👋 Hi there,

Happy Saturday. Costco reported a big September this week, and the headline number is misleading in a way that’s useful for anyone who owns a strip center. Here’s what happened, why it matters for your tenants, and what I’d do about your debt before the Fed meets.

Costco’s September retail month ran five weeks and ended October 4. Net sales were $30.02 billion, up 13.0%, and total company comparable sales rose 11.4%. Take out gasoline prices and currency, and total company comps were 7.6%. In the U.S., comps were 8.0% against a 12.5% headline, so gas prices did about four and a half points of the U.S. number. Digitally enabled sales were up 19.0%.

Two pieces of context keep this honest. First, Labor Day landed a week later this year. Costco says the shift helped September by a little more than half a point after hurting August by just under three-quarters of a point. August’s ex-gas comps were 5.4%, so across the two months you land around 6.6%. That is steady and strong, not a sudden surge. Second, comps include price increases. With headline PCE inflation at 3.4% and core at 3.0%, real volume growth is smaller than the comp number looks.

Costco is not a tenant in your center. It is a clean read on behavior: shoppers are concentrating spending where they believe they get the most for the dollar.

Look at what things cost. The ISM services survey showed prices paid at 74.0 in September, the highest since July 2022, and the manufacturing and services price indexes combined jumped 8.2 points in one month. Services activity still expanded at 54.9, so the economy is growing, just with higher costs attached.

At the pump, AAA put the national average at $4.36 on Thursday. That is down about five cents on the week, but it is the highest price on record for this time of year and the first October with the national average above $4. A year ago it was about $3.12. Fuel matters to retail as a price mechanic: it inflates warehouse-club and gas-station sales numbers, and it takes a bite out of household budgets. Texas has stayed meaningfully below the national average all year, which helps, but every shopper still feels it.

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The Fed minutes came out Wednesday. The key line: most participants said another rate increase would likely be appropriate by year-end. Last week’s soft jobs report, 29,000 jobs and unemployment at 4.2%, pushed October hike odds down to around 17% per CME FedWatch, but December odds sit near 84%. A calm October is a delay, not cheaper money. The next decision is October 28, and the September CPI report lands Wednesday, October 14, before it.

The 10-year Treasury closed Thursday at 5.22%, down six basis points from 5.28%. My framework is simple: take the 10-year as the base, add a lender spread of 175 to 225 basis points, and you get an illustrative loan range of about 6.97% to 7.47%. Prime, at 7.00%, is the parallel track for floating-rate borrowers, and larger bank loans often price off SOFR instead.

Here is what that looks like on a $3 million loan with a 25-year amortization and $300,000 of net operating income:

Each quarter point is about $5,800 a year in debt service on that loan, and many lenders want to see 1.20 to 1.25 or better on neighborhood retail. The tenant story is strong. The debt story is what sets the price.

This deal math is illustrative, not a rate quote.