INSIGHT from pintail

Market Observations Q2 | 24

Market Observations: Q2 | 2024

Amidst change, hope is essential. But it's certainly not a strategy.


A word on rates.

Many still anticipate the elusive Federal Reserve rate cuts later this year. And although the Fed may still cut rates, generally rates are cut when an economy is weak or feared to weaken. By most accounts, we’re not there yet.

According to the Federal Bureau of Labor Statistics, employment growth was surprisingly strong in May, as employers added 272,000 jobs. This was far above consensus expectations of 180,000 in a market that had shown signs of cooling.

The rebalancing of the labor market, in combination with a cooling but stable economy, gives the Federal Reserve reason to be patient before cutting the federal funds rate. This is likely to disappoint (…) investors and lenders in the commercial real estate market. (Source: Costar 6/12/24)

That, taken with the understanding that current interest rates aren’t high by historic standards, means that deal thesis cannot rely on rates decreasing substantially. That’s not to say the Fed will not cut rates, but what seemed a foregone conclusion twelve months ago is not so much now.

Now rents. 

Over the past several years the ‘mark to market’ concept or ‘forced appreciation’ has been core to many real estate investment strategies. Rents have indeed increased, perhaps nearly two-fold since pre-Covid, for certain asset classes in certain markets. Generally, rent growth is now at the top of the “S” curve. Tenants are not able to, and will not, absorb unlimited rent increases. They will do more with less or their business models will evolve to require less space—or no space.

Increases in pass-through expenses or TICAM are also stressing occupancy costs. We’re working on several assignments where TICAM is over $10/SF and shocking to some users, who expect perhaps half that. Increases in taxes, notably in insurance and other costs, are increasing tenants’ gross occupancy costs, and eroding net operating income for landlords and investors.

The takeaway: investors can’t count on decreasing interest rates or drastically increasing rents to underwrite deals—or bail them out of struggling projects.



Earlier this year I met with the acquisition team for one of the top real estate operators in the nation. “Street Retail and Manufactured Housing” is their focus for ’24. We had a laugh that historically, these asset classes have been known as ‘strip malls’ and ‘trailer parks’. With office in the gutter, big box industrial overbuilt, and STNL low-cap inventory piling up, nail salons, barbershops, Chinese take-out joints, and affordable places to live do seem like good investments. They’ve always been good investments. And equity is dammed up and looking for somewhere to go.

That said, we’ve seen some funky things over the past few years where it seems like the music is about to stop:

  • Why is there both a CVS and a Walgreens on every corner?
  • Does it seem like big box industrial buildings are popping up like summer weeds?
  • How many more Dollar Generals do we really need?
Headlines such as these tend to tell the story…if it seems weird, it probably is:
  • Real-Estate Downsizing Finally Comes for Your Pharmacy: CVS, Walgreens and Rite Aid are closing hundreds of stores as discount retailers and e-commerce outlets increase competition (WSJ)
  • U.S. Industrial Real Estate Cooling Off After Rapid Growth (Area Development)
  • The Dollar-Store Showdown Comes Down to Real Estate (WSJ)

Again, fundamentals win the day here. Fad investing in real estate, like the stock market, typically doesn’t work out in the end, especially for those late to the trend.


Warren Buffett once said that it’s wise for investors “to be fearful when others are greedy and to be greedy only when others are fearful.” I try not be greedy or fearful, but the sentiment stands.

We love living in Greenville, SC, recently noted as being in the top 5 places to live in the US. Some assume our business is confined to Greenville. It is not. Other areas of our state, and the southeast (Columbia, Spartanburg and Birmingham for example) often offer better yields.

We’re happy to help a client buy or sell a STNL asset. A lot of brokers do that well. We do it very well. But throw us in a briar patch. Let us sort out your CAM reconciliations, evaluate that gnarly family portfolio, or advise on that development opportunity. That’s what we do best, and that’s how we help our clients build and realize value.

Maturing debt is and will continue to create opportunities some of which will be distressed situations. That said, the capital slated for CRE opportunities is plentiful and the opportunities less plentiful, though increasing. The opportunities to buy and sell also look different.

We’re excited to consult and advise on your real estate portfolio, investment, or business goals, as well has help facilitate opportunities, such as off-market acquisitions, connecting with banks that are actively lending, or developing a solution for a non-performing asset. Reach out if we can help in any way.