IYKYK: Real Estate Rundown 8/1

Dog Days of August are here. Last month before the "buh bum puh bum buh" of NFL commercials hits the screen and the kids are back in school. "Go Commanders" still doesn't have the same ring, but I suppose we could get used to it. Here's what's interesting this week, mostly sourced from my Twitter #ReTwit feed.

Carried Interest gets "Interesting" (I'll see myself out)

As part of the Inflation Reduction act of 2022, the rules governing carried interest have been revised. If you're investing in a real estate structure that takes advantage of the current provisions, or are thinking about investing, the major news is that the timelines have changed, from one year for 1231 Exchanges to three years, and extend the holding period to five years, generally. There's a carveout for real estate, which retains the three year holding period. I am not a tax attorney. Talk to your tax attorney.

Half a Bil for walk-up apartments?

Answering the age old question: "Is there anything Private Equity won't buy?" is Carlyle Group, which has quietly bought up half a billion dollars of sh*tty apartments in Brooklyn. A natural outcome of the success of the Single Family Rental (SFR) portfolio model pioneered by Invitation Homes, et al, Carlyle is now putting together portfolios of the kind of small buildings heretofore typically owned by guys named Lou (and/or Faraji) who wear track pants with dress shoes and Rolexes of questionable authenticity. Good news for owners of these properties who may find a much bigger pocket to sell to. Yet to be determined whether this will be another jab in the side of housing affordability as sophisticated capital tries to eke out maximum return

Wood you believe these lumber prices?

Up. Down. Up again. $300 per thousand board feet in early 2020, to $1,700 in May of last year, and now around $600. That's a lot of volatility. CME Group is launching a new lumber futures contract that could ease price volatility and boost trading volume. Basically, it allows minimum sizing on futures contracts to go down to the truck vs. the railcar (two houses worth of wood vs. eight). This theoretically allows buyers to hedge by betting on smaller quantities, and opens up the exchange to different species of wood. There's also the addition of Chicago as a delivery site vs. Canada. With homebuilders getting a smidge spooked, we'll see if being able to make smaller bets on a big cost driver moves the needle on prices and volume.

Union Market is jumping

Lot of news out of near Northeast. On the heels of Tik-Tok's lease over at Carr Properties's Signal House , we got a bunch of new announcements this week.

1. The 7,200 SF building at the corner of Morse and 4th across from Blue Bottle Coffee sold to Alexandria Restaurant Partners (of Ada's on The River and Barca fame). New Palette 22 going in there.
2. NRP and Marshall Heights Development got zoning approvals for a 12 story, 115 unit affordable development on that weird little triangular lot across the street from Trader Joe's. Given rents in the area, affordability ranges from 30-50% AMI will do a lot for people typically priced out of the neighborhood.
3. JBG Smith announced plans for another 647 units just north of the actual Union Market building. This would be phase 3 of a four-phase plan resulting in around 1,500 units for the neighborhood through their partnership with Gallaudet University.
4. Not like new news, but there have been a bunch of retail signings throughout Union Market generally, with a good list of new and upcoming openings here.

Apartments over...Library?

Up the road in B-More, developer Ernst Valery (full disclosure, a friend of mine) got approval to purchase the Enoch Pratt Free Library in Pigtown. The new development will double the size of the existing library and go vertical, with apartments above. It's an interesting concept that both expands a public space at no cost to taxpayers, while adding residential density. We'll see if other cities follow suit with similar plans.