Impact Growth Capital Newsletter

The Labor Mirage and the Fiscal Anchor: Why Real Estate Underwriting Just Got Harder

Author

Impact Growth Capital
February 11, 2026

For Accredited Investors & Family Offices:

We do not market deals to the public.

We Grant Access to our specific investment thesis Barbell Strategy execution via Work Force Housing and Vertical SaaaS though our:

Investor Council

We are currently reviewing applications for new members. If you are focused on capital preservation and asymmetric growth, you may apply for access here.

This week at IGC:
Economic data reveals a structural divergence that reshapes capital deployment: headline employment stability masking significant weakness, set against an accelerating fiscal crisis that guarantees persistently higher capital costs.

Federal interest payments are projected to more than double over the next decade, creating persistent upward pressure on Treasury yields and private capital costs. Data source: Fiscal Projections: Congressional Budget Office, "The Budget and Economic Outlook: 2026 to 2036" (February 2026)

The gap between blue and red lines represents the overstatement of labor market strength that informed investment decisions throughout 2024-2025. Data Source: Labor Market Data: U.S. Bureau of Labor Statistics, Employment Situation Summary (January 2026) and Annual Benchmark Revision

Federal deficits are projected to remain nearly double the historical average, maintaining structural demand for capital that keeps interest rates elevated. Data Source: Analysis & Visualization: Impact Growth Capital. Charts represent IGC interpretation of publicly available data for institutional investor analysis.

OUR THESIS

The 900,000-job downward revision confirms what disciplined operators already suspected: the "hot" labor market of 2024-2025 was statistical fiction. Combined with the CBO's projection of $1.4 trillion in additional deficits, we now face a regime where both fundamentals and financing have structurally deteriorated. The window for turnaround plays and cap rate compression has closed.

When the Data Breaks, Capital Discipline Wins

On Wednesday, the Bureau of Labor Statistics reported January payrolls rose 130,000 with unemployment at 4.3% superficially stable. Buried in the release was a benchmark revision: job growth for the 12 months ending March 2025 was nearly 900,000 lower than initially reported.

Simultaneously, the Congressional Budget Office revised its 10-year deficit projection upward by $1.4 trillion, driven by tax legislation and compounding interest costs. Net interest outlays are projected to surge from $1 trillion in 2026 to $2.1 trillion by 2036.

This is the critical distinction: Prices fell not because the economy deteriorated, but because leverage unwound.

Risk Assessment: Three Structural Realities

THE RATE FLOOR IS RISING

With deficits exceeding 5.6% of GDP through 2036, the federal government's capital absorption will maintain structural upward pressure on long-term rates regardless of short-term Fed policy. The era of sub-4% debt is not returning.

INFLATION REMAINS STICKY

The CBO projects inflation at 2.7% this year above the Fed's target. The path to cheap leverage remains obstructed. Operating margin compression is the base case.

THE REVISION VALIDATES CONSERVATISM

Operators who underwrote aggressive rent growth based on "hot" 2024-2025 labor reports are now missing pro-form as. The 900,000-job phantom validates our 12-month conservative stance.

Implications for Capital Allocators

1.

Underwrite the Exit Yield, Not the Entry Rate

We are stressing exit assumptions to assume 10-year Treasuries will not revert to pre-2022 levels. We buy only where the going-in yield supports the investment without relying on a lower-rate refinance.

2

Prioritize Verified Employment Bases

Labor market revisions expose the fragility of growth projections. We are prioritizing assets in markets with existing, verified employment not forecasted job creation that may disappear in future data corrections.

3

Strip Out Inflationary Rent Growth

While deficits can be inflationary, consumer drag suggests rent ceilings are real. We are discounting aggressive growth assumptions from models and focusing on durable cash flow from existing operations.

Our Strategic Stance

We are not pausing deployment. We are being ruthlessly selective.

The market dislocation caused by these realization moments where sellers recognize the "soft landing" was overstated is creating acquisition opportunities. We are tracking over-leveraged operators unable to refinance in this higher-rate environment. By maintaining liquidity and discipline, we can acquire quality assets at a basis that makes sense today, not in a hypothetical recovery.

Key Takeaway

The combination of weaker-than-reported employment and structurally higher government borrowing costs eliminates the viability of strategies dependent on either robust consumer spending or a return to cheap debt. This environment rewards operators who underwrite to current reality rather than projected normalization.

Bottom Line

Federal Reserve Chair Powell noted last month that the fiscal path is "unsustainable." As capital stewards, we do not bet on politicians fixing the deficit. We build portfolios that can endure the consequences of it.

This is not pessimism. It is realism. The gap between headline data and economic reality has created mispricing. Those with dry powder and discipline will find opportunities that reflect actual risk, not narrative risk.

Jesse Sells
Founder | Impact Growth Capital

Capital allocation is not about chasing returns.
It is about protecting wealth during structural transitions.

Have a topic or question you want to see covered? Reply directly to this email.