🛍️ Retail was supposed to be dead. What happened?

👋 Happy Sunday, Best Ever readers!

In today’s newsletter, retail is shifting, AI bans are at risk, transactions are slowing, John Chang is optimistic, and more.

Today’s weekend edition is presented by Ownwell’s best-in-class tax reduction services. Schedule a free consultation today and see how much you could save on property taxes.

Let’s CRE!

🗞️ NO-FLUFF NEWS
CRE HEADLINES

LIHTC Reforms: Trump's "One, Big, Beautiful Bill" proposes key LIHTC reforms, including a 12.5% boost to 9% credits and reducing the 4% bond threshold from 50% to 25%. These changes could create 527,000 new affordable units by 2029.

Collateral Damage: The proposed “Big Beautiful Bill” would also ban state and local AI regulations for 10 years, potentially nullifying rent-setting algorithm bans in key cities. RealPage, facing 30+ lawsuits and DOJ antitrust action, lobbied for the provision through industry groups like NMHC.

Delinquency Surges: Multifamily CMBS loan delinquencies surged 113 bps to 6.57% in April, reaching the highest level since March 2015. The rate has skyrocketed 524 bps YoY from 1.33%. Overall CRE delinquencies rose 38 bps to 7.03%, with distressed balances hitting $41.9 billion.

Varying Vacancy: Retail obsolescence varies by region, with the Midwest having the highest rate at 1.8% of inventory. Large stores built in the 1980s-90s now struggle with competition and changing consumer preferences, with mixed-use redevelopment emerging as a solution.

Cap Rates Plateau: Multifamily cap rates have stabilized at approximately 5.7% after rising 1.2 percentage points between Q2 2022 and Q1 2024. Cap rates are forecast to decline slightly by year’s end despite the earlier 22% valuation reduction caused by rising rates.

🏆 TOP STORY
RETAIL ISN’T SHRINKING. IT’S SHIFTING.

Retail store closures have dominated headlines. But like most trends, headlines don’t tell the whole story. In reality, retail has shown remarkable resilience, according to Collier’s.

Since 2010, in-store sales have declined only once (during the pandemic), with physical retail sales remaining steady even through the rise of e-commerce. With new retail supply projected to drop by 45% in 2025 due to elevated construction costs, the focus is shifting to optimizing existing spaces, keeping vacancy rates tight at just 4.2% nationally in Q1 2025 and driving interest in established retail properties.

The biggest myth in modern retail is that e-commerce is killing brick-and-mortar. The reality is that the relationship between the two has evolved from competition to collaboration, creating a powerful omnichannel ecosystem that benefits both.

• Physical stores still account for 76.2% of core retail sales, with the pace of market share erosion slowing as online growth stabilizes.

• As of 2024, physical stores supported over 30% of online retail sales through omnichannel fulfillment methods (curbside pickup, in-store collection, or direct shipping from stores). This occurred a full year ahead of projections and is expected to continue its momentum, reaching 36.3% by 2030.

Retail isn’t shrinking, it’s shifting. Rather than retreating, retailers are actively pursuing brick-and-mortar growth strategies, recognizing stores' critical role in boosting online sales and overall profitability:

• Expansion: More than half of U.S. retailers (56.3%) plan to expand their physical footprint over the next five years, while only 15.6% expect to contract.

• Competition: Quality spaces fill quickly, with the median time to lease dropping to just 7.5 months in 2024, the fastest pace in nearly 15 years.

Global Confidence: Between 2018 and 2023, over 18,900 new stores opened nationwide, with international retailers accounting for more than 5,000. Global brands like Aldi, Sephora, and Gucci are leading this expansion, capitalizing on available real estate left by legacy closures. Recent retail failures aren't primarily due to e-commerce competition but rather to failures in adapting business models, with most customer defections going to other physical retailers rather than online-only competitors.

WHAT IT ALL MEANS

Retailers that adapt are still winning. Limited supply and sustained demand for quality retail space create favorable conditions for well-positioned properties, and the future belongs to flexible retailers who effectively optimize their physical footprint within an increasingly dynamic shopping experience. Store closures steal the headlines. But behind every failure, a competitor is thriving because they’ve adapted to the shifting retail landscape, while those that stay static die out.

🏘️ TOGETHER WITH OWNWELL
STOP OVERPAYING ON PROPERTY TAXES

Are property taxes eating into your NOI? Texas commercial property values are up 7.44% on average in 2025, and with many assessments exceeding actual market value, you could be overpaying by thousands. 

Ownwell delivers best-in-class tax reduction with no upfront fees — you only pay if you save money.

Why choose Ownwell?

• Higher Savings: Clients achieve 6-15% more savings compared to competitors, with some seeing up to 31% higher reductions.

• Local Expertise: In-house consultants bring decades of county-level experience and strong relationships with local authorities.

• Advanced Technology: Their platform analyzes data from over 150 public and private sources and evaluates multiple valuation approaches to craft a personalized approach to maximize your returns.

• Seamless Experience: Track and manage all appeals and payments in one place with real-time updates and dedicated support.

Don't leave money on the table. Schedule a consultation today to determine if YOUR properties are overassessed and estimate your potential savings.

💰 CRE TRENDS
APARTMENT TRANSACTIONS SLOW, STILL UP YOY

U.S. apartment transactions followed typical seasonal patterns with a slowdown in Q1 2025, yet showed significant YoY improvements across key metrics.

• Transaction Volume: 1,277 apartment properties sold for $30 billion in Q1 2025 — up 36% YoY but below the $53.6 billion quarterly five-year average.

• Pricing Strength: Average price per unit remained robust at $211,356, exceeding the $200,000 threshold for 13 of the past 15 quarters.

• Cap Rates: Average cap rates increased to 5.65%, the highest in nearly nine years, yet still the lowest among major commercial property types.

• Annual Performance: Transactions totaled $157.7 billion for the year ending Q1 2025, representing a 36% increase from the previous 12-month period.

The apartment sector continues to demonstrate resilience despite rising cap rates. While transaction volumes haven't returned to the record-breaking $359 billion seen in 2021, the steady YoY growth suggests investor confidence is strengthening after the post-pandemic adjustment period.

🎙️ BEST EVER PODCAST
THE BIG QUESTION: ACT NOW, OR WAIT?

It's no secret that economic headwinds are hitting CRE. With interest rates potentially climbing above 5% by year’s end, Moody's downgrading U.S. government debt, and tariffs creating inflationary pressure, CRE investors face a challenging landscape marked by an uncertainty index that's at a record high.

Despite these challenges, economist John Chang said this week on his show, The Horizon, that investors may benefit from deploying capital sooner rather than later. For buyers, he says, focusing on properties with a clear pathway to increasing revenues — whether through value-add in the form of upgrading units, better management, or simply moving a property to market — can represent a smart investment today, even with initial negative leverage.

Chang highlights several property types positioned for strength:

• Apartments: Despite a construction pipeline of 410,000 units in 2025, demand remains robust, especially in growth markets. Chang points to affordability challenges in homebuying and stronger tenant retention rates supporting the apartment sector.

• Necessity-Based Retail: Neighborhood centers anchored by grocery stores show promise, particularly with service-oriented tenant mixes less vulnerable to tariff impacts. Chang emphasizes tenant composition as critical, favoring locations with medical, dental, and financial services over tenants selling imported goods.

• Infill Industrial: These properties are difficult to replace and serve essential purposes in today's logistics-focused economy.

• Medical Office: Facilities with heavy equipment offer stability as they're difficult to relocate.

Chang remains optimistic about CRE as a hedge against current economic uncertainty. While timing investments becomes more challenging in this environment, the focus on growth markets like Dallas, Houston, and Tampa, combined with the right property types, offers investors a path forward in a market where both stocks and bonds appear increasingly unreliable. 

“As a buyer, it's a bit of a debate,” Chang says. “But if you have the capital, I would argue that you're better off deploying it sooner rather than later.”

🎙️ Listen to John’s full episode here.

🌎 BEST EVER COMMUNITY
GET DIRECT ACCESS TO BEST EVER EXPERTS

What do John Chang, Matt Faircloth, Amanda Cruise, and the incomparable Ash Patel have in common? Yes, they’re all expert voices on the Best Ever CRE Show. They’re also in the Best Ever Community — a free, exclusive community of active and passive investors who are looking to learn, grow, and do more deals. If you want to connect directly with Best Ever experts and hundreds of other experienced investors, apply to join the FREE Best Ever Community today.