Alternative Investments/CRE 2025 Outlook Part 1

Our last post men­tioned “Real Estate Ground­hog Day” and   poten­tial repet­i­tive cycle often expe­ri­enced in the real estate indus­try. We men­tioned mar­ket cycles, buy­er and sell­er behav­ior, agent rou­tines, and sea­son­al trends. Under­stand­ing the trends in asset class­es help advi­sors and investors focus on the right due dili­gence ele­ments.

Feb­ru­ary 10, 2025

By Al DiNi­co­la, AIF®
DST 1031 Spe­cial­ist
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC

You can access the last arti­cle here. Alter­na­tive Invest­ments and CRE 2025 Ground Hog Day — DST Edu­ca­tion and Mar­ket News

The over­all con­cerns may last for more than 2025 and include:

• the wall of debt matu­ri­ties in com­mer­cial loans
• Afford­abil­i­ty of real estate
• Migra­tion Pat­terns
• Sup­ply and Demand Dynam­ics Across High-Con­vic­tion Sec­tors

We will review self-stor­age, stu­dent hous­ing, mul­ti­fam­i­ly, and senior hous­ing in this writ­ing.

Self-Stor­age

The pan­dem­ic cre­at­ed a list of dynam­ics that cre­at­ed an enor­mous imped­ance prompt­ing peo­ple to shift where they want­ed to live and ulti­mate­ly work. The shift in hous­ing demand cre­at­ed an increased demand for stor­age. Rents for stor­age for both indi­vid­ual units and facil­i­ties increased dras­ti­cal­ly from 2020 to 2022. The trend did slow down and reversed itself. Some analy­sist point­ed to the inter­est rates spik­ing. Stor­age rents declined sig­nif­i­cant­ly in cer­tain areas.  This result­ed in under­per­for­mance in the sec­tor. There were pan­dem­ic era gains but much of the gain has now been giv­en back. The good news is that the self-stor­age asset class may ben­e­fit from the sta­ble demo­graph­ic demand going for­ward. Here are some of those demo­graph­ics.

• There are life events that will prompt relo­cat­ing or down­siz­ing your liv­ing accom­mo­da­tions. These include job change, divorce, mar­riage (or mov­ing in togeth­er and yes even death of one of the part­ners or spous­es.

 • The mil­len­ni­als are reach­ing peak home own­er­ship time peri­od (if they can afford it) and there are still many baby boomers enter­ing retire­ment.

 • New sup­ply of facil­i­ties is slow­ly declin­ing after a large increase. This increase start­ed before the pan­dem­ic from 2018 to 2020.  Imme­di­ate­ly after the pan­dem­ic the migra­tions prompt­ed addi­tion­al sup­ply to come on the mar­ket that now is slow­ly being absorbed.

 • If (and when) inter­est rates and infla­tion come down this may prompt an increase in hous­ing trans­ac­tions. There is the fore­cast for an increase house­hold for­ma­tion by mil­len­ni­als which may see addi­tion­al demand for self-stor­age.

 • The poten­tial for rent growth in 2025 may be real­ized by a demo­graph­ic shift in hous­ing needs. Some experts state we are 4 mil­lion hous­ing units short. An addi­tion­al fac­tor will be the sup­ply of self-stor­age sta­bi­liz­ing.

Stu­dent Hous­ing

The big ques­tion may be is there still enough col­lege age pop­u­la­tion. There was an old say­ing about mak­ing too many mouse traps if you did not count the mice. Most res­i­den­tial asset class­es will have chal­lenges includ­ing demo­graph­ic (mil­len­ni­als get­ting old­er), over­all inter­est and cost for high­er edu­ca­tions. How­ev­er, top tier col­leges and uni­ver­si­ties still have an appeal.  Schools in Pow­er 5 con­fer­ences and oth­ers with robust ath­let­ic pro­grams, facil­i­ties, and edu­ca­tion­al rep­u­ta­tions have con­tin­ued to see sta­ble growth.

 • Year over year cer­tain schools have sta­ble or appli­ca­tion increas­es. This is despite the over­all enroll­ment shrink­ing.

• accord­ing to Axio­met­rics Approx­i­mate­ly 31,000 stu­dents per year through 2027 expect­ed to enroll at top-tier uni­ver­si­ties.

• Accord­ing the Yar­di “New sup­ply of stu­dent hous­ing has been drop­ping, with        35,703 off-cam­pus, ded­i­cat­ed stu­dent hous­ing beds com­plet­ed in 2024, down from 44,746 beds deliv­ered in 2023. Over the next sev­er­al years, Yar­di Matrix projects sup­ply will con­tin­ue to fall to 32,100 beds in 2025 and 33,995 beds in 2026. Recent updates brought down new bed counts in 2024 and 2025 as com­ple­tion dates were updat­ed”.

 • Inter­na­tion­al stu­dents still con­sid­er the U.S. schools to be the num­ber one des­ti­na­tion. • What does not get a lot of atten­tion is the num­ber of school clos­ings. In 2024 it is esti­mat­ed that one school a week has closed.  Grant­ed many of these schools may be offer­ing degrees that have lim­it­ed appeal or poten­tial stu­dents do not find the over­all edu­ca­tion expe­ri­ence as pos­i­tive. In the past ten years it is esti­mat­ed that 726 degree grant­i­ng post-sec­ondary insti­tu­tions have closed. Many of these clos­ing was due to declin­ing enroll­ment result­ing in finan­cial strug­gles.

Mul­ti­fam­i­ly

The dri­vers and out­look for many of the res­i­den­tial offer­ings may be the lack of new con­struc­tion starts.  After COVID there was an aggres­sive con­struc­tion effort to build many mul­ti­fam­i­ly units. By mid-2025 much of that sup­ply should be absorbed. The mul­ti­fam­i­ly sec­tors as well as the build for rents and man­u­fac­ture homes will ben­e­fit from the sup­ply pipeline slow­ing down,

• Tra­di­tion­al home­own­er­ship is chal­leng­ing today with the high inter­est rates as ewll as the high hous­ing process. For many rent­ing will be the option either by neces­si­ty or desire.

 • COVID prompt­ed many to seek work­ing from home. There appears to be a move from the down­town mar­kets that pro­vide ample room to work from home and poten­tial­ly afford space to start a fam­i­ly (in the case of mil­len­ni­als).

• Ana­lyst will look at the con­struc­tion pipeline, mean­ing how many units are under con­struc­tion and be deliv­ered in the next six quar­ters.  Mean­ing units in the pipeline at the start of 2024 will be deliv­ered mid-2025. There will be a sharp decline in deliv­er­ies. This is good news for investors.

• Rent growth has been flat over the past 18 months.  This is caused in part by the the deliv­ery of new units com­ing on the mar­ket.  In a pro­for­ma typ­i­cal devel­op­ers will esti­mate expens­es grow­ing by 3% and rents by 5%.  This has not hap­pened.  Rents have been flat and expens­es even stay­ing the same (some have increas­es) put a strain on the NOI. Lim­it­ed con­struc­tion starts.

 • There are mul­ti­ple gen­er­a­tions who pre­fer “just a lit­tle more space”. The build-to-rent prop­er­ties are poised to ben­e­fit.

Senior Hous­ing

Senior hous­ing demand is strength­ened by the aging U.S. pop­u­la­tion and a con­sid­er­able short­age in senior hous­ing com­mu­ni­ties.

• As baby boomers reach their mid-70s, an increas­ing need for hous­ing options that bet­ter suit them will emerge.

• Con­struc­tion costs con­tin­ue to rise and build­ing code require­ments cre­ate chal­lenges. The big ques­tion will be, can enough sup­ply be deliv­ered. Based on the need and the tremen­dous growth after the pan­dem­ic rent growth should do well. There are esti­mates there will be a need for 600,000 units by 2030.

• The baby boomer gen­er­a­tions (by most accounts) hold more than 50 per­cent of the nation’s wealth. There is a focus on devel­op­ing high-qual­i­ty senior hous­ing options that may attract baby boomers. There would be a need to have with high-end ameni­ties and a sense of com­mu­ni­ty to attract baby boomers as they age.

• The chal­lenge may be with the lack of con­struc­tion starts. There is a severe short­age of senior hous­ing units and when sup­ply is lim­it­ed the demand for units will cre­ate strong fun­da­men­tals going for­ward. There is a com­par­i­son to lim­it­ed sup­ply expe­ri­enced after The Great Finan­cial Cri­sis reoc­cur­ring.

Effects on DST Offer­ings

All of the same analy­sis of asset class­es with tra­di­tion­al CRE apply to Delaware Statu­to­ry Trust (DST). By struc­ture indi­vid­ual investors secure DST invest­ments with non-recourse debt (if the DST has lever­age). Recent­ly with the increase in inter­est rates DST has been struc­tured with less lever­age or all cash offer­ings.  This may cre­ate a chal­lenge for investors uti­liz­ing a 1031 with require debt replace­ment to ful­ly com­ply with the exchange require­ments.  

We will con­tin­ue in Part Two with office, med­ical office (MOB), indus­tri­al, and Life Sci­ence.

We want to thank many of the spon­sors who have pro­vid­ed 2024 and 2025 analy­sis includ­ing Inland-Invest­ments, Cap­i­tal Square, Can­tor Fitzger­ald, Brook­field, Star­wood and oth­ers.

NAMCOA® is a SEC reg­is­tered invest­ment advi­so­ry firm that pro­vides com­pre­hen­sive port­fo­lio man­age­ment, finan­cial plan­ning, and fidu­cia­ry deci­sion-mak­ing ser­vices on behalf of retire­ment plan spon­sors. Our Dif­fer­ence is sum­ma­rized by our fidu­cia­ry approach which enables us to bet­ter meet port­fo­lio and retire­ment plan objec­tives, result­ing in stronger risk adjust­ed returns for investors and peace of mind for Clients. We also focus on alter­na­tive real estate invest­ment. Many real estate investors are seek­ing tax deferred solu­tions uti­liz­ing §1031 exchanges or Oppor­tu­ni­ty Zones.

DSTs are not for all investors.  The acqui­si­tion of a DST is for accred­it­ed investors only.  Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your 1031 Exchange and suit­ed for your invest­ment future. For more infor­ma­tion on how to prop­er­ly set up an IRC 1031Tax Deferred Exchange or if you are an accred­it­ed investor and would like addi­tion­al infor­ma­tion on a DST con­tact Al DiNi­co­la at 239–691-8098 or email adinicola@namcoa.com.

This is not an offer to pur­chase or solic­i­ta­tion to pur­chase any secu­ri­ty, as such be made only through an offer­ing mem­o­ran­dum or prospec­tus.  Invest­ing in secu­ri­ties, real estate, or any invest­ment, whether pub­lic or pri­vate, involves risk, includ­ing but not lim­it­ed to the poten­tial of los­ing some or all of your invest­ment dol­lars when you invest in secu­ri­ties. You should review any planned finan­cial trans­ac­tions that may have tax or legal impli­ca­tions with your per­son­al tax or legal advi­sor.   NAMCOA, LLC is a Reg­is­tered Invest­ment Advi­sor, reg­u­lat­ed by SEC (Secu­ri­ties and Exchange Com­mis­sion). Our cor­po­rate office is locat­ed at 999 Van­der­bilt Beach Road, Suite 200, Naples Flori­da 34108. Secu­ri­ties Offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC. 8215 SW Tualatin- Sher­wood Rd, Suite 200, Tualatin, OR 97062.  MSC-BD, LLC and NAMCOA are inde­pen­dent­ly owned and are not affil­i­at­ed.

Thank you.