Annual Letter from Capital Square Founder & Co-CEO Louis Rogers: January 2025
As we turn the corner on a new year and its many possibilities, a special memory is top of mind for me. Over thirty years ago, a small group of us across the nation established the first fractionalized ownership structure within a 1031 exchange. Tenants in Common (TIC) took off across the U.S. – especially out West – and with everything growing so rapidly, we soon realized it was time to formalize a group. As industry leaders, we wanted to solidify our best practices and make sure that investors were treated fairly. We also needed to expand education and training for this complex, new investment program.
So, in the early 1990s, a number of us in the real estate industry met in Chicago, drafted bylaws and officially formed a nonprofit known as the Tenant in Common Association (TICA), the original trade association for TICs and other alternative investments. You may know this organization now under its updated name of the Alternative & Direct Investment Securities Association (ADISA), which is still growing with a membership of over 5,000. I served two terms on the board back in the day and helped to draft the first memorandum on Best Practices.
Like the maker of buggy whips when cars took the place of horses, I feel a bit of remorse over the years of sweat that went into commercializing the TIC structure, but I am happy for the thousands of exchangers who now have the benefit of the much better Delaware statutory trust (DST) structure, a fractionalized ownership model that takes all of the benefits of TICs to even greater heights. Being a part of this new structure’s creation is a separate story for another day.
Still, our TICA formation is top of mind because I see parallels to that moment today. I find myself thinking of where we’ve been, what we’ve built, best practices in the industry, economic shifts underway and that, ultimately, we should take care of our investors first, foremost and always.
At Capital Square, we continue to build legacies for our investors with tax-advantaged DST offerings as we have since day one. Our portfolio has also evolved, now including qualified opportunity zone funds, development funds and a real estate investment trust (REIT). Moreover, while we were once a real estate investment firm, Capital Square is now a comprehensive, vertically aligned real estate firm of over 350 real estate professionals with three pillars. We invest. We build. We manage. This is how we fulfil our mission to raise capital, buildings and expectations.
“I find myself thinking of where we’ve been, what we’ve built, best practices in the industry, economic shifts underway and that, ultimately, we should take care of our investors first, foremost and always.”
Over time, evolution occurs, but investors stay at the forefront of my mind. Educating them well is the key to our future development as a real estate firm beyond being just a sponsor of tax-advantaged offerings.
The real estate investment industry doesn’t talk about TICs anymore. However, that strategic discussion decades ago, when the real estate investment industry was in a position to rapidly grow, has so many echoes in conversations I have daily – in this moment, in 2025. Times have changed, but some core foundations stay the same.
Capital Square enters 2025 positioned to thrive.
2024 was our year of recalibration. We had some nice shifts in executive leadership, including Jay Olander and Drew Jackson joining us early in the year as President & CFO and Chief Distribution Officer, respectively. Capital Square Apartment REIT entered 2024 with a two-property portfolio and transformed in name, breadth and strategy over 12 months. Now known as Capital Square Housing Trust, our REIT has become a five-property portfolio, employing the disciplined capital allocation strategy we set forth, providing distributions from a range of housing solutions, including Class A and B multifamily and, someday, build-for-rent communities. The properties that have recently become a part of our REIT have been intentionally chosen because we have owned and managed them for years. They are the best of the best – properties that are so good, we aim to keep them when they reach maturity and the DST tax rules require a sale. We know their worth and their value-add, as do our investors. And just wait for what we have in store for 2025.
“The properties that have recently become a part of our REIT have been intentionally chosen because we have owned and managed them for years. They are the best of the best – properties that are so good, we aim to keep them when they reach maturity and the DST tax rules require a sale.”
Our vertical integration really came to life in the past twelve months as well. Capital Square Living (CSL), our property management division, continued to expand, closing the year with operations in 28 cities across seven states, a tremendous growth in just under two years’ time. Our development team continued to drive exceptional work, with innovative construction processes turning heads across the industry and significant economic impact created across the cities where we build in spite of the challenges from inflation, supply constraints and higher interest rates.
As discussions around legislation involving opportunity zones, cost segregation and bonus depreciation have risen anew due to the scheduled expiration of the Tax Cuts and Jobs Act of 2017, our team has been a voice on Capitol Hill and in legislators’ offices. We’ve shared not only the local impact creation we’ve seen from our own projects in cities like Raleigh, Charleston and Knoxville, but we’ve also become a recognized voice for investor empowerment.
Speaking of which, Capital Square’s investor relations team won the 2024 gold medal at the Titan Awards for Best Customer Service Team in the United States. It was an outstanding year for awards and recognitions. In 2024, Capital Square was named among the top 100 “Inspiring Workplaces” of North America, and Inc. named us among the 5,000 fastest growing companies in the nation for the eighth consecutive year.
The story of U.S. real estate in 2024 was at times tepid, but I am so proud of the year we just wrapped up. The scaffolding is in place. Investor interest is beginning to rise after a lull that started in 2023 with the rapid rise in interest rates. Our entire vertically aligned company is now ready to seize the opportunities ahead.
Invest
Our investment offerings pipeline was recalibrated to fit the 2024 climate. Our nimbler build-for-rent (BFR) DST programs sold out in weeks, while some of the classic DST offerings of large, garden-style apartment communities took longer to fund, though we’re recently watching their velocity increase. Opportunity zone fund investments were hot, and our REIT had a banner year, not only with interest from the preferred offering but also through three 721 exchange UPREIT transactions.
The investor journey from DST to REIT through an UPREIT has become one my favorites. There’s the inherent continuity of investment from a Section 1031 exchange to a Section 721 exchange, but Capital Square’s offering of true optionality in this process is rare in the industry. No Capital Square investor is ever forced to UPREIT or surprised by additions of lower performing properties to the REIT amid the transaction. Plus, every property that has joined Capital Square Housing Trust via an UPREIT has been selected because we have already owned and managed the property. Each moved through Capital Square’s strategic value chain, which we consider another major competitive advantage. And this allows the REIT to retain the best of the best and the investors to convert their tax deferral under Section 1031 to permanent tax deferral in the REIT and, ultimately, tax forgiveness on death. That is the holy grail of real estate investing.
“Capital Square’s offering of true optionality in this process is rare in the industry. No Capital Square investor is ever forced to UPREIT or surprised by additions of lower performing properties to the REIT amid the transaction.”
A year ago, we were debating when the Fed would begin cutting interest rates and if a potential recession was looming, but strong consumer spending, gradually decreasing inflation and solid unemployment numbers have shown the resilience of the U.S. economy.[i] Resilience is good ultimately but not for a Federal Reserve that wants to kill the economy to solve inflation. While we would prefer increasing the supply of goods and reducing government spending to get there, recent actions have resulted in a 10-year Treasury bond (the metric for most mortgage interest rates) that has gone up dramatically even when the Fed has cut their target interest rates. It’s not supposed to work that way, and it makes it nearly impossible to structure quality investments with positive leverage. But I have faith this all will change when the markets acclimate to the new sheriff in the White House.
Also, since 2022, some residential markets have experienced an unprecedented amount of new housing supply. This has slowed rent growth and occupancy in those markets, but the new supply is being absorbed at a record pace – quicker absorption than at any other time in history.[ii] Plus, new construction has come to a virtual halt due to interest rates and other factors; multifamily construction permits have decreased dramatically of late. Many prognosticators look to the shortage of over 3.5 million housing units, as well as the extraordinary absorption and lack of new construction to conclude that, starting in 2026, there will be another significant housing shortage, even in the newly supplied markets – rents will rise dramatically, and the buildings will be full once again.[iii], [iv] That is great news for our business.
These industry experts seem to be falling in line with our own research and predictions about the year ahead. The capital on the sidelines that I referenced in my 2024 letter seems ready to enter the conversation. A gradual improvement of economic conditions suggests the beginning a new real estate cycle.
Furthermore, CBRE has named multifamily as, “the most preferred asset class for commercial real estate investors in 2025.”[v] As you’ve heard us say before and we will continue saying, we’re living in “the Golden Age of Multifamily Investing,” as noted by world-renowned real estate economist and Capital Square advisor, Dr. Peter Linneman. Our REIT, our tax-advantaged real estate investment offerings and our powerhouse team of real estate experts are ready for it.
“A gradual improvement of economic conditions suggests the beginning a new real estate cycle.”
Build
To quote Natalie Mason, Capital Square’s co-head of development, “2024 was a build year.” After proving our development thesis through lease up in 2023, when we stabilized 559 units across four multifamily developments, 2024 was the next phase, when our mixed-use multifamily developments rose from the ground. While we started our first projects in our hometown of Richmond, Virginia, we’re now building across the Southeast and even out West in Colorado, Arizona and Texas. The sky is the limit.
Following our “build year,” 2025 will be a “lease-up year” for Capital Square’s development team. We will be focused on opening and leasing up over 1,000 housing units as well as over 20,000 square feet of retail space. We’re partnering with industry heavyweights in new and exciting ways, and we’re so proud of our top-notch team reshaping the landscape of cities and also the industry.
Manage
In 2024, our asset management team closed three property dispositions and three UPREITs. Included in this list is the largest single disposition in the firm’s history. Capital Square has over $6 billion in assets under management, which includes over 170 real estate assets. Capital Square Living now handles property management of 47 of our multifamily communities, and that number will continue to grow in 2025.
While some companies claim to be vertically aligned but then outsource major aspects of their work, we are proud of our in-house teams that can work even more powerfully together, because we are all dedicated to the same singular comprehensive cause.
Building Legacies for Investors, Team Members and Communities
In short, “Invest, Build, Manage” results in “Income, Growth, and Tax-efficiency.” Thinking about your past, your present and your possibilities for the future is easier when you can position the scaffolding that maintains the whole.
At Capital Square, we have positioned the scaffolding. With investors as the soul of our business and our dedication to impact creation and rich education, it’s time to thrive in 2025. We are convinced that, without any doubt, the best is yet to come. We welcome you to join us on this exciting journey.
Regards,
Louis J. Rogers
Capital Square Founder & Co-CEO
[i] “Resilience & Recovery: The Future of CRE in 2025,” Colliers, December 11, 2024.
[ii] “Marketbeat: United States Multifamily Q4 2024,” Cushman & Wakefield, January 2025.
[iii] “Economic, Housing and Mortgage Market Outlook – November 2024 | Spotlight: Housing Supply,” FreddieMac.com, November 26, 2024.
[iv] John Triplett, “Rents Forecast to Rise in 2025 and 2026,” Rental Housing Journal, December 30, 2024.
[v] “2025 U.S. Real Estate Market Outlook: Increased Leasing & Investment Activity Expected,” CBRE Research, December 2024.
Disclosure: Securities offered through WealthForge Securities, LLC, Member FINRA/SIPC. Capital Square and WealthForge Securities, LLC are separate entities. There are material risks associated with investing in DST properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular situation. This is not a solicitation or an offer to see any securities. Please read the Private Placement Memorandum (PPM) in its entirety, paying careful attention to the risk section prior to investing. Private placements are speculative. Diversification does not guarantee profits or protect against losses.
