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Multifamily Cap Rates

According to RCA’s transaction database, across all property types, Apartment cap rates widened by the largest margin in August, surging by 60 bps to 5.79%. The increase represents the Apartment sector’s largest month-over-month increase on record as part of RCA’s post-2001 tracking, topping the previous high of 47 bps set in July 2009.

  • While these data are concerning, auxiliary data suggests that the isolated August reading may overstate the sector-wide trend in cape rates. The relative overweighting of ‘mom and pop’ owners in the Apartment sector compared to other property types may mean that a larger share of the investor pool lacks access to capital markets in periods of financial turbulence, leading to more distressed sales.
  • RCA’s quarterly hedonic cap rates series, which tracks yields using a ‘sum of parts’ approach and tends to be less volatile, was last updated through the second quarter, reporting a quarter-over-quarter drop of 3 bps.


CMBS Distress

  • The volume of distressed CMBS debt in the second quarter totaled just below $40 Billion, rising above GFC records, according to RCA tracking.
  • Distress, however, is not equally distributed across the board. Hotel assets account for 50%, and Retail assets account for 42% of newly designated distressed debt. Collectively, Apartment, Development Sites, Office, Industrial, and Senior Housing assets accounted for just 8% of distressed debt.


Small Business Optimism

  • According to the National Federation of Independent Business Owners, small business optimism has markedly improved in recent months. Between February and April, the optimism index fell from 104.5 to 90.9— the lowest reading since March 2013.
  • Through August, the index has recovered a majority of lost ground, sitting at 100.2.
  • A 33% share of small business owners surveyed report having job openings that they have yet to fill, up from 23% in May, and down only marginally from the 35% reported in August the year prior.
  • Similarly, small businesses are increasingly anticipating the need for additional hires. A net-21% of respondents reported having plans to bring on new employees in the next three months, improving from a net-1% in April and up from a net-20% one year ago.


Economic Growth

  • Real GDP fell at an annualized rate of 31.7% in the second quarter of 2020, following a 5% contraction in Q1, according to BEA estimates.
  • Advance estimates for the third quarter are set for release on October 29th. The Weekly Economic Index (WEI), which serves as a snapshot in time for current growth, sat at -4.4% during the week ending on October 3rd, a slightly steeper contraction compared to the week prior, where economic growth was estimated to have dropped -3.95%.
  • GDPNow, a real-time forecast of current quarter GDP updated by the Federal Reserve Bank of Atlanta, estimates a 35.3% annualized rise in growth during the third quarter, according to the October 6th reading. The latest estimate is up 3.3% from roughly a month ago.


Consumer Sentiment

  • The University of Michigan’s Survey of Consumer Sentiment rose to 74.1 in August, 1.6 points higher than in July. The August reading is still only 0.4 points above the April-through-July average of 73.7.
  • The index reached a cyclical high of 101 in February before plunging as low as 71.8 in April as COVID took a foothold in the US.
  • Breaking the index out into its components, the area most closely returning to pre-pandemic levels is expectations of future personal finances, which stood at 133.0 in February and has recovered to 127.0 through August.
  • The area that has least improved is the economic outlook 12-months ahead, which remains down by -48.8% from February.


Civilian Unemployment Rate

  • U3, otherwise known as the Civilian Unemployment Rate, the most widely cited measurement of labor market slack, fell to 7.9% in September, down a half-percentage point from August. U3 has now fallen for five consecutive months as the economy attempts to recover from the Spring’s unprecedented scale and pace of job losses.
  • Pre-COVID, the unemployment rate sat at a generational-low of 3.5%; according to the FOMC’s Summary of Economic Projections, a return to full employment isn’t forecasted until 2023.


Discouraged, Marginally Attached, and Involuntary Part-Time Workers


  • The amount of marginally attached workers stood at 1.9 million in September, a slight decrease from the
    2.1 million in August. Marginally attached workers do not count as part of the Labor Force, and, therefore, do not show up in the often-cited U3 unemployment rate. Instead, they are counted as a separate group, containing those who are out of a job but want to work, and had looked for a job in the last year, but not the previous four weeks.
  • The number of discouraged workers, or those outside the labor force that believe that there are not any jobs available to them, saw little change in September, totaling 581,000.
  • The share of people working part-time rather than full-time for economic reasons stands at 6.3 Million through September. Roughly 2 million workers have become involuntary part-time since the pandemic began.


Average Hourly Earnings

  • According to the BLS, average hourly earnings for all private nonfarm employees rose by a meager 2 cents to $29.47 in September. Wages now sit 4.4% higher than in September 2019.
  • Focusing on the earnings of private-sector production and non-supervisory employees, these workers registered just a 1 cent wage increase this past month.
  • An alternate measure of compensation, the BLS’ Employment Cost Index, which accounts for a more comprehensive set of employer costs and employee benefits, is up 2.7% from a year ago through the second quarter.



Employment Levels

  • The US Economy added back just 661,000 jobs in September, by far the smallest increase in five months. For perspective, during August, the economy added close to 1.5 Million jobs. The recovery continues on but at an increasingly slowing rate.
  • The sector reporting the most substantial gains was Leisure and Hospitality, which accounted for 318,000 new hires. At least 200,000 of those hires were in Food Services and Drinking places as more counties around the nation expand their reopening efforts. Today, the US economy remains 10.7 million jobs below its February level.


Single-Tenant Net Lease 

  • According to an Avison Young report, Single-Tenant Net-Lease cap rates ticked up only marginally in the second quarter, rising 3 bps to 6.39%. The volume of trades has fallen considerably due to the pandemic, falling by -27% in Q1 and then -37% in Q2. The report goes on to note that the relative lack of movement in cap rates despite extreme headwinds reflects that investors and lenders are only moving forward on the highest-credit and best-leased deals.