Morning,
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Two major bankruptcies last month, Tricolor, the subprime auto lender, and First Brands, the auto-parts maker, exposed how hidden leverage can ripple through credit markets.

​Read more about that here >>​

Contagion is building, volatility is the new constant, and with a government shutdown underway, investors are becoming more selective.

This is where my work comes in: I advise best-in-class sponsors on capital formation and build the systems that position them with clarity and credibility to attract capital.

In times like these, those who are prepared rise above the rest and the strongest signal to watch now is labor, the driver that has held the economy together.

If that weakens, everything else follows but history shows that these inflection points create generational opportunities. Only the most disciplined, best-prepared sponsors, with the right capital formation guidance and systems in place, will be positioned to rise.
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Adam

This week's Podcast/YouTube show

Guest: Ryan Severino, Chief Economist and Head of Research, BGO

Labor, Not Inflation, Drives CRE Cycles

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My guest today is BGO’s Chief Economist and Head of Research, Ryan Severino. Ryan sits at the center of the BGO global platform leading the firm’s economic analysis, forecasting, and property-market research while supporting investment and portfolio-management teams across strategies and regions.

BGO itself is a scale player: approximately $89 billion in AUM as of June 30, 2025, serving 750+ institutional clients, and with offices in 25 cities across 12 countries.
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The Real Cycle Driver: Labor, Not Inflation

Ask ten investors what macro factors drive real estate and most will say “rates (cap and interest) and inflation.” Severino argues the demand engine is simpler and more observable: jobs.“The labor market doesn't lie… either we're creating jobs… or we're losing jobs,” he told me, urging investors to watch payrolls as the cleanest read on cyclical momentum. Recent Bureau of Labor Statistics data (BLS) show meaningful deceleration, including a negative month for the first time in years, an inflection he links to policy uncertainty and tariffs, with AI acting as a hiring dampener at the margin.
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​Three Structural Shifts: Immigration, Trade, AI
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​Severino frames today’s “second-coming” macro (a reference to poet W. B. Yeats’s vision of a post-WWI collapse of the old world order) as a decisive break from the last 30–35 years of globalization. First, immigration: historically a U.S. superpower that feeds both labor supply and entrepreneurship. Tightening, he argues, is a drag on growth and dynamism. Second, trade: consensus on free trade has flipped, and tariff volatility is now a persistent efficiency tax. Third, AI: far from hype, its rapid adoption already lifts GDP in select sectors while reducing near-term hiring needs in others. Result: growth composition tilts, not uniformly, but unevenly by sector and especially by geography.
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​Uncertainty Beats Cost as the Bigger Headwind
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​Tariffs raise costs; uncertainty freezes decisions. Between the two, Severino is unequivocal: uncertainty is worse. When policy is “mercurial,” medium-term planning – capex, headcount, leases – gets deferred. Inertia then becomes self-fulfilling: fewer decisions yield less activity, which shows up in slower consumption and softer non-AI corporate investment. For property markets, the transmission is clear: slower leasing, stretched sales processes, fewer starts, and thinner pipelines.
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​Rates: A Short-Term “Sugar Rush,” Then What?
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​What if political pressure accelerates rate cuts? In the short run, math rules: lower discount and cap rates lift valuations. Beyond the sugar rush, Severino cautions about second-order effects: if cuts unmoor expectations or worsen fiscal dynamics, the long end could reprice higher later. His house view: today’s policy rate sits above neutral; easing toward ~3% (his model’s midpoint, ±25 bps) is appropriate barring recession but taking policy meaningfully below neutral risks the “sugar high” and asset froth he wants to avoid.
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​Where the Pain Came From – and the Silver Lining
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​The last three years’ damage has been chiefly a capital-markets story, not fundamentals. Overbuilding exists in pockets, but the big blow was the Fed’s rapid hiking cycle. As the long end has already compressed ~50 bps off its cyclical high, Severino sees scope for meaningful relief: cheaper debt, higher transaction volumes, and a bid for assets with stable income. If forward guidance telegraphs an easing path rather than a one-and-done, CRE’s capital stack can heal faster than fundamentals alone would suggest.
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​Geography > Property Type (In an AI-Skewed Cycle)
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​AI’s clearest winner is data centers, constrained less by shells than by chips, power, and water. Beyond that, he expects winners and losers to sort more by market than by asset class. Tech-dense regions (e.g., Silicon Valley; Northern Virginia’s data-center corridor) will capture outsized hiring and capex linked to AI. Markets left behind by the AI capital cycle may lag even if they host otherwise solid property types. National averages are a mirage; submarket selection still dominates realized returns.
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​Sector Read: Housing as “Bond-Like with Benefits”
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​Asked where he’d allocate a fresh $1 million in this environment, Severino doesn’t hesitate: workforce housing and particularly into B and C Class apartments. The thesis is structural: demand keeps rising while true Class B/C supply grows but not at the same pace (you “build a Class A and wait 40 years”). That makes income streams from workforce housing behave “more bond like,” but with appreciation upside and a scarcity premium amplified when rates fall back toward neutral. Translated into underwriting: emphasize durable occupancy, modest but persistent rent growth, and cap-rate resiliency through cycles.
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​Watch These Signals Next
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​Near-term, the highest beta for CRE is the policy path: multiple cuts plus credible forward guidance would unlock debt origination, transactions, and pricing. But don’t avert your eyes from the labor numbers: if payroll losses broaden and persist, fundamentals will soften across consumer-linked property types first (housing demand formation, retail, hotels), then office via hiring freezes. Inflation? Still a risk, but less likely to run away so long as long-term expectations remain anchored near 2%. For now, the balance of risks skews to growth and employment, not prices.
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​Bottom Line for Sponsors & HNW LPs:
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Underwrite locally, budget for thawing capital markets, and prioritize assets with real demand depth particularly workforce housing in growth metros. Let the labor market, not the noise around inflation, set your macro guardrails.

This episode re-anchors the playbook for volatile times: watch payrolls, heed forward guidance, underwrite locally, and be prepared - now's a good time to be on the hunt.
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​Watch/listen to full episode here.

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