THE VERTICAL - Weekly Brief

A QUICK SCAN

Deal flow chaos. 14.9% of home sales falling through - highest June rate on record.

Build-to-rent (BTR) bonanza. Taylor Morrison secures $3B from Kennedy Lewis for BTR expansion.

Builder earnings shock. D.R. Horton beats big (+10% stock surge), industry sacrificing volume for profitability.

AI infrastructure arms race. OpenAI & Oracle Stargate structure 4.5GW capacity deal, 100K+ jobs coming.

Trump's AI dominance plan. 28 page strategy targets global leadership through deregulation and infrastructure buildout.

Capital gains tax repeal gains steam. Trump eyes elimination for home sellers.

1 | DEAL CHAOS: Buyer Power ↑

The housing market's power shift is manifesting in unprecedented deal failure rates.

The Carnage:

• Cancellation rate: 14.9% in June (highest June rate on record)

• Volume impact: 57,000+ agreements canceled nationwide

• YOY surge: Up from 13.9% last June

• Market signal: Clear buyer's market emerging in many metros

Why Buyers Are Walking:

1. Power dynamics: Hundreds of thousands more sellers than buyers

2. Sticker shock: Record prices + 6.75% rates = payment reality check

3. Economic jitters: Tariff concerns, inflation fears, recession risk

4. Better options: Superior properties hitting market during inspection periods

Regional Breakdown:

Your move: Buyers can afford to be picky. Sellers need competitive pricing and willingness to negotiate repairs they wouldn't have considered 2-3 years ago.

2 | BTR BONANZA: Institutional Capital ↑

Taylor Morrison's massive Build-to-Rent (BTR) expansion signals institutional capital flooding the rental market.

The Deal:

• Size: $3B facility from Kennedy Lewis Investment Management

• Target: Scale Yardly BTR brand nationally

• Existing relationship: Builds on proven land banking partnership

• Kennedy Lewis firepower: Major institutional investor backing

Why BTR is Booming:

• Affordability crisis: Homeownership out of reach for millions

• Rate reality: 6.5-7.5% mortgages expected through 2027

• Missing middle: Yardly targets renters who want single family living

• Institutional appetite: Major capital flowing into rental strategies

The Yardly Model:

• Product: Single family homes with private backyards

• Amenities: Pet friendly, designed for renters by choice AND necessity

• Pipeline: Nearly 3 dozen projects underway

Taylor Morrison CEO Sheryl Palmer's Vision: "Our hope is for Yardly renters to become future Taylor Morrison homeowners."

Market Reality: We're witnessing a fundamental shift from homeownership as default to rental as strategic choice. Kennedy Lewis's $3B bet signals institutional confidence in this transition.

3 | BUILDER EARNINGS: Margin Focus ↑

Every major builder beat revenue expectations this week, but the real story is the industry-wide pivot from volume to profitability.

The Scorecard:

The Strategy Shift: Both #1 (DHI) and #3 (PHM) builders prioritizing profitability over volume growth. Quality over quantity winning in this environment.

Key Takeaways:

• Margin discipline: Refusing to chase volume at expense of profits

• Balance sheet strength: Enabling continued shareholder returns

• Operational excellence: Focus on affordability and efficiency

• Market leadership: Top builders separating from the pack

Your reality: While housing faces affordability challenges, quality operators with disciplined strategies continue to deliver. The strong are getting stronger.

4 | MARKET PULSE: Price Records ↑

Despite deal chaos, home prices hit all time highs as the market shows conflicting signals.

Sales & Inventory Reality:

• Existing home sales: 3.93M SAAR (down 2.7% month-over-month)

• Record high price: $435,300 median (24th consecutive month of increases)

• Inventory surge: 1.53M units = 4.7 month supply (up 15.9% YOY)

• Time on market: 27 days median (up from 22 days last June)

Buyer Profile Crisis:

• First time buyers: Only 30% of sales (American Dream getting crushed)

• Cash transactions: 29% of sales

• Wealth effect: Average homeowner wealth up $140,900 over 5 years

New Construction Struggles:

• New home sales: 627K SAAR (down 6.6% YoY)

• Builder inventory: 511K units = 9.8 month supply

• Median new home price: $401,800 (down 4.9% from May's $422,700)

Your move: The 4-6 month inventory sweet spot signals neutral market emerging. Price records mask underlying buyer resistance.

5 | AI REVOLUTION: Productivity Gains ↑

Data center watts are the new barrels of oil. New Houzz research reveals AI adoption exploding across construction and design, delivering measurable ROI.

Adoption Accelerating:

• 34% of construction/design firms already use AI tools for business tasks

• 66% believe AI will transform the industry within five years

• Large firms (10+ employees): 64% adoption rate vs 32% overall

Real Impact, Real Savings:

• Average time saved: 3+ hours per week per professional

• Construction firms: $170,000 average annual productivity gains

• Design firms: $74,400 average annual gains

• 90% report measurable benefits from AI adoption

Top Use Cases:

• Administrative tasks (62%): Document formatting, grammar checking, note-taking

• Sales & marketing (55%): Social media content creation, ad targeting

• Project management (42%): Estimate generation, client communications

• Planning & design (34%): Floor plans, pre-project visuals, mood boards

The User Divide:

• "Trailblazers" (25%): Use AI daily/weekly, see biggest productivity gains

• "Tinkerers" (20%): Use monthly/rarely, focus on reducing manual effort

• "Prospectors" (32%): Exploring AI solutions but haven't adopted yet

• "Holdouts" (23%): No plans to use AI

AI Infrastructure Arms Race: America rushes to close China's power advantage in AI race. China added 400+ GW of capacity in 2023-24 while US added <60 GW in 2024. OpenAI-Oracle Stargate partnership hits 4.5GW capacity, creating 100K+ jobs. Trump's 28-page AI strategy targets global leadership through deregulation, infrastructure buildout, and export controls.

Your edge: Early AI adopters are gaining measurable competitive advantages while others debate. The technology has moved from experiment to essential business tool.

🛠️ AI Prompt You Need To Use

Want to unlock hidden NOI in your properties? Here's our institutional grade AI prompt that uncovers every value lever:

You are a Senior Asset Manager with 30 years at Blackstone. I’m paying $10,000 for a single property audit that uncovers every lever to increase Net Operating Income (NOI) and asset value.

INPUTS (insert or upload):

1. Property type & address: ___

2. Units / GLA / occupancy: ___

3. Current annual NOI & full Op‑Ex line‑item detail (CSV or pasted table)

4. Rent roll (unit, SF, lease start/end, rent, concessions)

5. Utility bills (kWh/therms/Mgal + $ for last 12 mo)

6. Age & status of major systems (roof, HVAC, elevators, façade)

7. Owner’s target hold period & exit cap‐rate assumption ___

DELIVERABLE:

1. Executive Snapshot
     • Baseline vs. Optimized NOI
     • Value uplift @ exit‑cap, project IRR & equity multiple
     • Top 5 actions with timing & $ impact

2. Financial Deep Dive
     • Rent gap table vs. three market comps (show $/SF delta)
     • Expense variances vs. benchmarks (highlight >10 % outliers)

3. Ops & Systems Audit – ROI ranked smart building retrofits (IoT, BAS, predictive maintenance)

4. AI / PropTech Playbook – 6‑10 tech solutions ranked by IRR; include vendor, cap‑ex, payback, and staff training needs

5. Capital Plan & Funding – phased budget, sources, and debt service impact

6. Tenant Experience Blueprint – initiatives that raise renewal probability; model rent‑lift per amenity/tech upgrade

7. Risk & ESG Screen – regulatory, climate, cyber risks; quantify mitigation cost & insurance savings

8. 5 Year Pro Forma – baseline vs. optimized, with sensitivity to rate & exit‑cap

TAG each recommendation as “Quick Win (< 12 mo)” or “Strategic (2‑5 yr)” and show the NOI $/bps contribution.

PRESENTATION STYLE
• Bullet‑heavy, data‑first.
• Cite every market comp or cost benchmark.
• End with a one‑page Board Slide summarizing the investment thesis and next steps.

BAR FOR QUALITY
Deliver insights a broker memo would miss. Think tax appeals, SaaS energy analytics, water submetering, machine learning rent optimization, etc. Assume your Blackstone reputation is on the line.

Drop this into ChatGPT o3 Deep Research with your property data for a dense, actionable roadmap that turns flat NOI into growth opportunities.

6 | POLICY BREAKTHROUGH: Bipartisan Support ↑

Senators Tim Scott (R-SC) and Elizabeth Warren (D-MA) introduced sweeping bipartisan legislation to tackle housing affordability.

Key Provisions:

• Zoning reform incentives: Federal guidelines for eliminating parking minimums, allowing duplexes/triplexes by right

• Whole Home Repairs Act: $30M pilot for low income homeowner repairs and small landlord forgivable loans

• CDBG rewards: Bonus funding for jurisdictions increasing housing growth, penalties for laggards

• RAD expansion: Permanent authorization of Rental Assistance Demonstration program

The Carrot Approach: Unlike previous top-down mandates, the bill offers federal support without overriding local authority, what Scott calls a "partner, not a punisher" approach.

Timeline & Impact:

• Hearings: Expected this summer

• Momentum: Broad bipartisan support signals potential passage

• Real opportunity: First comprehensive housing legislation in decades

Your move: Track local jurisdictions positioning for federal incentives. Early adopters of zoning reform could see accelerated project timelines.

7 | RATE REALITY: Fed Holds (?)

Despite mounting pressure from the Trump administration, the Fed is widely expected to hold rates steady at next week's July 29-30 meeting.

Current Environment:

• Fed funds rate: 4.25-4.5% (held since December 2024)

• 30 year mortgage: 6.74% (Freddie Mac, down from 6.75% last week)

• Inflation uptick: June CPI rose to 2.7% from 2.4% in May

Most economists now peg year end rates at 6.4-6.8%.

Market Impact: 4 in 5 buyers waiting for lower rates, keeping market in suspended animation.

Your reality: Expect rates to remain rangebound through 2025. Any meaningful decline requires sustained inflation cooling to sub 2% levels.

8 | TAX REVOLUTION: Capital Gains Repeal ↑

Trump's proposal to eliminate capital gains taxes on home sales could unlock supply with California homeowners as the biggest winners.

The Winners Map:

Current Rules vs. Proposal:

• Now: $250K exclusion (single), $500K (married) since 1997

• Reality: Median home price $407,500 (up 223% since 1997)

• Impact: 15% of homeowners would benefit from rule change

Legislative Status: Rep. Marjorie Taylor Greene introduced the "No Tax on Home Sales Act" this month, with bipartisan interest growing.

Your move: California properties with significant appreciation become more attractive to sell. Watch for inventory increases in high appreciation markets if this gains traction.

BOTTOM LINE

Housing's great rebalancing accelerates - record deal cancellations signal buyer power, while $3B BTR investments show institutional capital adapting to the rental reality. AI adoption in construction hits tipping point with measurable ROI.

The winners: AI enabled professionals automating workflows, strategic builders prioritizing margins, BTR developers with institutional backing.

The losers: Volume chasing builders, overleveraged buyers, and anyone still playing by 2021 seller's market rules.

Next week's watch: Fed meeting outcome & AI infrastructure progress.

Questions, deals, or AI geek outs? Hit reply. Always down to dive deep.

— Jake