📧 In today’s email: The demand for manufactured and modular homes that could solve the housing shortage is surging in cities around the US. Chicago plans to sell 4,000 vacant lots in an initiative to fight crime and revitalize neighborhoods with affordable housing. Meanwhile, investors are turning to DSTs as a flexible and convenient way to diversify their real estate portfolios while also avoiding taxes.

MANUFACTURED FUTURE

For most of U.S. history, prefab housing was seen as a last-resort option for Americans struggling to afford traditional homes. But with housing prices and mortgage rates higher than ever, prefab is now desirable. 

Prefabulous living: For years, prefab constructions—which include modular, manufactured, and mobile homes—were seen as low-budget housing that wasn’t particularly desirable. But these days, crowded cities around the country are considering modular (and sometimes stackable) prefab units to combat the U.S. housing crisis. 

Supply and demand: Due to rising interest rates and higher building costs, prefabricated constructions are in high demand. In May 2022, the average sales price of manufactured homes in the U.S. shot up to $124K from $85,900 two years ago. According to the Census Bureau, 50,000 manufactured homes were shipped nationwide in May 2022 alone, marking a 31% increase from 2020. 

THE TAKEAWAY

Facing the housing shortage: While off-site housing constructions bring their share of obstacles, local officials are hopeful that rapidly built, cost-efficient prefabricated homes can help offset the nationwide housing shortage. As a result, off-site construction startups like Vessel Technologies Inc. are rising to meet the demand.

CURBING CRIME

Chicago Plans to Sell 4,000 Vacant Lots to Deter Crime

In an effort to fight Chicago’s surging crime, which is up a staggering 38% this year, the Windy City is streamlining the sale of 4,000 vacant lots to boost affordable housing and revitalize underfunded neighborhoods. 

Greens spaces are safer: Evidence suggests that restored lots can deter crime. Chicago officials referenced a study conducted by researchers at Columbia University that found a similar effort to restore vacant lots in Philadelphia reduced gun violence by 29%, burglaries by 22%, and nuisance crimes by 30%.

Past is precedent: In 2014, Chicago sold empty lots to residents and nonprofits under the “Large Lots Program,” but sales stalled. Now, under the Chicago Recovery Plan, $87M in federal and bond funding has been allocated to restore and sell 4,000 of the 10,000 vacant lots in the city to promote affordable developments and lower crime.  

THE TAKEAWAY

Planning ahead: The first 2,000 lots will be available to the public by mid-November. The city is also planning to offer side lots to adjacent homeowners for 10% of their nominal value. Most of these lots will be sold as residential construction opportunities, but Chicago is open to receiving applications for commercial projects as well. 

EMERGING MARKET

Interest in DSTs as a Real Estate Investment Option Continues to Grow

Previously a niche investment strategy, Delaware statuary trusts (DSTs) have gained interest from serious players like Hines, which started offering DST investments to their clients with the launch of the Hines Real Estate Exchange (HREX). 

What are they?: DSTs are real estate companies that offer fractional ownership to investors. The DST manages everything about the properties while retail investors sit back and realize profits over time. This hands-off approach to real estate investing has grown increasingly popular among Baby Boomers tired of DIY property management.

Like-kind exchange: DSTs come with another major benefit. After selling off properties and realizing capital gains, savvy investors can reinvest their profits in a DST and still be eligible for tax deferment under the 1031 exchange rule. For example, if an investor gains $2M from a sale, they can invest it into a DST and not pay any capital gains taxes.

THE TAKEAWAY

Looking ahead: This emerging market, which was once restricted to wealthy accredited investors, is naturally very attractive to retail real estate investors. Around 50 U.S. firms already offer DSTs to the public, and DST sponsors raised $7.8B YTD through September compared to just $3.4B in 2019. While rising interest rates could create speed bumps, the long-term outlook for DSTs remains promising.

📰 Editors' Picks

• Discount deals: U.K. Real estate investors circle like sharks as property funds are forced to sell off assets after facing a wave of withdrawals.

• Vehicle storage: RecNation Storage, a recreational vehicle storage company founded by Gary Wojtaszek, recently acquired a 440K SF facility in San Antonio and has $40M more to spend. 

• Marijuana revenue: According to the Federal Reserve Bank, legalization of marijuana at the state level has generated jobs, increased tax revenue, and boosted real estate sales. 

• Migration patterns: A new study on the migration patterns of workers following the pandemic found that even small shifts can have a significant impact on regional economies.  

• 2023 tax brackets: The IRS has released higher federal income tax brackets and standard deductions in response to surging inflation this year.

🤝 Deals & Dealmakers

• Rent-to-own: Landis, a startup seeking to make homeownership more accessible to first-time buyers, just raised a $40M Series B round led by Google Ventures (GOOGL) and Jay-Z’s Roc Nation.

• Mini-golf, anyone? Chicago’s Puttshack, a nine-hole mini-golf course powered by “trackaball technology,” will serve as the new “experiential” anchor retail tenant at Reston Station. 

• Miami Heat: A nonprofit founded by NBA Hall of Famer Alonzo Mourning has partnered with Housing Trust Group (HTG) to develop an affordable housing project in Miami-Dade. 

• Vacate the building: After three years, General Electric (GE) is moving out of its $200M headquarters in Boston to search for a smaller space to call home.

• “Eatertainment”: Punch Bowl Social founder Robert Thompson has bet that mixing sports like pickleball with dining can create new and exciting eating experiences.

📈 CHART OF THE DAY

Near-Record High-Profit Margins Indicate the Fed Is Not Winning the Inflation Battle

Near-record high-profit margins indicate the Fed's job of fighting inflation is far from over, raising the risk that official rates have to go much higher than is shown in policymakers' dot plots or future prices.

💼 JOB BOARD

The CRE Daily Hiring Block

Looking for a new role? Or need to find top talent? The CRE Daily Hiring Block is a unique alliance of real estate professionals that connects talent and employers.

• Multifamily Debt Associate/ Vice President (Eastdil Secured)

• Deal Manager (Greysteel)

• Commercial Mortgage Banking Producer (Medalist Capital, Inc.)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.