🏘️ Why states are betting on the missing middle

👋 Happy Sunday, Best Ever readers!

In today’s newsletter, the missing middle returns, rent hits a record low, CRE pricing surprises, industrial leasing surges, and much more.

Today’s edition is presented by Real Estate Alpha, Pitch Slam 2026 winner. Behind every great investment structure is a team with the track record to back it up. Justin Spillers and Brandon Virgallito have spent over a decade building the operation that makes this fund possible. Fixed tax-deferred 12% annually, 15-19% effective yield, 90-day liquidity after year 1, and 700+ units protecting investor capital. Learn more today.

⭐ Inside the Inner Circle, operators are bringing real challenges to the table—from stalled lease-ups to lender pressure. See how these conversations are helping experienced investors navigate situations like this in real time—and learn more about the group here.

Let’s CRE!

🗞️ NO-FLUFF NEWS
CRE HEADLINES

🏦 CRE Prices Resilient: U.S. CRE pricing posted its strongest annual gain since late 2022 in March, with the RCA CPPI rising 2.1% YoY and 1.1% QoQ — suburban office led at 5.1%, while the industrial sector remains the only major sector with positive returns since rate hikes began.

💸 Collections Crawl Back: On-time rent payments from independent landlords have risen to 84.5% in April — the sixth gain in seven months — but remain 119 bps below April 2025, marking 33 consecutive months of YoY declines.

🏠 Rent Floor?: The national median rent have fallen to $1,363 — down 1.7% YoY, a record low dating to 2017 — as vacancy hit 7.3% and units are taking 38 days to lease, more than twice as long as 2021's peak.

🔑 Own vs. Rent Storage: Storage condos are gaining traction among small contractors and e-commerce operators, but hidden HOA fees, insurance gaps, and undersized electrical panels have caught first-time buyers off guard — most renters hit the ownership tipping point around year three or four.

📦 Industrial Breakout: Industrial leasing hit 145.2M SF in Q1 2026 — up 17.8% YoY — as mega-box warehouses greater than 1M SF drove 17M SF of absorption and capital markets activity surged 36.6% YoY to $28.6 billion.

🏆 TOP STORY
THE MISSING MIDDLE IS COMING BACK. IS IT ENOUGH?

For most of the past decade, the U.S. housing conversation has bounced between two extremes: single-family sprawl and large-scale multifamily towers. The segment in between — duplexes, townhomes, small apartment buildings — has largely been zoned out of existence. That may finally be starting to change.

Missing middle construction hit its highest volume since 2007 in 2025, with 19,000 new starts of two- to four-unit housing — a 6% increase from 2024, according to NAHB. The number is modest in absolute terms, but the direction matters. After years of post-recession suppression, small-scale multifamily is showing signs of life at exactly the moment the broader housing market needs it most.

• The Gap Is Still Enormous: Despite the 18-year high, missing middle construction accounted for just 5% of total multifamily starts in Q4 2025 — less than half its 2000–2010 average of nearly 11%. The math is straightforward: Restrictive zoning has kept this segment artificially constrained for over a decade, and a single year of modest growth doesn't close that gap. Barriers including density restrictions, large lot size requirements, and outright multifamily bans in residential districts have made middle housing structurally difficult to produce.

• The Policy Momentum Is Real: Pennsylvania, Michigan, and Idaho are all advancing bills that would allow missing-middle housing types in single-family zones. Idaho recently signed sweeping residential zoning reform into law. Florida, Connecticut, and Maryland are pairing missing middle reforms with design requirement changes. The pace of state-level action is accelerating, even as local resistance persists in many markets.

• Why Operators Should Pay Attention: The missing middle's core appeal is economic. These projects require less land, use simpler construction methods, and can pencil in infill locations where large multifamily cannot. Vermont's 802 Homes initiative is building a publicly accessible catalog of construction-ready missing middle plans specifically to reduce approval timelines and stabilize production costs. The model is attracting attention from other states as a replicable framework for unlocking small-lot infill at scale.

The structural demand is there. By 2025, up to 85% of U.S. households are childless, surveys show more than half of Americans prefer walkable neighborhoods, and younger renters are increasingly priced out of both homeownership and large-unit luxury multifamily. Missing middle sits squarely in that gap.

THE BOTTOM LINE

Nineteen thousand starts does not indicate a housing recovery. But the combination of record-low supply, accelerating state zoning reform, and a renter demographic seeking smaller, more affordable, walkable product suggests that the missing middle is moving from a policy talking point to an investable thesis. Operators and developers who get in front of local zoning changes stand to benefit most.

🤝 TOGETHER WITH REAL ESTATE ALPHA
FULL ALIGNMENT. REAL SKIN IN THE GAME.

A great investment structure is only as good as the people executing it.

Justin Spillers, Co-Founder, knows real estate from both sides of the table. Most operators hire attorneys to review their deals. Justin is one. That legal foundation shapes how every acquisition is structured, how risk is underwritten, and how the fund is built to protect investors at every level. Together with Brandon, he's spent over a decade building a fully vertically integrated operation from the ground up across Western Ohio. 700+ units, zero missed investor payments, 10 years running. Pitch Slam 2026 Winner.

Brandon Virgallito, Co-Founder, is a mechanical engineer turned real estate operator with 15 years of experience optimizing systems and scaling assets. He's owned and operated construction and roofing companies, and while most operators take weeks to turn a unit, Brandon's systems get them done in 7 days or less. That's the operational edge that keeps Real Estate Alpha's execution faster, leaner, and tighter than anything a third-party operator could deliver.

Most operators talk about alignment. Here's what it actually looks like with Real Estate Alpha:

✅ $32.5M in operator equity (43%+ of the portfolio) absorbs any losses before your capital is ever at risk. 

✅ Justin and Brandon bring 50% to every deal. Full alignment and real skin in the game.

✅ Your preferred equity position means you get paid before the operators see a single dollar. 

✅ Protected by 700+ units generating $700,000+ in monthly cash flow.

✅ No long-term lockups. Withdraw your capital with only 90 days’ notice after year 1. 

✅ 10 years, zero missed investor payments

Click the link below for full details and to book a 15-minute discovery call. No pitch, just a real conversation to see if it aligns with your investment strategy.

*Last chance* Allocation is almost full. First come, first served. Accredited investors only.

🗺️ ON THE MAP
OFFICE CONSTRUCTION IS BACK. BUT ARE TENANTS?

Office construction hasn't stopped. It's just gotten more selective.

Across 14 major U.S. markets, more than 17.5M SF of office space is actively under construction or renovation — and 46% of it is already spoken for. That preleasing rate tells a more nuanced story than the headline vacancy numbers that have dominated the office narrative for the past few years.

• Where Demand Is Firmest: Silicon Valley and Boston have hit 100% preleasing. Houston follows at 97.9%, driven by speculative buildings that filled up before completion. Chicago's single active downtown project — a 945,000 SF tower anchored by a 600,000 SF Google prelease — sits at 63.5% committed.

• Who Is Signing: Finance, insurance, real estate, and technology firms account for more than two-thirds of large-block preleasing — 4.6M SF combined. JP Morgan Chase leads all tenants at 1.3M SF across Manhattan and Dallas-Fort Worth, followed by Deloitte at 807,000 SF and Goldman Sachs at 702,000 SF.

• Where Risk Lives: South Florida's 20 active projects will add 3.2M SF at just 23.1% preleased. Atlanta sits at 15%. San Francisco, Washington, D.C., and Puget Sound have zero preleasing on their remaining active projects.

Construction input prices rose 1.3% from January to February alone — annualizing at 12.6% — tightening the math on speculative development and pushing more tenants toward build-to-suit arrangements.

⭐ THE BEST EVER INNER CIRCLE
A REAL CONVERSATION FROM THE ROOM

On a recent Inner Circle call, one operator brought a tough situation to the group:

A property was underperforming. Lease-up had stalled. And their lender was beginning to apply pressure based on DSCR covenants.

This wasn’t theoretical—it was happening in real time.

What the group focused on:

• Lender negotiation strategies to buy time

• Whether to inject capital vs. restructure terms

• Operational fixes to improve occupancy

What happened next:

Shortly after, the situation looked very different.

The operator:

• Negotiated additional runway with the lender

• Avoided a forced outcome

• Brought in support to stabilize the asset

No silver bullets. Just better decisions, faster—because of the room.

That’s the level of conversation happening inside the Inner Circle right now. Learn more.

🎙️ THE BEST EVER CRE SHOW
WHY PILOT LOANS ARE ATTRACTING PASSIVE INVESTORS

Most private credit funds can explain what they own in one sentence. Brandon Martini's takes a little longer. And at a time when many are looking for alternative investments, that's exactly the point.

On a recent episode of the Best Ever CRE Show, Brandon Martini joined Pascal Wagner to break down a lending fund built around a gap most investors have never considered: commercial pilot trainees with strong credit and near-guaranteed job prospects who can't get a bank loan.

• The Gap: Non-collegiate flight schools — roughly 5,000 independent programs across the U.S. — fall outside the reach of traditional educational lenders. Sallie Mae covers only 40 to 50 of them. That leaves a structural financing vacuum in an industry where Boeing's 20-year outlook projects demand for more than 660,000 new pilots globally, with a third of that need concentrated in the U.S.

• The Borrower Profile: Typical applicants carry a 750 FICO score, a co-borrower, and a career trajectory that runs from $50,000 in year one to $400,000+ as an airline captain. The shortage has compressed that timeline significantly — paths that once took 20 years now routinely play out in under a decade.

• The Risk Math: A 7–10% default rate sounds alarming until you work through the structure. Loans are funded directly to schools in installments — not handed to borrowers — with clawback provisions if students don't progress. The pool spans 1,000+ notes. The stress test threshold, the default rate at which investor distributions would stop entirely, sits around 24%. Historical data from comparable loan pools, including through COVID, never approached it.

• The Return Structure: The fund pays 16–19% annualized, distributed monthly, depending on investment tier. There's a two-year lockup, with the longer-term exit path running through securitization — bundling loans into bonds sold to institutional buyers, the same mechanism Sallie Mae has used for decades. A first securitization is targeted for later this year.

The AI displacement question tends to come up early in any conversation about this space. Single-pilot commercial aircraft require cockpit redesigns, FAA regulatory approval, and public acceptance — a timeline most analysts put at 10 to 20 years at minimum. Full automation is further still. Investors doing their own math on that horizon will want to weigh it against the fund's two-to-five-year liquidity structure.

🎙️ Listen to Brandon’s full episode here.