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Good evening — thanks for checking into DOMUS: we are the real estate newsletter, specially curated to provide you with the most important trends, news, deals, and more in practically no time. Today, we'd like to focus on some interesting trends related to new RE developments across the country — as we continue to enter times of economic difficulty, it's certainly hard to gauge whether to invest or not. Interest rates keep soaring and building costs are not decreasing quickly enough, but what is certain is that coming out of these tough times, there will be quite a few big, big winners.

In Today's Email

• Distressed Sun Belt: Arnaud Karsenti's $300M fund explained.

• Airbnb in Miami: a $76M construction loan for... Airbnb rentals?

• Affordable Housing in Texas: and the enormous tax credits that come along with it.

• Securities & Real Estate Development: David Scherer's unorthodox approach.

Distressed Sun Belt

Arnaud Karsenti, founder of Miami-based 13th Floor Investments, is launching a $300 million real estate fund that is targeted towards growing markets nationwide, with a specific focus on distressed opportunities in South Florida as well as the Sun Belt. Of course, over the past two and a half years, both areas have experienced a significant population influx: with Karsenti stating that "We're seeing ... an unprecedented growth happening" in the Southeast, that he believes is "much more powerful than the short-term macroeconomic difficulty that we're faced with today".

Furthermore, this marks the fifth fund raised by Karsenti and relies heavily on a future real estate upswing. Karsenti estimates that a third of the fund, which has currently raised around $200 million, could go towards distressed properties — either in the form of outright acquisitions or joint ventures in which 13th Floor provides the owner with an equity infusion.

According to Karsenti, the "macroeconomic situation ... [is] creating a lot of stress in certain situations, and we are actively seeking those kinds of opportunities and those kinds of situations that could create investment opportunities for us."

In terms of specific properties, Karsenti already has plans to fund a 350-unit apartment building just south of the Brightline station in Ojus, FL, and 13th Floor is currently under contract to purchase 2.4 acres of land for development. Karsenti has also mentioned that 13th Floor is bullish on single-family homes and transit-oriented development.

Airbnb in Miami

Three of the largest, most important developers in Miami, FL are joining forces to build an Airbnb condo tower... let us explain.

PMG, Lion Development Group, and Marc Roberts Companies are currently planning the West Eleventh Residences: a 44-story, 659-unit short-term rental friendly project. Ranging from $300K to $1.2M, these studio and one-bedroom condos will also be delivered furnished.

In terms of the Airbnb component of this condo development, buyers will be able to rent their units 365 days a year, without any restrictions, through a centralized Airbnb management platform.

In Miami, short-term rental-friendly projects have flourished, with the total number of developments reaching nearly 6,600 units — and yet developers continue pouring in. Last summer, Related Group, ROVR Development, and BH Group received a $76 million loan to build the sold-out, 37-story, 343-unit condo District 225 project. While last year, PMG opened another short-term rental condo, The Elser Hotel & Residences, in addition to currently developing the 1,049-foot-supertall Waldorf Astoria Hotel & Residences in downtown Miami, which could be the tallest residential building south of NYC once completed.

On a separate note, if you ever wished you could see the California Gold Rush of the 1850s where vast groups of people moved out west in search of gold, keep watching, because we might just be seeing the second version right now in South Florida.

Affordable Housing in Texas

In San Antonio, TX, Alamo Community Group, a local affordable housing nonprofit, just scored $40 million for a new project.

The funds, coming from 4 percent state tax credits, will help Alamo build the Cattleman Square Lofts: a 138 residential unit development, in which all units will be marketed as affordable, with 21 apartments reserved for people earning 30% of the area media income.

In terms of financing, specifically, $38 million from the tax credits will account for the bulk of the development cost, while Alamo received an additional $2 million from a City of San Antonio housing bond.

Securities & Real Estate Development

In these times of sky-high interest rates, it seems that most developers are feeling the pain — well, maybe not this one. David Scherer, co-founder of the property-development firm Origin Investments, wagered interest rates would rise, and won big.

Specifically, in January of last year, Scherer pitched his investment committee on buying $18.5 million in a type of derivatives contract used as a hedge against an expected rise in borrowing costs. Although initially hesitant, the committee members gave him the go ahead: and as the Fed thereafter moved aggressively to raise interest rates, the value of Scherer's bets ballooned to more than $46 million, resulting in a $28 million profit for the firm.

Of course, this type of bet is incredibly rare among developers, as risks are quite substantial and knowledge of financial derivatives is crucial.

As Origin Investments now seeks to break ground on its 720-unit apartment development in Nashville, TN, that will require a $150 million construction loan, Scherer's unorthodox bet will certainly pay off significantly.

Real Estate Investment Trusts at Market Close

Prologis (PLD) | Current Price: $125.79 | Today's Performance: -1.36%

Public Storage (PSA) | Current Price: $299.56 | Today's Performance: -0.45%

Simon Property Group (SPG) | Current Price: $124.35 | Today's Performance: -0.93%

Digital Realty (DLR) | Current Price: $112.88 | Today's Performance: -0.66%

American Tower (AMT) | Current Price: $212.00 | Today's Performance: -2.12%

Crown Castle (CCI) | Current Price: $139.76 | Today's Performance: -0.26%

Equinix (EQIX) | Current Price: $722.19 | Today's Performance: -0.70%

Deal of the Day

• 420 Hamilton Street, Geneva, NY | Asking $6,938,529 | 14,873 SQ FT

• Investment Triple Net Lease (Retail / Rite Aid)

• Built in 2000 | Lease Expires 3/31/2029

• NOI of $589,775 | Cap Rate of 8.50%

• Check out more information here

That's All For Today

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