The Fed Pulse

Alright, here’s the scoop.

Next week, the FED’s meeting (Nov 6-7) could bring a 25 basis point rate cut, moving the target range down to 4.5%-4.75%.

That's what the markets are pricing in.

This would be the second cut after September's 50-basis-point drop.

It would start a gradual easing cycle.

• Inflation’s Cooling Off: Personal consumption expenditures (PCE) are up only 2.1% year-over-year—the slowest since early 2021.

  We're finally seeing inflation close in on the FED’s 2% target.

• Job Market Shift: October added just 12,000 jobs, a big drop from the 200,000+ in September.

  Hurricanes and strikes at places like Boeing hurt the numbers.

  But, the labor market is cooling, even with 4.1% unemployment.

• GDP Stays Strong: Q3 GDP holds at 2.8% annualized—a sign that economic growth remains steady.

What’s the bottom line?

Even if we get that rate cut, it's not a game-changer on its own. Mortgage rates may not move much.

Deep Dive

Highest Profit Deal of All Time

Folks, it doesn’t get better than this.

Today, I’m writing about the deal that I was a part of.

I won’t call it my deal because I wasn’t the one who finished it, but I found it and was part of the acquisition process.

That deal made $4.45M in profit.

And it was a simple sit-and-wait for two years—no construction, no leasing.

So here you go.

It was the end of 2022.

One of the brokers I’d worked with in the past called me up and said, “I have a deal that’s off-market in Franklin, Wisconsin, and we need to move quickly.”

The deal was a vacant, former cross-dock FedEx facility.

It was one long building, 47,810 square feet on 13.65 acres of land.

Now, when you hear “FedEx,” my underwriting mind goes, “That’s a killer location,” because FedEx always has the best logistical spots.

So, why did they move?

They built a new facility not far away.

The price?

Around $2M. It seemed too good to be true.

Well, there was a catch. The city of Franklin wouldn’t allow a cross-dock, truck terminal, or outside storage.

This made the deal legal non-conforming, so moving forward, it had to be something else.

Still, I thought in my hands, this deal is worth at least $5M.

I just needed a redevelopment plan that would appease the town.

The broker shopped this deal around to other developers, and I competed against two other buyers.

I structured an offer for $2.05M, $50,000 earnest money, 30-day due diligence, 30-day close, all cash, as is.

No letter of intent, straight to purchase and sale agreement.

I assured my broker that unless unforeseen issues came up, I was comfortable with the risk, and we would close.

And I got the deal.

We went into due diligence—walked the property (YouTube) , did a Phase 1, and prepared a debt memorandum (Adobe Spark Flyer).

Although we made a cash offer, I was planning to finance it.

But in case the bank bailed, I had hard money lined up to take it down.

My vision was this.

If we couldn't use it as a cross-dock or truck terminal, I'd slice the building into smaller units, 3,000–10,000 square feet. We did a similar project in Milwaukee (You Tube).

The estimate? I’d spend $1.6M on construction, and it would be worth $5M or more. Pretty good deal.

And as always in a new market, we went to test the leasing side. It was red-hot.

Within days, after going heavy on Facebook and contacting leasing brokers, I had four tenants ready to sign leases.

My pricing assumptions were spot on, and demand was strong.

Also, one of them wanted to take the entire facility as-is.

It was a recycling company, Allied Resource Recovery Inc.

We negotiated a deal—$25K per month on an absolute lease, no tenant improvements, as-is. An absolute lease is like mailbox money.

The tenant must handle maintenance, taxes, and insurance. Everything.

At a $300K NOI and 10-year deal, we’d be looking at a $4.6M value at a 6.5% CAP.

Not bad at all for re-leasing without needing construction.

But here’s where it got interesting.

The next step was a zoning meeting, and I was promptly thrown out.

The city envisioned Amazon-like developments, big new construction projects for that area. So, back to the drawing board.

I shifted gears. I put a plan together to renovate the building (Google Drive).

I'd divide it into smaller units.

Then, I'd build a new 38,000-square-foot structure with 16 more units.

It would be a small-bay industrial redevelopment.

I prepared renderings and presented my plan to the city’s planning department, fire chief, mayor, etc.

I had a solid pitch ready.

No go—they shut it down.

So, my only remaining option was to go the legal route.

I interviewed a top land attorney and considered suing the town for a compromise.

After talking to a few other attorneys, I felt good.

The neighboring properties were used for similar purposes. So, I thought we'd get a favorable outcome.

Yet, the timeline was uncertain.

Litigation could take one to three years; banks wouldn’t finance it, and hard money wasn’t an option for that long.

It would have to be all cash, committed for the long term.

We had so many deals on our plate, so ultimately, I had to say no, even though I knew it was a smoking-hot deal.

Now, I had to get out without burning bridges with the broker or FedEx.

If I backed out, it would be the last deal he’d bring me.

I needed a creative way out.

So, I reached out to a developer friend of mine with Satori Properties, who specializes in truck terminals and industrial buildings.

After a quick conversation, he agreed to take over the deal with a cash offer.

Essentially, I stayed on through acquisition, and he funded the deal and took over moving forward.

My goal was to save face and keep my word.

He closed the deal and let the property sit vacant for two years.

He didn't make much headway until recently.

Also, he couldn't build new because interest rates spiked and it didn't pencil out anymore.

But he came up with a brilliant solution—he secured a temporary use permit for 10 years as a truck terminal with the city.

With that approval, he sold it for $6.5M.

That’s a $4.45M profit, not bad for a deal that didn’t need major redevelopment—just clever maneuvering.

This makes it the most profitable deal I’ve touched, in terms of adding value through paperwork rather than a big redevelopment.

Isn’t commercial real estate amazing?

And, by the way, same broker offered me another promising off-market deal—guess who gets first dibs?

Takeaways:

• You don’t know what you don’t know. I assumed splitting the building into smaller units was the best strategy. Apparently, there’s always a new level of Jumanji in commercial real estate.

• CASH is king.

• The most valuable thing in commercial real estate is your word. There’s no third strike rule here. If you mess up once, you’re done. But if you keep your promises, it comes back tenfold.

Be Well,

Saul

News & Moves

1) The commercial property market's having a "hold-your-breath" moment.

Brookfield's Citypoint sale is testing the waters, with valuations all over the map.

Some investors still trust old valuations, as the market shifts.

As interest rates level off, transactions are rising. So, it's time to test pricing.

The key question?

Whether properties like Citypoint will fetch enough to cover their debts.

Offices and retail sectors are in for a rough ride, but some winners will emerge, snapping up prime assets at a discount.

2) Silicon Beach Sees Stormy Weather: Office Campus Sells for a Steep Discount

The Bluffs, a 500,000-square-foot office campus in L.A.'s once-booming "Silicon Beach," just traded hands for $375 per square foot—less than half of its previous 2016.

Strategic Value Partners and Lincoln Property Company scooped it up for $188 million after the previous owner, Edward Minskoff, defaulted on $250 million of debt.

The pandemic's aftermath has shaken tech tenants in Playa Vista, with major players like Google and Facebook shrinking leases.

The new owners plan renovations to breathe fresh life into a submarket hit by dwindling office demand.