🕹️ Rent control is back. Will it stay?

👋 Hello, Best Ever readers! A group of 11 families in Seattle built an apartment building with lots of shared space so they could all live together. That’s friendship.

In today’s newsletter, the rent control debate rages, Schwartz gets sentenced, Home Depot eats tariffs, REITs get shorted, and more.

Today’s edition is presented by Capital Gains Tax Solutions. Selling a property shouldn't mean losing 20-50% to taxes. Let Capital Gains Tax Solutions create your personalized exit plan and calculate your savings today.

Let’s CRE!

🗞️ NO-FLUFF NEWS
CRE HEADLINES

Schwartz Sentenced: Nightingale Properties CEO Elie Schwartz was sentenced to 87 months in prison this week for wire fraud. Schwartz diverted $54 million of investor capital to personal luxuries in what prosecutors called the largest fraud in real estate crowdfunding history.

Fed Warning: Federal Reserve Chair Jerome Powell says that longer-term interest rates will likely remain higher due to economic changes and policy uncertainty. Powell warned of potential "supply shocks" that could create difficult challenges for central banks and the economy going forward.

Eating Tariffs: Home Depot says it won't raise prices broadly due to new tariffs, unlike Walmart, which warned of price increases. The retailer may discontinue some products if tariff costs make them unprofitable, but expects steady pricing to help steal customers from competitors.

Ghost Towns: College towns across the U.S. are struggling as enrollment declines, with Western Illinois University's Macomb campus seeing enrollment fall 47% since 2010. Three-quarters of metro areas reliant on higher education experienced weaker economic growth than the national average between 2011-2023.

Starts Surge: Multifamily housing starts surged 28.8% YoY to 420,000 units in April, while single-family starts declined 12% annually. However, 733,000 multifamily units remain under construction, down 20.2% from last year, indicating potential future supply constraints.

🏆 TOP STORY
INSIDE THE GREAT RENT CONTROL DEBATE

The housing affordability crisis has reignited the rent control debate across the U.S. Multifamily rents have surged 28.7% to $1,858 since the pandemic, leading to an upswing in rent control legislation. In December, a pair of investor-heavy Maryland counties limited rent increases to the lower of either 6% or 3% plus inflation. In April, Washington state enacted statewide limits for existing tenants of 10% or 7% plus inflation.

Roughly four out of five Americans support rent caps, yet still, over the last year, some governments have removed rent controls. St. Paul, Minn., city leaders just voted to exempt newer properties from their voter-approved rent control after construction permits plummeted 80%. California voters rejected expanded rent control last fall, and Minneapolis scrapped its ballot measure despite polling showing broad support for rent caps.

When it comes to investors, those in favor cite:

• Cash Flow Predictability: With limited market extremes, owning a rent-controlled property allows for more accurate future rental income forecasts, which are valuable for underwriting and DSCR.

• Reduced Turnover Costs: Research shows rent control beneficiaries are 19% less likely to move, potentially lowering vacancy losses and turnover expenses that can reach thousands per unit.

• Occupancy Stability: High demand for controlled units reduces vacancy risk, providing near-guaranteed occupancy that can outperform market-rate properties during economic downturns.

Those opposed highlight:

• Reduced Development Activity: 87.5% of multifamily developers avoid rent-controlled markets, creating supply constraints that impact long-term market fundamentals.

• Asset Value Compression: Research found property values declined under rent control and surged by 25% after controls were lifted in Cambridge, Mass., directly impacting portfolio valuations and exit strategies.

• Operational Challenges: Rent caps can significantly eat into investor profits, straining already tight operational budgets, creating less incentive to upgrade units or provide ongoing maintenance. One study found that 63% of the benefit to consumers of lowered rents was offset by a loss in available housing due to deterioration and other forms of disinvestment.

WHAT IT ALL MEANS

Rent control creates asymmetric risk-return profiles that demand strategic repositioning. While controlled properties offer predictable NOI, they cap appreciation potential and compress valuations. Moderate policies in California and Oregon may preserve returns, but stricter regulations have caused one-third drops in transaction volume, with almost 60% of multifamily firms indicating they are reducing or avoiding investment in rent-controlled markets. Either way, the debate rages on as markets become increasingly unpredictable.

🗳️ BEST EVER POLL
RENT CONTROL: WHAT’S BEST FOR INVESTORS?

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💰 CRE BY THE NUMBERS
Q2 LEASING, SHORTING REITS, AND A $720M CONVERSION

55%

U.S. apartment leasing sees 55% of annual demand occur in Q2, but patterns vary by region. Midwest markets like Cleveland and Detroit see over 100% of annual demand in Q2, making this period critically important, while Sun Belt markets have more consistent year-round leasing activity.

38%

U.S. office loan originations rose 38% YoY, with Manhattan surging 374% as lenders returned to top-tier assets like 3 Bryant Park's $1.1 billion refinance. However, Boston and Downtown San Francisco saw lending decline over 50%, reflecting bifurcated market conditions.

$720 million

Madison Realty Capital has originated $720 million in construction financing to convert Pfizer's former Manhattan headquarters into 1,602 residential units. The loan represents the largest office-to-residential conversion financing in NYC history and will become the nation's biggest conversion project upon completion.

3.5%

Grocery-anchored retail continues outperforming with a 3.5% vacancy rate at the end of 2024, down from pandemic highs, and captured 31% of all retail acquisitions in Q1 2025. The sector remains resilient amid tariff uncertainty, far outpacing malls at 10% of acquisitions.

2.57%

Short interest in S&P 500 real estate stocks rose to 2.57% of float in April from 2.49% in March. Hotel & Resort REITs remained the most shorted subsector at 7.07%, while the Real Estate SPDR ETF declined 1.38% during the month.

🏘️ DEAL OF THE WEEK
A 400% ROI ON A $1 MILLION LAND DEAL

Greg Farricielli partnered with Rhythm Development to transform a strategically located Nashville property into a 400% ROI through creative land use and subdivision strategies.

Here's how they did it 👇

🏢 Property Details: This dual-zoned property consisted of two commercial parcels with frontage on two streets, one being a major collector street. Located in Nashville, Tenn., it featured favorable existing zoning with commercial in the front and residential in the back. The property was purchased in 2019.

💸 Finances: The property was purchased for $1 million, with approximately $10,000-$20,000 in additional costs for administrative expenses, including surveys and subdivision paperwork. The investment was structured as a three-way partnership with Rhythm Development.

💼 Business Plan: The team recognized the value potential by strategically reconfiguring the property without major construction. They split the residential zoning in the back from the commercial in the front, then combined the two commercial parcels. They created a site plan showing potential townhomes with Airbnb capability to demonstrate value to prospective buyers.

🍾 Results: After just over a year, the front commercial parcels sold for approximately $4 million, while the back residential lots sold individually for about $165,000 each (four lots total). The total sale price was approximately $5 million, representing a 400% return on their original $1 million investment.

💪 Takeaways/Learnings: "The value-add was splitting off the back residential and then combining the two in the front," Greg explained, highlighting how administrative changes rather than physical development created enormous value. Speed was also crucial to their success. "The seller called me and said, 'Hey, I happen to be getting a lot of calls on this lately,' Greg said. “I hung up the phone and immediately went to my partners like, 'We need to close this week.' So we pulled our money together and closed immediately because we knew it was going to happen."

🎙️ For more on this deal, listen to Greg’s interview on the Best Ever CRE Show.

👉 If you have a deal you'd like us to feature, share it with us!