👋 Happy Sunday —

Hope you got a decent weekend out of this one. I want to start by saying this was an unusually loud week in the data, and if you only skimmed headlines you almost certainly came away with half the picture.

Here's the short version: the cost of borrowing against your center went up meaningfully this week. The quality of the income coming out of your center went up more. Almost nobody covered the second half of that sentence, so that's most of what I want to spend your time on today.

The 10-year Treasury closed Friday at 4.69%, with the 2-year at 4.33%. That was the fifth consecutive session of gains and the highest the 10-year has been since January 2025.

Three inputs pushed it there, and they're worth separating because they behave differently.

Energy. Brent crude was trading around $97 a barrel Friday morning — roughly $27.50 above where it sat a year ago — after topping $100 on Thursday.

The pump. AAA reported Thursday that the national average for regular gasoline jumped 15 cents in a single week to $4.09. Most states are now averaging four dollars or more. Texas landed at $3.70 — fifth cheapest in the country. More on why that matters in a minute.

The one people missed. Friday's flash PMI from S&P Global showed business activity at an eight-month high, with the composite index at 53.6 and services jumping from 51.2 to 53.6. On its own that reads as good news. But the same release showed selling prices rising at their fastest rate in nearly four years.

Put those together and you get the uncomfortable version: the economy is accelerating and companies are raising prices faster than they have since 2022. That's not a mix that gives a central bank room to ease.

Which sets up Wednesday. The Fed meets July 28–29, and consensus is a fifth straight hold at 3.50%–3.75%. But the oil move pushed markets to roughly a one-in-three chance of a hike at this meeting, and close to 80% odds for September. There's no dot plot this time — just the statement and Chair Warsh's press conference. And Warsh has been consistent that he intends to offer markets less forward guidance, not more.

So the honest read is that nobody knows what Wednesday brings, possibly including the people voting on it.

Before the deal math, a framing note — because there are two rates that matter to you this week, and they do completely different things.

Here's what's worth noticing. Prime is at 6.75% and hasn't moved in five meetings. The 10-year just ripped 14 basis points in a single week.

So if you hold both fixed and floating paper right now, your refinance quotes have been climbing all year while your floating debt service has been flat. That feels like a contradiction. It isn't.

The two rates answer to different masters. The 10-year answers to what the bond market thinks is going to happen — it moves every day, on expectations. Prime answers only to what the Fed actually does. It's a step function. It sits perfectly still, and then it jumps.

Which makes Wednesday a very different event depending on which side of that board you're standing on.

A move in the 10-year only bites you at acquisition or refinance. It's a future-loan problem. But if the Fed delivers the hike currently priced at roughly one in three, prime goes to 7.00% overnight — and it lands on your next statement. That hits anyone carrying:

That last one has a second-order effect worth understanding. SBA 7(a) is how a large share of owner-users finance. When prime moves, it changes what an owner-user can afford to pay for a small center — which changes the competing bid pool on your disposition. Indirect, but real, and it shows up in your best-and-final.

One caveat: if your floating debt is indexed to SOFR rather than prime — more common on larger bank paper — same mechanic, different index. Either way, find out which one is actually written into your loan documents before Wednesday afternoon.

Sort your debt into two buckets this weekend: fixed and floating. The Fed meeting is an immediate event for one of them and a future event for the other, and most owners I talk to haven't organized their debt that way.

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Now the side where most acquisition and refinance conversations actually live.

Retail strip center debt is pricing at roughly 175 to 225 basis points over the 10-year right now. At 4.69%, that's a loan rate somewhere between 6.44% and 6.94%. Last Friday the same math gave you 6.30% to 6.80%.

Let's make it concrete. A $3,000,000 loan on a 25-year amortization:

One week of bond market movement added about $3,100 a year to the identical loan. Not fatal. But directionally wrong.

The number I'd actually commit to memory: every 25 basis points on a $3 million loan costs about $5,600 a year. If September delivers what the market is currently pricing and lender spreads hold, that's your increment.

Now run it as a whole deal. Say a $4,600,000 center producing $322,000 of NOI — a 7 cap. Sixty-five percent debt, so a $3,000,000 loan, and roughly $1,700,000 of equity in after closing costs.

Fifty basis points of loan rate costs roughly 66 basis points of cash-on-cash. That's the mechanic worth internalizing — in this environment it usually isn't the cap rate that breaks a deal, it's the debt constant.

If your debt matures inside 18 months, the question isn't whether rates come down. It's whether your coverage still works if they don't. That's a this-week calculation, not a next-quarter one.

Here's the part that didn't get covered.

Phillips Edison reported second-quarter results Thursday. They own 330 grocery-anchored centers totaling 37.4 million square feet, so when they report you're getting a clean read on the same tenant categories that fill your rent roll.

The quarter:

Sit with that. In the same week the bond market was screaming, the operating side of this business posted record occupancy, double-digit renewal spreads, and lower bad debt than forecast.

Now connect it back. Remember the $5,600 a year that 25 basis points costs on a $3 million loan? On our $4.6 million example, a 3.1% rent bump applied to $322,000 of NOI generates about $9,900 a year.

Your rent escalator outruns a quarter-point rate move by nearly two to one.

That's the split screen, in one comparison. Your debt got more expensive. Your rent roll got better — and it got better faster.

One more detail that I think matters more than it's getting credit for: Phillips Edison also raised acquisition guidance for the year to $500–$600 million, and part of that capital is pointed at what they call "everyday retail" — smaller, unanchored, convenience-oriented centers. That is precisely the product most of you own. Institutional capital is not backing away from your asset class right now. It's raising the budget for it.

The sector is healthy in aggregate. But "the sector" doesn't pay your rent — individual tenants do, and this week gave an unusually clean read on which formats are winning.

Domino's reported Monday: revenue up 4.3% to $1.19 billion, with order count growth in both delivery and carryout — during a quarter management described as pressured for the broader quick-service industry. Net 209 new stores globally, 26 in the U.S.

Tractor Supply reported Thursday: net sales up 2.3% to $4.54 billion, but comparable store sales down 1.5%. The growth came from new stores, not existing ones. Same-store traffic and ticket are under real pressure even at a necessity-oriented retailer.

7-Eleven detailed its restructuring: 645 U.S. locations closing or converting this fiscal year — roughly 200 unprofitable closures, 350 conversions to wholesale, and about 200 new food-focused stores. That's not a retreat from convenience; it's a re-underwriting of which corners still work.

Nike accelerated closures — about a dozen U.S. locations in a single month. Staples added more August closures.

And on the other side of the ledger, Burlington opened a dozen stores this month, is running ahead of its plan for 110 net new stores in 2026, and brought a new distribution center online to support the expansion.

The pattern holds across all of it: value, off-price, food, and service formats are expanding. Legacy specialty, office supply, and undifferentiated convenience are contracting. Right now format is destiny — more so than category, more so than credit rating.

One cost input worth tracking: new Section 301 tariffs took effect at 12:01 a.m. Friday covering 60 economies at 10% to 12.5% depending on origin, replacing the surcharge that expired. For your goods-based tenants that's a margin question landing in the back half of the year. For your food, service, and medical tenants, largely not. That distinction should be shaping how you think about renewal risk.

Last piece, and it's the one closest to home.

When gas jumps 15 cents in a week to $4.09, the retail effect isn't mainly about how much money consumers have left. It's about how far they're willing to drive.

Higher fuel costs compress trade areas. Trips consolidate. The discretionary twelve-minute drive to a destination center becomes the four-minute drive to whatever's closest. That's not theory — it's the mechanic underneath Phillips Edison reporting 2% June traffic growth at close-to-home, necessity-anchored centers while broader discretionary retail softened.

If you own a neighborhood strip center, expensive gasoline is not neutral to you. In the near term it's frequently a tailwind. You're the convenient option.

And then there's the Texas piece. At $3.70 a gallon, Texas is the fifth cheapest state in the country — roughly 39 cents under the national average. The statewide average did rise 16 cents this week and sits 93 cents above a year ago, so nobody's throwing a party. But relative to the rest of the country, San Antonio, Austin, and Rio Grande Valley consumers are absorbing considerably less of this shock than consumers in most other markets.

If you're underwriting Texas centers, or talking to out-of-state capital about them, that differential is a real and defensible part of the trade-area story. Worth saying out loud in a leasing conversation. Worth putting in an offering memorandum.

1. Sort your debt into fixed and floating before Wednesday afternoon. Anything floating reprices immediately if the Fed moves. Anything fixed is a maturity-date question — and if you're inside eighteen months on it, call your lender Monday morning. Know your coverage ratio on both.

2. Pull your renewal schedule for the next four quarters. If national grocery-anchored owners are pushing 21% renewal spreads and record 3.1% bumps and you're renewing flat, that isn't a market problem. It's a negotiating position problem — and it's fixable.

3. Sort your rent roll by format, not by category. Value, food, service, medical grew this week. Legacy specialty and undifferentiated goods retail are the ones re-underwriting their footprints.

The cost of capital is moving the wrong way. The quality of income is moving the right way, and moving faster. Most owners I talk to are only watching one of those two screens.

Watch both.

As always — if you want to talk through what any of this means for a specific center, just reply to this email. I read every one.

Have a good week.