The Signal

Construction spending falls while industrial production grinds higher

Total construction spending printed $2,186,145M in September versus $2,227,374M prior, down 1.85%. Housing starts dropped 5.2% to 1,221K and permits eased to 1,398K. Less competing vertical construction means general contractor availability and subcontractor pricing should improve for anyone pouring slab on a 490 to 1,080 sq ft suite build in 2027. Meanwhile industrial production rose to 103.95 from 103.27, up 0.66%. The users are still producing. The builders are pausing.

The comps around this asset class keep getting institutionalized. JLL arranged a $155M construction loan for Buckeye Yards in Columbus. Hernandez Development and PTM Partners took $17.3M for a West Palm Beach industrial project. Blackstone's industrial CMBS swelled to £1 billion on strong demand, and BREIT lined up $1.7B against 19M SF. Big-box industrial is bid. Nobody is underwriting 20 ft clear, 14x14 door garage suites at that scale, which is precisely the inefficiency. No national pricing index exists for this product. Underwrite your own comps.

Sentiment at 48.1 with unemployment improving to 4.1%

The end-user picture is genuinely mixed and you should not pretend otherwise. Consumer sentiment at 48.1 is deeply depressed. Real disposable income fell to $18,366.1B from $18,416.2B. Total vehicle sales down 3.55% to 16.378M. Durable goods off 0.56%. That is the discretionary RV, boat and powersports buyer getting cautious. Forest River Finance just launched its first consumer promotion through Octane, giving qualified RV buyers deferred first payments into the year-end selling season. Dealers do not hand out payment deferrals when retail is easy.

The counterweight is real. Unemployment improved to 4.1% from 4.2%. LCI Industries reported Q3 operating margin expansion and growth in adjacent industries and aftermarket. Cummins posted record EBITDA. The supply chain into recreation is profitable even as units soften. Aftermarket strength specifically means existing owners are maintaining and upgrading rigs they already own, and those rigs need covered, secured, climate-sane housing. We have no RVIA shipment number in today's signals, and no collector car index print. Do not assume either direction on those.

Ten-year at 4.90 while high yield spreads widen

The 10-Year Treasury printed 4.90% on November 4, down 5bps from 4.95%. SOFR eased to 3.92% from 3.94%. The 10Y-2Y spread steepened to 0.38 from 0.32, an 18.75% move, which is the curve telling you the front end is coming down faster than the long end. For a floating-rate construction facility that is helpful. For permanent takeout on a completed garage condo project it means your exit cap assumption needs a 4.90 handle in front of it, not a 4.00.

Credit is not uniformly friendly. High yield spreads widened to 3.48% from 3.32%, up 4.82%. That is risk appetite pulling back at the margin. CRE loan delinquency improved to 1.53% from 1.56%, so existing books are fine. Construction lending is clearly clearing for industrial: $155M at Buckeye Yards, $17.3M in West Palm Beach, $1.7B of BREIT CMBS, 891 units of self-storage financed by Provident in Glen Rock. Small-bay flex sits adjacent to all of it. The 30-year mortgage at 7.18% still shapes what an individual unit buyer can carry.

Cost segregation on a 1,080 square foot suite

Here is the mechanic most garage condo buyers miss. When you buy a suite, the default is to depreciate the whole improvement over 39 years as nonresidential real property. A cost segregation study reclassifies components into shorter lives. In a 20 ft clear, 14x14 door suite the candidates are specific: the overhead door operator and controls, dedicated electrical for lifts and compressors, lighting, mezzanine components that are not structural, security and camera systems, and site work like paving, striping and exterior lighting. Those typically land in 5, 7 or 15 year buckets.

Why it matters: 15 year land improvements and 5 year personal property qualify for bonus depreciation treatment in a way the 39 year building shell does not. The timing value is front-loaded. If you use the suite for a trade or business rather than passive rental, Section 179 may also be in play on qualifying property, subject to income limitation. Nothing in today's signals contains a new IRS or Federal Register release, so assume no rule change this week. This is general information, not tax advice. Run it with your CPA before you buy.

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