Good morning, and happy Hump Day. Let's get right into it.

In today’s email:

💥 The Fed believes that the shift to remote work could lead to a SFR housing boom

🎰 A Houston billionaire is betting big on the recovery of the Las Vegas strip

📦 Big box retailers can’t wait to unload their excess inventory

📊 $80bn of DC capital is currently invested in private real estate

HOMEWARD-BOUND

Federal Reserve Predicts New Home Construction Boom Thanks to the Shift to Hybrid Work

The Federal Reserve Bank of Kansas City released a new paper explaining how the shift to remote and hybrid work during the pandemic could lead to a U.S. home construction boom. Maybe.

To never commute again: Since we can all remember, moving out of the city and into the suburbs meant sacrificing convenience and an easy commute for a larger house, a safer neighborhood, and better schools. But with the rise of remote work, more people than ever are willing to relocate to the ‘burbs and potentially buy their first homes there, too.

Through the looking glass: According to the paper, “the time savings from fewer commutes could almost double single-family home construction…an aggregate of 427,000 units per year.” The Fed believes that most of this construction will happen near major metro areas such as NY, LA, Chicago, Philadelphia, and Boston.

THE TAKEAWAY

What makes a neighborhood? With growing global economic uncertainty amidst rising inflation and ongoing rate hikes by the Fed, it’s hard to say anything for certain. Younger and older workers alike for sure prefer to work from home at least some of the time, but going into an office and being around other people comes with a sense of belonging and camaraderie that is hard to replace.

TIS THE SEASON

Retailers Kick Off Black Friday in October Again, This Time With Too Much Stuff

As Black Friday inches closer on our calendars, big-name retailers are gearing up to offer early deals to attract holiday shoppers, as the retail industry works to unload excess inventory and compete with Amazon.

Shoppers slow down: As summer ends, inflation rises, and the economy tumbles, shoppers around the country are tightening their belts and putting their hard-earned dollars toward travel and entertainment experiences. Big-box retailers are stuck holding the bag, finding themselves with way more unsold inventory than they expected.

The latest deals: This year, many retailers have announced their Black Friday deals weeks ahead of Nov. 25th. Target (TGT) and Walmart (WMT) already announced their upcoming deals, while Amazon (AMZN) confirmed another Prime Day-like sale this week. Many retailers are staggering their sales to avoid a glut of competition on the same day.

THE TAKEAWAY

Struggling to stay afloat: When even Amazon’s Prime Day sales have been lackluster, brick-and-mortar retailers must be feeling a little nervous. Morgan Stanley analysts believe that retail profits will keep declining as companies are forced to wage discount wars to sell off unwanted inventory and keep loyal customers coming back for more.

BETTING ON THE HOUSE

Texas Billionaire Unveils $1B Plan For Vegas Strip

Sin City is back on the radar after Houston billionaire Tilman Fertitta revealed his plans for a 43-story hotel and casino on the Vegas Strip that will cost over $1B.

The blueprint: Plans filed with Clark County outline a 6.2-acre transformation at Las Vegas Blvd. and Harmon Ave. Fertitta Entertainment’s new hotel and casino will boast 2,240 rooms, gaming venues, bars and restaurants, convention spaces, spas, an auto showroom, and even a wedding chapel.

Not his first rodeo: Fertitta already owns five Golden Nugget casinos in Las Vegas; Laughlin, NV; Atlantic City, NJ; Biloxi, MS; and Lake Charles, LA. Just four months ago, Fertitta spent $270M on another Strip property near the Waldorf Astoria and The Cosmopolitan.

THE TAKEAWAY

As old as human civilization: Gambling, in one form or another, has been around for thousands of years. So it’s not surprising that tourists and old-timers are coming back to Vegas again. In June 2022, visitor traffic was only 7.8% below pre-pandemic levels, but up 12% compared to 2021. All signs indicate that the recovery is likely to continue.

NAREIM SURVEY

$80bn of DC Capital in Private Real Estate; 40% of Commitments in 2021 from New Investors

According to the 2022 Defined Contribution Survey results, almost $80bn of defined contribution capital is currently invested in private real estate - with 40% of that capital invested in non-DC specific vehicles open to all categories of investors.

The breakdown: Released in collaboration with NAREIM, the DC Real Estate Council and Ferguson Partners survey shows that $79.4bn of DC capital was in private real estate, including $16.9 billion in vehicles structured for DC investors. Meanwhile, $31.2 billion was in vehicles open to all categories of investors, and $31.3 billion in vehicles open to 403(b) DC plans.

Zoom in: The DC Survey is an annual benchmark survey tracking capital raising from DC into private real estate as well as structuring, liquidity and staffing metrics. You can download an executive summary of the report here.

THE TAKEAWAY

Among the key takeaways from the Survey were:

• Liquidity: While the industry saw net inflows of DC capital into private real estate, liquidity remained a critical issue with 2021 witnessing $2.5bn of inflows and $2.1bn of redemptions. The average liquidity sleeve was 13%.

• Commitments: New DC capital is going to private real estate. In 2021, 66% of managers experienced net inflows into their funds. Four out of 10 of those commitments came from new investors or were new mandates.

• Managers with a 5-yr track record of managing DC capital, grew AUM by more than 40%.

• Staffing: 66% of Survey respondents use existing real estate or institutional staff to target capital raising in the DC market. For managers with $1bn AUM or less, firms employed 1.5 FTEs.

• No place like Austin: As of Q2, Austin, TX leads the nation in office job growth. According to Avison Young, 8.5 MSF of office space are currently being developed.

• It rains too much: After an influx of new residents and record rent growth during the pandemic, “zoom towns” in the Pacific Northwest are competing again with big cities for renters.

• End of an era: Robert Toll, founder of nationwide home builder Toll Brothers (TOL), passed away at the age of 81. The former lawyer sold his first newly built home in 1967 for just $17,500.

• Getting in on the action: BNY Mellon (BK), the oldest bank in the U.S., announced that clients can now send and receive crypto, making it the first large U.S. bank to accept digital assets.

• Follow the lawyers: A disgraced FBI agent and a D.C. developer were found guilty of bribery and conspiracy in an affordable housing scheme.

Deals & Dealmakers

• Crowdfunding the American dream: Austin-based CrowdStreet just raised $43M from CRE investors to expand its real estate crowdfunding platform for retail investors.

• Surprise sale: Tennessee-based Brookdale Senior Living (BKD), one of the country’s largest senior-living communities, is open to a sale. BKD stock rose 27% on the news.

• Chicago CRE moves: The Farbman Group snatched up 117,000 SF 600 West Jackson Blvd. in Chicago for a cool $11M. The seller, Stockbridge Capital, paid $23.5M for it back in 2017.

• Dallas Bankers Club: Wells Fargo (WFC) is planning a $200M Dallas campus in Irving, TX. KDC is developing the project, and Wells Fargo has already secured $30M in financing from Irving.

• Joint venture: REIT Simon Property Group (SPG) will take a 50% stake in leading placemaker Jamestown, which focuses on innovation hubs and community centers and has $13.1B in AUM.

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.