The Signal

Construction spending slips as flex supply stays thin

Total construction spending printed $2.1576T in July, down $10.1B from $2.1677T. Housing starts fell to 1.275M from 1.309M and permits to 1,403K from 1,433K. Read that as fewer shell projects competing for the same steel, concrete and metal building packages that a 490 to 1,080 sq ft garage suite with 20 ft clear and a 14x14 door depends on. Softer residential volume historically eases subcontractor pricing at the small end. It does not fix land basis in Buford, Fort Mill or Lake Norman.

The adjacent comps are loud. Blackstone upsized an industrial CMBS from £617M to £1B on demand, and BREIT is lining up $1.71B against a 19M SF industrial portfolio. Institutional money wants industrial cash flow at scale. It does not want 60 individually deeded garage suites. That is the whole opportunity and the whole risk. No published cap rate series exists for garage condominiums, so underwrite off local for-sale comps and rent rolls, not off a national index that does not exist.

Toys keep selling while sentiment keeps falling

Durable goods spending at $2,443.6B in August, up 2.0% month over month, is the cleanest read on this asset class available in public data. Garage condo absorption tracks the purchase of things that do not fit in a two car garage. Total vehicle sales at 16.982M SAAR, up 2.42%, points the same direction. Unemployment held flat at 4.1%. Against that, consumer sentiment dropped to 51.7 from 55.2, a 6.34% fall, and real disposable income slipped to $18,410.5B. Buyers are spending while feeling bad. Watch whether that holds.

The RV channel is active. The Elkhart RV Open House ran multiple days of dealer previews, Gulf Stream and Dream Haven launched product, and Choice Hotels agreed to acquire Harvest Hosts, a bet by a public lodging franchisor on RV travel membership behavior. Storyteller Overland launched GEAR MODE, an adventure van built around dirt bikes, skis and surfboards. That is a customer with gear, and gear needs a 20 ft clear bay. We do not have current RVIA shipment totals or collector car index prints in today's signals.

Five percent tens reset every construction pro forma

The 10-Year Treasury printed 5.24% on September 28, up from 5.17%. The 30-year mortgage hit 7.03% from 6.95%. SOFR eased to 3.88% from 3.90%, and the 10Y-2Y spread widened to 0.37% from 0.32%. Long money is getting more expensive while short money holds. For a garage condo developer that means construction draws priced off SOFR are stable, but the retail buyer financing a suite and the investor refinancing a completed phase both face a higher long curve. Commercial Observer put it plainly on September 29: rising rates and construction costs are forcing developers to get creative with financing.

Credit itself is not broken. CRE loan delinquency fell to 1.53% from 1.56%. High yield spreads sit at 3.08%, up only 6 bps. Capital is clearing for the right product, as Blackstone's £1B industrial CMBS and BREIT's $1.71B refi show. Single-asset sales are slumping while M&A carries volume, per Bisnow on September 24. Translation for small-bay: sell units to end users and self-fund phases, or partner with lenders who understand presales. Waiting on a rate rally is not a plan.

Opportunity Zone rules refresh as designations get submitted

Two live signals. The Federal Register published a correction on September 28 to Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures. Colorado submitted its Opportunity Zone tracts for federal designation on September 28. New maps plus new reporting and decertification mechanics mean the OZ path is being rebuilt with tighter compliance, not loosened. If you are eyeing a small-bay flex build inside a newly designated tract, the reporting burden on the fund is part of the underwriting now, not an afterthought.

Here is the mechanic worth understanding regardless. A garage condominium is real property, but a meaningful share of its cost sits in components with shorter lives: the 14x14 overhead doors and openers, site paving and drainage, exterior lighting, fencing, and specialty electrical for lifts and compressors. A cost segregation study reclassifies those from 39-year property into 5, 7 and 15-year buckets, which is what makes accelerated and bonus depreciation useful. You need engineering support and a placed-in-service date. This is general information, not tax advice. Take it to your CPA before you model anything.

We map capital sources across private lenders, family offices and funds, and run cost segregation studies for owners of qualifying commercial property.