Rick Caruso on Consumer Spending, Interest Rates, and Commercial Real Estate

Consumer Spending and Retail Performance

• 💡 Despite initial unpredictability, consumer spending and sales are performing surprisingly well.
• 📈 Attendance at Caruso properties continues to grow, with sales per square foot increasing single to double digits.
• 🎯 The resort business has also remained strong, contributing to overall optimism for the year.

Interest Rates and Real Estate Financing

• 🔑 While historically lower rates are preferred, a 5% interest rate is manageable for commercial real estate.
• 📊 Caruso is organizing budgets and stress-testing proformas around current borrowing costs.
• ✅ Projects previously put on hold are now being greenlit, with plans to stress-test them against potential further increases in the 10-year yield.
• 💰 If rates stabilize around 4.5% to 5%, the industry can organize around it and remain financially stable.

Retailer Demand and Consumer Sentiment

• 🔍 Three key indicators are monitored: sales per square foot, daily attendance (via Placer AI), and retailer sentiment.
• 🛍️ Best-in-class retailers are actively seeking more space in prime A locations and are expanding.
• 🌟 Both the luxury sector and the segment targeting the younger consumer are performing exceptionally well.
• 💬 Retailers like Aritzia, Sephora, Alo, and Lululemon are thriving by offering engaging experiences.

Tariffs and Construction Costs

• ⚠️ While tariffs may impact certain market segments, their effect on large construction projects has been minimal so far.
• 🇺🇸 Lumber costs have decreased due to domestic sourcing, and contractors are competitive in Southern California.
• 🏗️ This competitive pricing is helping to offset some of the increased interest costs, though steel prices are a minor concern.
• 🏭 The focus is on buying US steel to mitigate potential tariff impacts.