrial near a data-center cluster, your tenant pool just changed. If you're renewing leases in 2027, your leverage just improved.
"24 Hours with New York City's #1 Real Estate Broker": The Science of Scaling follows Bob Knakal, the man they call the godfather of NYC real estate, through a full day of prospecting and deal work. Knakal has sold $22 billion in property, and the video shows the unglamorous system behind it - he still builds his pipeline by hand. Watch here
"Blackstone on the AI Revolution, IPOs, and Real Estate": Jon Gray's July Market Views, straight from Blackstone. In nine minutes he covers why the firm sees the AI buildout as early innings, where the capital is flowing - energy, chips, the model companies themselves - and how that reads through to real estate. A market view from inside the largest deal flow in the business. Watch here
The Fed held rates Wednesday, and the market punished Kevin Warsh for saying almost nothing about what comes next. The Washington Post reports that June inflation cooled to 3.7% from 4.1%, but Warsh's refusal to explain his anti-inflation playbook triggered a bond sell-off that pushed Treasury borrowing costs to a roughly two-decade high. Futures traders cut September hike odds from 80% to 60%, and Morgan Stanley, JPMorgan, and Bank of America all questioned his credibility in client notes. The 30-year mortgage hit 6.66%, a one-year high.
CRE Impact: When the Fed stops giving forward guidance, the long end prices in uncertainty - and that shows up directly in your debt quotes. Expect wider spreads and jumpier index rates until Warsh proves he'll act, not just withhold.
I mentioned in an earlier issue that from time to time, the Deep Dive will be a deal we're working instead of a tactic or a lesson. This week is one of those. We're under contract on a center right now, and I'm going to show you, high level, how the value gets added - to the property, to the tenants, to the neighborhood - and how that turns into profit.
The deal: a neighborhood retail center on Ogden Avenue in Naperville, one of the strongest suburban markets in Chicago. Just shy of 16,000 square feet on 1.7 acres, anchored by Papa John's with eight local tenants, across from McDonald's. 28,000 vehicles a day, $150,000 average household income within five miles, 300,000 people in that radius. As you can see, a true trophy location. I shot a walkthrough so you can see it for yourself - watch it here.
This one came through direct-to-seller marketing. I built a relationship with the seller over six months and eventually bought direct from the seller. That's the magic of going in at a 10% cap: the seller understands he could get more on the open market if he did the work himself. He'd rather not. He's fine selling to me at a slight discount and letting us do the improving. We're buying at just under $2 million, a 10% cap in place - $194,000 of NOI day one in our hands.
The plan takes NOI to $250,000 by 2029, and it's twofold:
1. Fix the operating expenses. The center runs at about $10 per foot in Opex today. In our hands it will operate at about $6. These are NNN leases, so the savings flow to the tenants - which creates room to move base rents to market without raising anyone's total monthly payment. The tenant's total payment stays practically the same. NOI grows anyway.
2. Improve the asset. Over $500,000 across three years: new roof, new asphalt, new signage, updated facade, new awnings, new sprinkler system - and we're considering an EV charging station. One unit is turning now, and we plan to fill it with a national tenant. A nicer center brings more customers to every tenant in it.
Structure: 80% debt on total cost, first-year interest-only payments, cash flow from day one, minimum three-year hold. At $250,000 of NOI, it's a $3.3 to $3.4 million asset in our hands. Buy right, run it tighter, make it nicer, hold. Not rocket science - just diligence.
This isn't a capital raise pitch. But if you'd like to participate in deals like this on the investor side, sign up here and I'll follow up with you personally.
Where did your best deal come from - a listing, or a relationship?
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Until next Sunday.
Be well,
Saul
P.S. Missed my podcast with Rafik More? Here is the full episode.
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