In partnership with

TheBRRR’s Thoughts

Markets haven’t moved much since Friday’s close, so we’ve put together an update on the struggling commercial real estate sector.

It’s pretty ugly and could take down a flood of regional banks in the months to come, although we’d expect some sort of bailout.

We’re also covering Trump’s pro-crypto pitch at last weekend’s Libertarian Convention. Guided by his new surrogate and former presidential candidate Vivek Ramaswamy, Trump made some compelling promises to the crypto community that could help him at the ballot box in November.

Separately, celebrities are crawling back to crypto, as both Caitlyn Jenner and Iggy Azalea launched coins over the weekend.

While Crypto Twitter is divided on the merit, the overall reaction has been restrained - a sign that traders aren’t falling for the same grift that defined the worst of 2021’s bull market.

Celebrity NFTs and coins have interesting usecases and could unlock unique experiences for holders, but we’ve yet to see good-faith effort and follow through from a prominent celeb.

The newsletter’s portfolio remains unchanged this week as NVDA’s Q1 earnings have powered us to portfolio all-time highs. The stock has nearly 5x’d since we bought it in March of 2023.

Commercial Real Estate Crisis: Boston & Beyond

Commercial Real Estate Crisis: Boston and Beyond

WHAT HAPPENED:

• Plummeting Property Values: Significant declines in commercial real estate values are evident across major cities, with Boston being a prime example:

  • Boston:

    • 281 Franklin Street: 38% drop from $6.1M in 2017 to $3.8M in 2024.

    • 186 Lincoln Street: 47% drop from $20.7M in 2015 to $11M in 2023.

    • 125 Broad Street: 72% drop from $14M in 2018 to $3.9M in 2023.

    • 33-41 West Street: 74% drop from $16M in 2016 to $4.1M in 2023.

• Vacancy Rates Soar: Office space availability in Boston hit record highs, with vacancy rates over 20% and expected to rise. The Dallas Fed survey also indicated declining retail sales and labor market contraction.

• Tax Revenue Risk: Boston's reliance on commercial property taxes (over 30% of revenue) faces a severe threat from declining property values, potentially leading to a $500M annual shortfall, roughly 12.5% of the current city budget.

KEY POINTS:

• Remote Work Shift: COVID-19 catalyzed a permanent shift to remote work, drastically reducing the demand for office space. Foot traffic in downtown Boston plummeted from 1.2M weekly in 2019 to 500-700K in 2022-2023.

• Economic Impact:

  • Boston: Property sale prices in the central business district dropped over 30% year-over-year in Q4 2023, outpacing declines in cities like Chicago and San Francisco.

  • Nationwide: The Dallas Fed survey highlighted worsening business conditions, increased wage pressures, and a significant drop in retail sales activity.

• Potential Doom Loop: Reduced tax revenue could lead to cuts in essential city services (police, schools, sanitation). This reduction in services could make cities less attractive, causing more residents and businesses to leave, exacerbating the economic decline.

• Banking Sector Risk: The anticipated wave of commercial real estate loan defaults could overwhelm the federal deposit insurance safety net. Over 1,763 banks have high commercial real estate loan concentrations, and market value losses could render over 700 banks insolvent.

WHY IT MATTERS:

• Financial Health: Cities like Boston, heavily reliant on commercial property taxes, face severe budget shortfalls, impacting city services and infrastructure.

• Banking System Vulnerability: The banking sector’s ability to absorb loan losses is compromised by significant unrealized losses on fixed-rate loans and securities.

• Long-Term Consequences: Failure to address the commercial real estate crisis could lead to prolonged economic downturns, with cities struggling to attract and retain businesses and residents.

DATA POINTS:

• Boston Office Space Availability: Largest-ever increase in new office-space availability in 2023, with vacancy rates over 20%.

• Revenue Projections: Potential $500M annual tax revenue shortfall for Boston.

• Nationwide Economic Indicators: Dallas Fed survey reports 24 months of contraction in the Texas Services sector, with a -12.1 print in May.

QUOTES:

• Evan Horowitz (CSPA): “The bleakest scenario is something like a return to the urban experience of the 1970s, a desiccated city where a lot of the energy has left and moved elsewhere.”

• Bob Rivers (Eastern Bank CEO): “This is death by a thousand cuts. Turning it around will require all hands on deck and all the ideas you can get.”

• Paul Kupiec (Opinion Contributor): “Commercial real estate concentrations and unrecognized bank interest rate losses have created systemic risk in the banking system, and it is hiding in plain sight.”

Boston Magazine, The Hill

Trump Pledges To Free Ross Ulbricht, Stop CBDCs, Support Self-Custody

WHAT HAPPENED:

• Trump's Libertarian Address: Former President and Republican front-runner Donald Trump addressed the Libertarian Party's convention, a first for a major party candidate.

• Clemency for Ross Ulbricht: Trump committed to commuting Ross Ulbricht's sentence "on day one," gaining significant applause from the audience.

• Crypto Policy Promises:

  • End Elizabeth Warren’s "crusade to crush crypto."

  • Support the right to self-custody.

  • Prevent the development of Central Bank Digital Currencies (CBDCs).

WHY IT MATTERS:

• Libertarian Appeal: Trump's attempt to woo Libertarian voters highlights the growing influence of the party and its policies, particularly regarding personal freedoms and crypto.

• Crypto Industry Impact: Trump's promises to support the crypto industry and protect self-custody resonate with many in the libertarian-leaning crypto community, potentially influencing the regulatory landscape.

• Political Strategy: By addressing the Libertarian Party and making these pledges, Trump is signaling a broader coalition strategy, aiming to capture votes from a diverse base disillusioned with current policies.

KEY TAKEAWAYS:

• Ross Ulbricht Clemency: Trump's pledge to free Ulbricht, serving a life sentence for creating Silk Road, is the first from a major party candidate and aligns with libertarian values on criminal justice reform.

• Crypto-Friendly Stance: Trump's shift from a Bitcoin skeptic to a supporter, promising to fight against crypto regulation and support self-custody, marks a significant policy position change.

Data Points:

• Life Sentence: Ross Ulbricht has served 11 years of a life sentence without parole for his role in Silk Road.

• Crypto Holders: Trump addressed the nation's estimated 50 million crypto holders, emphasizing protection against regulatory overreach.

STRATEGIC INSIGHT: Trump's move to embrace libertarian principles and crypto support could be a game-changer in the upcoming election. His promises align with the growing discontent towards regulatory crackdowns and highlight a significant policy pivot aimed at capturing a diverse voter base. For investors and traders, Trump's potential influence on crypto regulation is a key development to watch, indicating a possible shift towards more favorable policies for the industry.

The Block

85% of all AI Projects Fail, but AE Studio Delivers

If you have a big idea and think AI should be part of it, meet AE.

We’re a development, data science and design studio working with founders and execs on custom software solutions. We turn AI/ML ideas into realities–from chatbots to NLP and more.

Tell us about your visionary concept or work challenge and we’ll make it real. The secret to our success is treating your project as if it were our own startup.

Talk to Us Now

Got feedback? Follow the writer on Twitter @frank_locascio and send a message.

The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll