San Francisco's office vacancy is finally falling, with JLL projecting a drop to 35.3% and CBRE to 34.6% in Q3 (the first decline since the pandemic). AI companies are driving the recovery, leasing nearly 1 million square feet this year after securing $100 billion in venture funding, representing 20% of all leasing activity. The real story is the flight to quality: Class A+ buildings sit at just 20% vacancy while commodity Class A properties struggle at 43%. For investors, the play is clear: focus on top-tier properties in San Francisco’s South of Market neighborhood — the epicenter of the AI boom — rather than betting on downtown San Francisco as a whole.

The housing market's regional split is widening as Southern sellers capitulate while coastal markets stay frozen. Home prices are cracking in high-cost California and New York while Southern inventory piles up, with Lennar's sales incentives hitting 14% (levels not seen since 2009). Despite inventory climbing and builders desperate to move product, Zillow's heat index shows we're still barely below seller's market territory. The lock-in effect is creating a two-speed market where motivated Southern sellers offer opportunities while coastal owners won't budge.

Jerome Powell just signaled the Fed won't rush rate cuts despite cooling job markets, keeping rates at 4.1% after last week's first cut and warning against moving "too aggressively" on inflation. Trump appointees Stephen Miran and Michelle Bowman are pushing for faster cuts, with Miran calling for 2-2.5% rates while Bowman warns the Fed is "behind the curve." The infighting comes as Trump attempts to oust Fed Governor Lisa Cook over alleged mortgage fraud. For CRE investors banking on rapid rate relief, Powell's measured approach means cheap money isn't coming back anytime soon.

Red Mountain Group just flipped its 548,000-square-foot Algonquin Commons to Nuveen Real Estate after taking occupancy from 60% to over 90%. The Chicago suburb center added The Fresh Market alongside Trader Joe's and transformed dead anchor space into a health and beauty hub, serving 400,000 residents with average incomes exceeding $125,000. Located on prime Randall Road, the sale proves institutional capital will pay up for well-executed retail repositioning in affluent suburbs. Power centers aren't dead! They just need the right tenants.

Most real estate investors know the 1031 exchange drill:

Sell a property, scramble to find a replacement within 45 days, close within 180 days, or face a massive tax bill. 

But there's a 19-year-old IRS-approved structure that eliminates the scramble while keeping all the tax benefits.

Delaware Statutory Trusts emerged when a company approached the IRS about 19 years ago with a simple question: could they place properties in a trust structure that allows investors to own proportional shares while maintaining 1031 eligibility? 

The IRS said yes, creating an alternative path that's remained largely unknown outside institutional circles.

Here's how DSTs work: Institutional sponsors purchase large commercial properties. Think $80 million multifamily complexes or massive Amazon distribution centers. 

These properties are already leased, tenanted, and generating cash flow before being offered to investors. The sponsor handles all management, and investors receive monthly distributions starting immediately after their investment closes.

The math is pretty straightforward. 

If a DST owns a $300 million property with 50% leverage, there's $150 million in equity available. An investor putting in $250,000 owns 0.00167% of that property. 

They receive proportional cash flow, depreciation benefits, and appreciation. All completely passive.

But there is a trade-off.

DSTs aren’t illiquid for 5-8 years. Think of it as boarding a plane where the sponsor determines when you land. You can't exit early (even in death, beneficiaries must wait until the DST sells). 

This lockup exists because DSTs use fixed debt structures and predetermined business plans.

When a DST does mature, investors face three options:

The strategic opportunity for operators is compelling. 

When approaching potential sellers, operators can offer the DST option as a solution to their tax problem. Instead of the seller frantically searching for a replacement property, they can seamlessly transition into institutional-grade real estate. 

The operator gets the deal done, and the seller preserves wealth through continued deferral.

Who Pays? Fees are taken off the top of your investment (via the DST) — not billed to you separately. Placement fees typically run around 5%, so always check the PPM for the total “load on equity” before you subscribe.

Returns currently range from 4-6% cash flow during the hold, with total returns dependent on property appreciation at sale.

For investors tired of tenant calls and property management, or operators looking to help sellers overcome 1031 paralysis, DSTs offer an institutional-grade solution that's been quietly operating for nearly two decades.

I’m curious what is your experience with DSTs, please reply (I read every email).