Beyond The Summit

A Quick Trip to The Bay

Our recent trip to the Bay Area was a perfect blend of learning, connection, and inspiration. We explored Chinatown and walked through the Pacific Bonsai Expo while sharing great food and experiences with our Summit family.

We also attended the NorCal Multifamily Meetup hosted by industry leaders Michelle Jeong (FIRE Capital) and Neal Bawa (The Mad Scientist of Multifamily).

This trip reinforced the value of community and connection in our journey together. After all, "The most important things in life aren’t things."

View From The Summit

Why We Passed on a Rare 3.19% Assumable Loan—And What We Found Underneath

At Bright Peak Capital, we approach each investment with a diligent eye, ensuring that every opportunity aligns with our standards and values. Recently, we reviewed a deal in San Antonio, TX—not one of our primary markets but one we're open to, given our experience in Texas. With an assumable loan at a favorable 3.19% rate and no additional funding required from the seller, this setup hinted at a solid opportunity worth a closer look.

San Antonio offers strong fundamentals, including high population growth, rising incomes, and a dynamic job market. However, the city has encountered specific challenges over the past two years, particularly in rental rates. An oversupply of units has led to negative rent growth and 6-8 weeks of concessions. We are forecasting negative to flat rent growth in San Antonio for the next 18-24 months and with more than 8,500 additional units currently under construction, vacancy rates are expected to remain high. These conditions aren’t necessarily deal-breakers, but they demand careful analysis to ensure an investment can withstand pressure in a crowded market.

We took a deep dive into the property’s financials and structural documentation to evaluate its potential. What we uncovered emphasized the critical role of due diligence. While the property was marketed with attractive financial terms, it was operating at a slim $5,000 above break-even—an inadequate margin for the investment required. More concerning were significant deferred maintenance issues, including cracked foundations, recurring sanitary backups, and severe wood rot on multiple buildings’ exteriors. These red flags raised immediate concerns about long-term viability.

Though this property initially appeared promising, these findings confirmed that it didn’t meet our standards for a secure, sustainable investment. At Bright Peak Capital we prioritize the long-term stability and quality of every asset, ensuring that each acquisition aligns with our commitment to sound, high-value investments. This San Antonio property illustrates why we go beyond surface-level metrics, digging into details that protect and grow our investors’ portfolios.

Market Pulse

Essential Financial Indicators at a Glance

As of market close Oct 31, 2024 (MoM change)

US Ten Year Treasury Yield: 4.282% (+0.497%)

SOFR (Secured Overnight Financing Rate): 4.81% (-0.03%)

10 Year Treasury Minus 2 Year Treasury Spread: 0.12% (-0.08%)

30-Year Fannie Mae & Freddie Mac Rates: 6.72% (+0.64%)

S&P 500: $5,705.45 (-$57.03)

NYSE Steel Index: $1,988.73 (-$98.36)

Spot Price Gold: $2,759.80/oz (+$112.20)

Crude Oil Price: $70.53 (+$2.31)

Bitcoin: $70,195.37 (+$6,533.06)

Ethereum: $2,520.98 (-$85.37)

Rates listed are estimates and may not reflect actual rates depending on term, sponsor location, and other factors.

National Market News

Strong Economy, Shaky Market: What’s Next for Investors?

As we continue navigating a dynamic market, the Federal Reserve’s recent and expected moves remain a central focus for investors. With inflation nearing the Fed’s 2% target, many are questioning if we’re on the verge of significant rate cuts; Or if that expectation is even realistic in today’s economic environment?

The Fed’s Calculated Approach to Rate Adjustments

In September, the Fed cut rates by 0.5%, a move signaling a gradual shift toward more supportive economic conditions. However, indications suggest that further cuts will be slow. With the labor market holding strong and inflation "in the vicinity" of its 2% goal, the Fed is expected to proceed at a “deliberate pace,” keeping mortgage rates elevated for a while longer.

Historically, the Fed cuts rates to boost the economy during downturns, but current data shows strength rather than weakness. Job growth, alongside steady consumer spending, underscores resilience in the economy. Cutting rates too aggressively could risk reintroducing inflationary pressures. This balanced approach, focused on sustaining moderate growth, is why we are tempering our expectations for a swift return to low borrowing costs.

Labor Market Insights: Reading the Signals

Labor market reports continue to reflect a stable, evolving workforce. While job creation remains strong, subtle shifts—such as a rise in continuing unemployment claims—hint that some sectors may be slowing in hiring. Additionally, the recent JOLTS report indicated a drop of 418,000 job openings in September, the lowest since January 2021. These indicators don’t yet suggest immediate cause for concern, but they reflect a moderating labor demand that could shape future rate decisions.

The upcoming employment report will also be influenced by recent strikes and hurricane disruptions. This report, along with December's update, will likely provide a clearer picture of the labor market’s trajectory as we head into the new year.

Consumer Spending and the Inflation Outlook

Consumer spending has outpaced expectations, with retail sales rising 0.4% in September and core sales up 0.7%. These numbers point to strong holiday spending projections, with a growth forecast of 2.5% to 3.5% year-over-year. This steady consumer activity supports GDP growth and reinforces the Fed’s caution on rate cuts.

With inflation hovering around the target, some rate adjustments may still be possible, but any cuts are expected to be gradual to avoid reigniting inflationary pressures. The latest Personal Consumption Expenditures (PCE) report indicates that inflation is easing overall, supported by declining gas prices. However, certain categories, like healthcare and financial services, are becoming more expensive. This balance between falling energy costs and rising expenses in essential services points to a nuanced inflation picture.

What This Means for Investors

While inflation continues to ease, expectations of significant rate reductions may need adjusting. Achieving the 2% target is promising but does not necessarily mean a return to the ultra-low rates of past years. With an economy driven by strong consumer demand and steady business investments, we are likely to see moderate, cautious rate adjustments as we move into 2025.

Local Market News

From MSA's we are Actively Evaluating Investment Opportunities

A Billion Dollar Transformation Beyond Kansas City

Lee’s Summit, a thriving submarket of Kansas City, is quickly transforming with a series of ambitious developments aimed at meeting the demands of its steadily growing population. With an estimated $1.7 billion in investment projects currently underway, this area is becoming a key target for investors. The city is evolving into a “live, work, play” destination, where mixed-use spaces integrate housing, retail, and office buildings alongside vibrant recreational areas, positioning Lee’s Summit as an ideal community for both residents and businesses.

New projects such as The Village at Discovery Park, with its blend of residential, commercial, and green spaces, are designed to attract a diverse population while boosting the local economy. Other developments, like the Green Street Project and Lee’s Summit Crossing, bring essential amenities, family-friendly recreation, and unique dining and entertainment options. These investments are not only modernizing the landscape but also enhancing the city’s appeal as a bustling center for commerce and community life. With strong community infrastructure, thoughtful planning, and rising property values, Lee’s Summit stands out as a strategic investment opportunity poised for lasting growth and return on investment.

The Path Forward

Opportunities Exist for Those Who Are Prepared

As we approach the end of 2024, the economic landscape remains dynamic, with strength in consumer spending and a stable labor market balancing the slower inflation decline and high mortgage rates. While the Federal Reserve has made initial rate adjustments, further cuts will likely proceed gradually, aligning with broader economic stability goals rather than rapid changes. This approach underpins the steady growth and cautious optimism we prioritize in our strategy, ensuring that all potential opportunities align with our standards of stability and value.

At Bright Peak Capital we are committed to navigating this complex environment on your behalf. We’re seeing more deals that are close to meeting our investment criteria, and as the economic cycle progresses, we anticipate that more favorable opportunities will emerge. Rest assured, our dedication to rigorous analysis and informed decision-making remains at the core of our investment process, positioning us—and you—for long-term success in a shifting market. Together, we look forward to capitalizing on the right opportunities at the right time.

Thank you for your continued trust and partnership.

Reach Your Summit

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